Corporate income tax (CIT) regulations on passive income
On 15 March 2023, the Tax Office issued Resolution Nbr. 488/023 establishing the conditions in which the provisions of Law Nbr. 20,095 and Decree Nbr. 395/022 will apply in relation to certain items of foreign-sourced passive income, including the following:
- Income derived from the sale or economic use of trademarks outside the national territory is considered as Uruguayan sourced when obtained by an entity that is part of a multinational group.
- Income derived from notional interest and from exchange differences will not be considered within the scope of these rules. Exchange rate differences shall not derive from real estate capital yields, dividends, interest, royalties, or from trademarks.
- For the purposes of the determination of the condition of qualified entity, making necessary strategic decisions refers to those related to the acquisition, holding, or disposal of the assets generating passive income regulated by the rules.
- An entity shall be considered to have as its main activity the acquisition and maintenance of equity interests in other entities or real estate when the average at the end of each month of the assets directly associated with such activities represent at least 75% of its total assets during the entire holding period. To be a qualified entity, as far as human resources are concerned, the required extremes will be met when most of its personnel is qualified and based in Uruguay, or when at least it has a qualified Director residing in the national territory.
- The information to be included in the annual affidavits on qualified income and qualified entities is established, as well as the deadlines for filing them. It is determined that the entities must keep the documentation that reliably supports the information provided in the affidavits for the statute of limitations period.
New double tax treaties (DTTs)
The DTT signed in November 2021 between Colombia and Uruguay for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital was approved by the Uruguayan Parliament on 12 December 2022. As of 30 June 2023, approval by the Colombian Parliament is still pending.
The DTT signed in June 2019 between Brazil and Uruguay for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (already approved by the Uruguayan Parliament) was approved by the Brazilian Parliament on 15 June 2023. As of 30 June 2023, exchange of notes is still pending for the DTT to be in force.
Low-or-no-tax jurisdictions (LNTJs)
The Executive Power established the requirements for a country to be considered as an LNTJ. In this context, the Uruguayan tax authorities are empowered to issue a consolidated list for tax and transfer pricing purposes of countries, jurisdictions, and regimes that meet the conditions in order to be considered as an LNTJ.
On 29 December 2022, the Uruguayan tax authorities issued Resolution 2470/2022, which became effective from 1 January 2023. According to this Resolution, as of 1 January 2023, the following jurisdictions are considered as an LNTJ:
|Ascension Island||Kiribati||Saint Pierre and Miquelon|
|Christmas Island||Labuan||Solomon Islands|
|Cocos (Keeling) Islands||Liberia||Svalbard|
|Falkland Islands||Norfolk Island||Tokelau|
|French Polynesia||Palau||Tristan da Cunha|
|Guyana||Puerto Rico||US Virgin Islands|
Value-added tax (VAT) relief: Decree 122/023
On 24 April 2023, Decree Nbr. 122/023 was issued extending the term of the provisions set forth in Decree 318/021 until 30 September 2023. The regulations established that the following activities will have a reduction of 9% in the VAT rate (standard rate 22%), provided the transactions are executed through electronic means:
- Gastronomic services provided by restaurants, bars, canteens, cafes, tea rooms, and alike, or by hotels, motels, apart hotels, inns, tourist stays, country hotels, tourist farms, country inns, country houses, and camping hostels, provided that the services do not include lodging.
- Catering services for parties and events.
- Parties and events services not included above.
- Vehicles rental without chauffeur.
- Mediation services for the leasing of real estate for tourist purposes.
For VAT payers under the 'small companies regime', the reduction is determined by applying a discount of 7.38% on the total amount of the transaction.
Tax relief for small companies: Regulations
In March 2023, the Executive Branch issued Decrees 65/023, 66/023, 67/023, and 71/023, which introduced modifications to CIT and VAT, aiming to reduce the tax burden to small companies.
Regarding CIT, adjustments impact the amount of the monthly payments to be made during the fiscal year as well as the brackets and percentages defined for the ’IRAE ficto‘ (notional CIT) regime, which will no longer be proportional and will start to be applied as a system of progressive rates.
In addition, it was determined that companies that cease to be included in the small companies’ regime as a result of exceeding the annual income limit (approximately 460,000 United States dollars [USD]) during the fiscal year may return to such simplified regime in the following year, as long as the income of the previous one does not exceed the limit.