New measures to promote employment beyond Montevideo (capital of Uruguay) - Decree Nbr. 281/019
To promote the development of business outside Montevideo, Decree Nbr. 281/019 establishes the following benefits applicable to certain kind of services:
- Advisory services (including technical and consulting services).
- Management or administration.
- Data processing services.
- Data centre and data centre recovery.
- Commercial management of payment platforms, games, and sales of goods and services.
- Financial administration.
- Research and development operations support.
- Corporate income tax (CIT) exemption of 90% of the income generated from services promoted, provided that the result of the following quotient of each exercise is higher than 60%: remunerations paid to employees working in the referred areas/remunerations paid for personal services (either to employees or to third parties).
- Exemption of net wealth tax (NWT) on assets used to render the services promoted.
- 5 years when at least 15 new jobs are generated at the end of the second financial year-end.
- 8 years when at least 30 new jobs are generated at the end of the third financial year-end.
- 10 years when at least 60 new jobs are generated at the end of the fourth financial year-end.
In all cases, the number of jobs has to be maintained (not decreased) until the end of the exemption period.
- Carry out the activity in a location at least 80 kilometres far from the centre of Montevideo.
- Generate at least 15 direct qualified jobs with 50% Uruguayan citizens at the end of the second financial year-end. This percentage can be reduced with prior authorisation.
- Provide the services to at least five entities.
New Double Tax Treaties (DTTs)
The DTT subscribed between Paraguay and Uruguay for the avoidance of double taxation and the prevention of fiscal evasion, with respect to taxes on income and on capital, entered into force on 30 March 2019, but its provisions apply as of January 2020.
On 7 June 2019, the authorities of Brazil and Uruguay signed a tax treaty to avoid double taxation and prevent fiscal evasion with respect to taxes on income and on capital, which is still not ratified.
On 12 September 2019, the Uruguayan Congress approved the DTT with Italy. The treaty, signed on 1 March 2019, is the first of its kind between the two countries. The DTT will enter into force 30 days after the exchange of ratifying notes between both countries, and most of its provisions will apply from 1 January after the entry into force. The DTT was already ratified by Italy.
On 13 September 2019, in Montevideo, the authorities of Japan and Uruguay signed a DTT. It is expected to enter into force 30 days after Congress approval in both countries and the exchange of ratifying notes is done. At the same time, most of its provisions will start applying from 1 January of the next year after the entry into force.
Organisation for Economic Co-operation and Development (OECD) Multilateral Instrument (MLI)
On 11 September 2019, the Uruguayan Congress approved the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting ('Multilateral Instrument' or MLI). The main objective of this instrument is to introduce, quickly and efficiently, the package of measures included in the minimum standard in bilateral treaties, without the need to renegotiate the treaty signed with each of the adhered states. The MLI contains mandatory provisions (minimum standard) and others that are optional. In the case of the optional provisions, each signatory can opt in or out, in whole or in part.
Globally, the MLI entered into force on 1 July 2018.
On 6 February 2020, Uruguay deposited its instrument of ratification of the MLI with the OECD's Secretary General. For Uruguay, the MLI entered into force on 1 June 2020. Nevertheless, the provisions of the MLI will have effect with respect to a 'Tax Convention included' as of the year following the one in which the instrument is in force in both contracting parties.
Production of software and related services - Decree Nbr. 96/019
During 2018, Law Nbr. 19,637 introduced some amendments as of January 2018 to the exemption applicable for activities of production of software and related services, provided the assets are developed, at least in part, in Uruguay. This new Decree introduces complementary provisions regarding to the regulation of the referred exemption:
- In order to be deducted, the losses incurred in the acquisition of software from CIT payers partially exempted must be reflected in the respective documentation.
- 60% of the expenses incurred in the software development and related services, which are exempted incomes of CIT to the counterpart, can be deducted.
- The depreciation of software acquired as of 1 January 2018 will be deductible in application to the percentage of exempted incomes.
- For tax purposes, the property from the assets produced will be attributed to the company that carried out such activities, to the extent it has the exclusive right of use and exploitation conceded from the partner or shareholder that registered it under the protection of intellectual property (IP) regulations.
- The documentation that supports its operative must include the registry number of the asset and the corresponding percentage of exoneration in order to be exempted.
Free Zones (FZs) - Local Tax Authority Resolution Nbr. 231/019
The Resolution includes several provisions related to changes introduced by Law 19,566 to the FZ Regime and by Regulatory Decree 309/018.
One of the most relevant changes to the FZ Regime is the provision of services from FZ to non-FZ territory, provided the beneficiary of said services is a taxpayer taxed by the CIT. In this regard, the Resolution issued by the Tax Office establishes that the services contracted by CIT payers with Free Zone Users (FZUs) must be linked to taxable income of the beneficiary. In addition, CIT payers must inform to the FZUs that they meet the mentioned conditions before the service is rendered.
The Resolution establishes certain provisions related to activities of research and development (R&D), such as the information to be included in a tax return that must be filed annually to the Tax Office and its due date, as well as the attribution of the property of the registered assets.
In addition, the Resolution states new requirements to the documentation issued by FZUs and information that must be provided by the FZUs to the Tax Office before carrying out exceptional, supplementary, or auxiliary activities outside FZ.
Furthermore, according to new regulation, more detailed information regarding purchases and sales should be included in the annual tax return (Form 2181).
Finally, it is foreseen compulsory application for electronic invoicing regime to the FZUs that are not already included in the referred regime. Such obligation applies also to non-FZUs that undertake certain activities in connection to the FZ.
MERCOSUR (Southern Common Market) origin of goods in FZs - Decision Nbr. 33/15
On 21 July 2019, Decision Nbr. 33/15 issued by the Common Market Council (CMC) of the MERCOSUR entered into force. This Decision establishes that all goods originated in a member state of the MERCOSUR (or a third country with the same origin rules [on the basis of an agreement with the MERCOSUR]) shall not lose their origin nature when they pass through a special customs zone, an export processing zone, or an FZ, provided such zones are under customs control.
In order to enjoy the benefits of MERCOSUR origin, neither the tariff classification of the goods nor their origin nature verified by means of the Certificate with which they enter such zones shall be altered. It should be borne in mind that if the origin nature wants to be maintained, there shall be carried out only operations to ensure the trade, conservation, division into lots or volumes, and operations bearing similar purposes.
This applies when the final destination of the goods is any of the full MERCOSUR members.
Tax credit for R&D activities - Law Nbr. 19,739
The Uruguayan Parliament approved Law Nbr. 19,739, which allows the Executive Power to provide a tax credit to those companies that carry out R&D activities to the extent they are properly certified by the National Agency of Innovation and Research.
In addition, the Law establishes the following caps to the tax credits to be given:
- 35% of the R&D expenses if they are executed totally within the company.
- 45% of the R&D expenses in case they are executed along with technological centres or universities that are properly certified.
In this context, the Executive Branch issued Decree Nbr. 407/019, which establishes the definition of R&D, as well as the concept of an R&D project. Additionally, the Executive Branch establishes the eligible expenses, the annual cap for company benefits, the maximum amount of benefits that can be provided by the Law, and its requirements, among other provisions.
Low or No Tax Jurisdictions (LNTJs)
The Executive Power issued Decree Nbr. 393/019, which establishes the requirements for a country to be considered as an LNTJ. In this context, the Uruguayan Tax Authority issued Resolution Nbr. 1/020, which includes 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. The Resolution became effective on 1 January 2020.
The following jurisdictions are considered as LNTJs:
|Angola||Islas del Pacífico||Saint Helena|
|Antigua and Barbuda||Jamaica||Saint Pierre and Miquelon|
|Falkland Islands||Norfolk Island||Tristan de Cunha|
|Grenada||Palau||US Virgin Islands|
Corporate restructures: Mergers and demergers
On 28 February 2020, the Executive Branch issued Decree Nbr. 76/020, which establishes provisions applicable to corporate restructures when they are carried out not pursuing an economic benefit.
Regarding CIT, it is established that the companies that resolve to merge or demerge according to the regulations established in the Commercial Companies Act may choose to do so without computing the corresponding goodwill when the following conditions are met:
- The ultimate owners of the companies involved in mergers or demergers remain the same, keeping their equity proportions and not changing them for a period of not less than two years from the date of the final contract.
- Information regarding the entire property chain, identifying all ultimate owners, has been included in the affidavit submitted to the Central Bank of Uruguay (BCU).
- The companies maintain the business of the predecessor companies for the same period referred to in the first bullet.
In case the option of not computing goodwill is exercised and a breach of any of the established conditions is verified, the restructure will be subject to the general tax regime. The corresponding taxes should be updated by the evolution of the indexed unit between the date of its occurrence and the date of the configuration of the breach.
Update to the promoted housing regime
On 16 April 2020, the Executive Power issued Decree Nbr. 129/2020, by virtue of which several provisions that currently regulate the promoted housing regime (formerly known as housing of social interest) are modified.
Apart from the benefits in force, which shall remain in effect, the following benefits are added:
- The exemption of NWT shall be applicable not only to the fiscal year during which the construction work is completed, but also to the three following years after its completion.
- The refund of value-added tax (VAT) on account of such goods or services incorporated to the civil work shall be admitted, for up to two years after the completion of the construction work.
- The exemption of CIT applicable to certain leases is increased from 40% to 60% of the income generated.
- The full exemption of CIT from leases is extended, provided the associated rental complies with some requirements of amount and maximum income.
- Regarding the tax benefits in the acquisition for leases, it is further provided that the benefits of the regime may be used throughout the effective term of the exemption of the Promotional Declaratory.
- Concerning CIT, individual income tax (IRPF), and income tax on non-resident (IRNR), the Decree introduces a full exemption with no price caps for leases in certain locations, or leases made effective through the Guarantee Fund for Real Estate Leasing of the Ministry of Housing, Land Use, and Environment, or other certified guarantees. For the rest of the cases, the exemption is increased from 40% to 60% applicable to income generated.
- It is admitted the possibility of granting completion of partial works for projects promoted with different stages or sectors.
Promotion of construction projects of great economic dimension
On 29 April 2020, the Executive Power issued Decree Nbr. 138/020 to promote building activities for the sale or lease of real estates destined to be offices, housing, and housing developments, qualifying as 'projects of great economic dimension'.
This measure was originally established by Decree Nbr. 326/016, now being amended by the new regulations. More tax benefits are granted, and the requirements related to investment amounts are lowered. The scope of building activities and eligible investments are also extended.
The tax benefits include an exemption of CIT of up to 40% of the eligible investment with an annual exemption limit of 90% of CIT and a maximum term of ten years. As to NWT, there is an exemption for the civil construction work and lands with different terms depending on the location in or outside the capital of the country. Movable assets are also exempt from NWT during their useful life. In addition, there is a VAT and import taxes exemption, as well as VAT tax credit for the acquisition of equipment, machines, materials, and services destined for the civil construction work and for the movable assets designated for common areas.
These tax benefits are applicable for projects filed as of 7 May 2020.
Investment projects: New temporary tax benefits
The Investment Law Nbr. 16,906 and its regulations (Decrees 455/07, 02/12 and 143/018) offer great tax saving opportunities for companies investing in fixed assets.
In effect, in light of a series of indicators (such as increase in employment, exports, decentralisation) measured by way of a matrix, significant tax benefits in terms of CIT, NWT, VAT, and import taxes have been granted to projects promoted by the Executive Power.
For the purpose of promoting investment, the Executive Power issued, on 26 May 2020, a Decree that foresees a new temporary increase in the benefits granted.
The temporary benefits foreseen by the Decree are:
- 20% increase in the percentage of CIT exemption based on the matrix of indicators for those investment projects submitted between 1 April 2020 and 31 March 2021, provided at least 75% of the investment involved in the project is executed before 31 December 2021.
- It is established the computation of 150% for such investments executed between 1 April 2020 and 31 January 2021 for the purpose of establishing the amount exempted from CIT, without deducting said extra from the total amount exempted. This benefit is applicable to both new and pre-existing projects.
The referred temporary benefits shall be cumulative in the period between 1 April 2020 and 31 March 2021.
Additionally, for the years ended in the period between 1 April 2020 and 31 March 2021, companies with effective investment projects (provided they state so in the compliance with controls and monitoring they are to submit) may opt among the following benefits:
- Suspend for one year the benefit of CIT exemption granted.
- Consider CIT exemption may not exceed 90% of the amount of tax payable.