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.
- A) Carry out the activity in a location at least 80 km far from the center of Montevideo.
- B) Generate at least 15 direct qualified jobs with 50% of Uruguayan citizens at the end of the second financial year-end. This percentage can be reduced with previous authorization.
- C) Provide the services to at least 5 entities.
New Double Tax Treaties (DTT)
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 March 30th, 2019 but its provisions apply as from January 2020.
On June 7th, 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 up to date.
On September 12th, 2019 the Uruguayan Congress approved the DTT with Italy. The treaty, signed on March 1st, 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 January 1st after the entry into force. The DTT was already ratified by Italy.
On September 13th, 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 January 1st of the next year after the entry into force.
OECD Multilateral Instrument
On September 11th, 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 optional. In the case of the optional provision, each signatory can opt in or out off, in whole or in part.
Globally, the MLI entered into force on July 1st, 2018.
On February 6th , 2020 Uruguay deposited its instrument of ratification of the MLI with the OECD's Secretary General. For Uruguay, the MLI entered into force on June 1st , 2020. Nevertheless, the provisions of the MLI will have effect with respect to a “Tax Convention included” as from 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 from 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 taxpayers partially exempted, must be reflected in the respective documentation.
- It can be deducted the 60% of the expenses incurred in the software development and related services which are exempted incomes of CIT to the counterpart.
- The depreciation of software acquired as from the January 1st, 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 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 – Local Tax Authority Resolution Nbr. 231/019
The Resolution includes several provisions related to changes introduced by Law 19,566 to the Free Zones (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 Corporate Income Tax. In this regard, the Resolution issued by the Tax Office establishes that the services contracted by CIT taxpayers with Free Zone Users (FZU), must be linked to taxable income of the beneficiary. In addition, IRAE taxpayers must inform to the FZU 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 Free Zone User (FZU) and information that must be provided by the FZU 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 annual tax return (Form 2181).
Finally, it is foreseen compulsory application for Electronic Invoicing Regime to the FZU that are not already included in the referred regime. Such obligation applies also to non FZU that undertake certain activities in connection to FZ.
Mercosur (Southern Common Market) Origin of goods in Free Zones – Decision Nbr. 33/15
On 21st 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 a free zone 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 Research and Development (R&D) Activities – Law Nbr. 19,739
The Uruguayan Parliament approved Law Nbr. 19,739 that 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 centre 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 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
The Executive Power issued Decree Nbr. 393/019 which establishes the requirements for a country to be considered as a Low or No Tax Jurisdiction (hereinafter “LNTJ”). In this context, the Uruguayan Tax Authority issued Resolution Nbr. 1/020 that 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 a LNTJ. The Resolution became effective on January 1st, 2020.
The following jurisdictions are considered as LNTJ:
2) Antigua y Barbuda
5) Commonwealth de Dominica
10) Isla de Cocos (Isla de Keeling)
11) Isla de Navidad
12) Isla de Santa Elena
13) Isla Norfolk
14) Isla Pitcairn
15) Islas del Pacífico
16) Islas Fiji
17) Islas Maldivas
18) Islas Malvinas/Falkland Islands
19) Islas Palau
20) Islas Solomón
21) Islas Vírgenes de Estados Unidos de América
28) Polinesia Francesa
29) Puerto Rico
30) Reino de Tonga
31) República de Yemen
32) San Martin (Antigua integrante de Antillas Holandesas)
33) San Pedro y Miquelón
34) Sultanato de Omán
38) Tristán de Acuña
40) Yibuti (Djibouti)
Corporate restructures: mergers and demergers
On February 28th , 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 2 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 paragraph a).
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 April 16th , 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.
It will be admitted the refund of VAT on account of such goods or services incorporated to the civil work, for up to two years after the completion of the construction work.
It is increased the exemption of CIT applicable to certain leases, 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, IRPF and 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, it is increased the exemption 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 April 29th , 2020 the Executive Power issued Decree Nbr. 138/020 to promote building activities for the sale or lease of real states destined to 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 Corporate Income Tax (CIT) of up to 40% of the eligible investment with an annual exemption limit of 90% of CIT and a maximum term of 10 years. As to Net Wealth Tax (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 Value Added Tax (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 from May 7th , 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, decentralization) 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 May 26th , 2020 a Decree which foresees a new temporary increase in the benefits granted.
The temporary benefits foreseen by the Decree are:
- 20% increase in the percentage of IRAE exemption based on the matrix of indicators for those investment projects submitted between 04/01/2020 and 03/31/2021, provided at least 75% of the investment involved in the project is executed before 12/31/2021.
- It is established the computation of 150% for such investments executed between 04/01/2020 and 01/31/2021 for the purpose of establishing the amount exempted from IRAE, 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 04/01/2020 and 03/31/2021.
Additionally, for the years ended in the period between 04/01/2020 and 03/31/2021, 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 IRAE exemption granted.
- Consider IRAE exemption may not exceed 90% of the amount of tax payable.