Individual - Significant developments

Last reviewed - 30 June 2020

Changes to taxation of foreigners in Free Zones (FZs) 

On 25 March 2019, the Ministry of Economy and Financapproved Decree Nbr. 86/019, which changes some aspects of the special tax regime applicable to foreigners working in an FZ.

Foreigners working in FZs can decide not to be affiliated to the social security system of Uruguay and elect not to make social security contributions in Uruguay. Should they make this written decision, they could also choose to pay non-resident's income tax (IRNR) on their labour income instead of resident’s income tax (IRPF) (applicable as a general rule to resident individuals).

Said legislation established that the special regime was only applicable for those activities that were exclusively undertaken in the FZ, and to the extent the aforementioned services were not part of other services provided (directly or indirectly) to residents of the non-FZ territory.

The Decree establishes that the special regime can also be applied to those activities performed outside Uruguayan territory, as long as these are performed in the frame of a labour relationship. In such a case, the Decree establishes that the whole compensation will be subject to IRNR, regardless of whether the activities are performed in the FZ or outside Uruguayan territory.

Individuals tax residence

In order to attract more investments to Uruguay, Decree Nbr. 163/020 added additional circumstances in which an individual may become a resident for tax purposes. It brings down the amount of investments required to be considered tax resident in Uruguay. In that sense, the Decree states that, except for taxpayers who are able to prove their tax residency in another country, it will be considered that an individual has one's basis of activities or economic interest in Uruguay when one has the following investments in Uruguay:

  • Real estate property for an amount higher than 3.5 million 'index units' (approximately 375,000 United States dollars [USD]), provided that it is carried out from 1 July 2020, and the individual is present in Uruguay for at least 60 days. If no new acquisitions are made, the updated fiscal cost will be considered for each property.
  • A direct or indirect investment in a company which value is higher than 45 million 'index units' (approximately USD 1.6 million), provided that it is carried out from 1 July 2020 and at least 15 new full-time jobs are created during the civil year. New jobs are those generated from 1 July 2020 and are not related to a reduction of jobs in a related party.

A bill of law recently submitted to Congress consideration foresees for fiscal year 2020 and onwards the possibility for individuals becoming tax residents in Uruguay to choose one of the following tax benefits:

  • Extension of the so-called 'grace period' from five to ten years. Actually, individuals are allowed to choose (one-time option) to be subject to IRNR on their foreign-sourced holding movable capital income in the year in which they become tax residents and for the next five years (i.e. the grace period). As such income is not taxed by IRNR, the option represents a tax relief during this period.
  • Being subject to IRPF on foreign-sourced holding movable capital income at a 7% rate, instead of the 12% regular rate.