Uruguay

Remote working: Free zone (FZ) employees

On 14 October 2022, the National Direction of Free Zones (NDFZ) approved the regulations of the home office (HO) regime in FZs. Decree 319/022 reaffirms and widens the formalities to be accomplished by FZ users in order to implement the HO regime for their employees (allowed by Law Nbr 20,075).

The regulations (applicable as of 5 January 2023) provide that:

• Employees included in the HO regime are the FZ user´s dependent workers that accomplish the quality of full-time workers (as prescribed in their work contract), and their weekly workload cannot be less than 25 hours. Those who carry out production, distribution, or logistic activities will not be able to work remotely.
• The employee and the FZ user must convene, at the beginning or during their work relation, the HO regime in the work contract.
• HO work should be carried out exclusively from the worker´s particular address located in national territory.
• FZ user employer must accomplish a minimum of 1,000 hours per month as 'on-site' work in order for their workers to be able to apply the HO regime.
• 90% of the workers enabled to do HO work must work, at a minimum, 60% of the monthly workload on-site. The remaining 10% can choose to work remotely 100% of their time.
• FZ developers must keep a record where its clearly validated the completion of the conditions and limits required to workers being able to do HO work.

Bill of law: Information technology (IT) professionals

In December 2022, the Executive Power submitted to Congress consideration a bill of law that seeks to encourage the settlement in Uruguay of technicians and professionals of the IT sector who are currently residing abroad, whether they are foreigners or nationals.

It is intended that technicians and professionals of the IT sector who move to work as employees in the national territory may have the option of paying the non-resident's income tax (IRNR, at a flat rate of 12%) and be excluded from the social security system in force. In the absence of the projected rule, as long as they become residents, they would have to pay personal income tax (IRPF, at progressive rates of up to 36%).

The conditions that must be met simultaneously to exercise the option are:

• Being a foreigner or a national and not having verified fiscal residence in Uruguay in the last five fiscal years, prior to the relocation to the national territory.
• Carry out the activity on a full-time basis in the national territory when it registers during the calendar year an effective physical presence of at least two thirds of the days.
• Express in a written document their desire not to be covered by the Uruguayan social security system.
• Obtain the total labour income in national territory, exclusively in a dependency relationship, derived from the rendering of services directly related to the performance of research and development (R&D) activities in the areas of biotechnology and bioinformatics, and the production of software and the services related thereto (exempt from the corporate income tax [IRAE]).

If enacted, the law will be in force for labour contracts initiated up to 28 February 2025, inclusive.    

Taxation of foreigners in FZs

In March 2019, the Ministry of Economy and Finance approved Decree 86/019, modifying some aspects of the special tax regime applicable to foreigners working in FZs.

Foreigners working in FZs can elect 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 IRNR on their labour income instead of 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 regulations establish 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. If so, 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 the country, Decrees 163/020 and 174/020 added additional circumstances in which an individual may become a resident for tax purposes. The rules state 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 'Indexed Units' (approximately 489,000 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 15 million 'Indexed Units' (approximately USD 2,100,000), provided that it is carried out from 1 July 2020 and at least 15 new (full time jobs) in dependent relationship 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.

In line with these changes, with the aim of attracting more investments to Uruguay, Law 19,904 was approved. This Law extended the so-called 'window period' (as explained below) and introduced the possibility to reduce IRPF rate applicable to income from movable capital from non-resident entities. 

According to the rules in force, IRPF taxes (at a 12% tax rate) foreign-source income from holding movable capital (i.e. those derived from deposits, loans) and, in general, any other income derived from movable investments and/or credits, provided they derive from non-resident entities. However, there is a relief or holiday period (known as a 'window period'). In this regard, it is foreseen that individuals becoming resident for tax purposes in Uruguay are entitled to make an option to be subject to IRNR in the tax period in which they turn tax residents in Uruguay and for the next five fiscal years.

To the extent that IRNR is not levied on capital income (passive income) of foreign source, the election of the option results in a relief of the tax burden that would otherwise apply on passive income of foreign source. 

As indicated above, Law 19,904 reinforced the current regime with respect to income from movable property derived from investment in foreign assets, expanding the existing option as of the 2020 fiscal year, as follows: 

• Extending the so-called 'window period' from five to ten years.

• Enabling the possibility of paying IRPF at a 7% tax rate on the income from movable capital derived from non-resident entities to those who configure tax residence in Uruguay as of fiscal year 2020 and from said configuration.

In addition, in December 2020, Law 19,937 was approved, establishing that individuals who elected to be subject to IRNR (window period) under the original regime (from 2011 thru 2019) have the option to be subject to IRNR in relation to foreign-source income from movable capital accrued from fiscal year 2021, for up to a maximum period of ten fiscal years, as long as they prove:

• To have made an investment in real estate for a value higher than 3.5 million 'Indexed Units' (approximately USD 489,000). The investment must have been made after 22 January 2021.
• Effective presence in the country during the calendar year of at least 60 calendar days in a year.