Ola Uruguay Real Estate and Investments

The Uruguayan government, keen to draw foreign expats and investors to its shores, has created a tax system that’s is set to keep your taxes, both to the Uruguayan government and your home country, to a minimum.

Uruguay only taxes income generated inside Uruguay, and assets located inside the country. So for citizens and foreign nationals alike, any type of income obtained from a foreign source, or assets abroad, is untouched by the Uruguayan tax collector. A U.S. pension, dividends or capital gains on stock in a Japanese company, interest from a CD in a European bank, or real estate in Australia—all untaxed.

Furthermore, banking in Uruguay is protected by one of the world’s tightest banking secrecy regulations whereby banks cannot share information with any party, including the government of Uruguay, or the government of any country for that matter. We don’t need to tell you what this means for you tax obligation back home.

An overview of Uruguay’s taxes
Uruguay’s tax system was overhauled in July 2007, re-introducing personal income tax, which had been abolished in 1974. The way the new income tax rules apply (remember: only on income generated by an activity in Uruguay) is split into work-related income and capital-related income.

Work-related income comprises any salary, fees, and commissions generated by an activity (a job) inside Uruguay. This type of income is taxed at progressive rates between 10% and 25%.

Capital-related income is taxed at a flat rate of 12% (with some exceptions, in which the rate is lower). Capital-related income includes:

1. Rental income: Anyone (locals and foreign nationals alike) who owns property in Uruguay and rents it out will have that rental income taxed at 12%. After allowed deductions, such as municipality taxes on real estate, this rate can effectively be lowered by a few percentage points.
2. Interest on bank deposits in a Uruguayan bank in a foreign currency is taxed at 12%; deposits in the local currency are taxed at 3% or 5%, depending on the period of time they are deposited for.
3. Yields on Uruguayan government bonds are not taxed. Corporate bond yields issued by Uruguayan companies are—in general terms—taxed at 3%.
4. For capital gains on the sale of an asset located in Uruguay (such as a property in the country): 12% is paid on the spread between the sale price and the original purchase price (which is adjusted for inflation and improvements on the property). For those assets bought before the new tax laws went into effect (July 1, 2007), one can choose to pay a flat 1.8% tax on the sale price, instead of the 12% on the purchase-sale spread.
5. Dividends paid out by a Uruguayan company are taxed at 7% (on top of the company’s own 25% corporate income tax).

Note: Income generated by a foreign company or individual from doing business with Uruguayan companies from abroad (e.g. providing technical services to a Uruguayan company) is deemed Uruguayan for tax purposes, and is taxed at a rate of 12%.

Value added tax, the sales tax that you pay when paying for a meal at a restaurant or buying an item in a supermarket, is generally 22% (and, for some basic goods and medicines, is 10%).

Assets tax (Impuesto al Patrimonio or IP) is applied to assets inside Uruguay. Assets are taxed, once a year, at progressive rates that start at 0.7% and reach 2.75% of the “fiscal” (official) value of the asset. For all practical purposes, after allowing for the minimum non-taxable portion of assets in Uruguay, and considering that the “fiscal” value of a property is usually substantially lower than its market value, this tax is not as harmful as it sounds (and on assets related to some activities, such as farming, the tax does not even apply). The good news is this tax will be gradually phased out, and virtually eliminated, by 2017.

Other taxes include property tax charged at between 0.25% and 1.6% of the property’s value (depending on it’s location); school tax charged 0.1% to 0.3% of the value of the property; and property transfer tax charged at 2% of the fiscal value.

No withholding taxes or government fees affect transfers of money into the country, and funds can exit the country, free of any taxes, at any point.

Free trade zones
As we’ve mentioned, corporate income tax in Uruguay is charged at 25%. However, Uruguay has a number of free zones, from which any activity conducted with overseas parties is untaxed. To operate in a free zone, one must have a contract with the relevant free zone operator, and a special type of SA, which can only conduct activity from a free zone.

We’ll talk more about Free Trade Zones in next week’s issue of Ola Uruguay.