Uruguay: Good News on Foreign Income Tax
Uruguay has long been a foreigner-friendly country, both politically and economically, and things have just gotten even better for ex-pats who live in Uruguay for more than half of the year. On April 6, 2011, Uruguay´s Finance Minister announced a major tax break for foreigners who reside in Uruguay for more than 183 days per year. For those who may normally have to pay taxes on dividends and interest generated abroad, the government is now dictating legislation ruling that foreigners who reside in- or move to Uruguay, will face no taxes on any type of income generated abroad, for the first five years. In short, ex-pats can now enjoy five years of freedom from any Uruguayan federal income tax on money made outside of Uruguay.
This is wonderful news for prospective American and European ex-pats looking to maximize earnings. No income tax means more money to use as you choose—whether that’s for travel, savings, or investing in your dream home.
It is important to note that even after the five-year totally tax-free period, only certain types of foreign income will be taxed. After the five year break, Uruguay will tax foreigners on interest on deposits, interest from loans to a foreign company, and dividends. That income is taxed at a flat rate of 12%. Any other type of income generated abroad is excluded from the tax. Thus, salary, capital gains on sale of shares or property, pensions, and lease income, count as foreign income and are not taxed—even after the five year break has expired.
Uruguayan law makes specific distinctions to ensure that those who relocate to Uruguay do not face extra taxes as a result: if you already pays income tax abroad, of 12% or more (on any of the three types of taxable income: interest on deposits, interest from loans to a foreign company, and dividends), you will not have to pay in Uruguay. Thus, you will not face double taxation. This is applicable for both residents and citizens.
Uruguay is known as a low to moderate tax jurisdiction, and has friendly tax regulations for individuals moving to Uruguay, and a wide range of tax advantages for the foreign investor. Following is a summary of the Uruguayan system:
- The types of foreign-earned income subjected to taxation are limited to interest and dividends. These are taxed at a rate of 12%. If you already pay taxes on those types of income elsewhere, Uruguay does not double tax you. Plus, new regulation is expected to exclude even this taxation for your first five years in the country.
- Uruguay does not have any “death tax” or estate tax upon a person’s death. This means that your hard-earned money stays with your family. There is no need to worry about your assets lining government coffers rather than protecting your loved ones. You get to decide what happens to your money—all of it—after you are gone.
- Property taxes are low. On average, overall taxes on a property add up to 0.3 to 0.6% of a property’s value, per year (properties carry a “municipal” tax and a small “public schools’ tax”). Given the often exorbitant property tax rates in the United States, this means huge savings to prospective ex-pats looking to make the most of their retirement funds.
- For those starting a business inside Uruguay, the corporate income tax rate is a flat 25%. This means nasty surprised at tax time. No matter how much your business profits, the tax rate never rises above the flat 25% rate.
- For those thinking of getting a job inside Uruguay, personal income tax is paid in brackets that start at 10% and end at 25%, with an effective overall tax rate averaging 18% or less for even the highest earners. Note that this personal income tax is for income earned within Uruguay and is separate from the foreign income discussed at the beginning of this article.
- Uruguay is a well-known offshore jurisdiction, with the availability of corporate vehicles (“Sociedades Anonimas” or “SAs”) that face no taxes of any type (other than a flat tax of approximately USD 400 per year) on income generated abroad or assets held outside of Uruguay.
- Uruguay has several Free Trade Zones (“zonas francas”), that is, areas where those companies that operate from within the zone, as long as they sell services or goods overseas, face no income tax. Thus, a wide range of companies have set up in these free trade zones, selling banking services, software, back-office operations and dozens of other types of services, to customers worldwide. Uruguay is a perfect location to launch a profitable global business.
- Uruguay has a very generous investment promotion regulation, under which the government annually grants large tax breaks to hundreds of projects. In 2010, 829 projects (for a total investment of USD 1.2 Billion) were granted tax breaks under this regulation. The country grants tax breaks to investors on Corporate Income Tax (up to 100% of the amount invested), Value Added Tax (on goods purchased) and Asset Tax. In order to qualify and obtain the benefits, the investor must present a plan before a committee within the Finance Ministry, known as Comap, which studies the project and evaluates its impact on the creation of new jobs, exports, technology, and even factors like the use of clean energy. The law allows a wide array of industries to request the tax breaks, and projects approved in 2010 included companies as diverse as agricultural enterprises, call centers, professional services firms, movie centers, construction companies and logistics companies.
The Uruguayan government seeks encourage foreign businesses and individuals to bring their investments to Uruguay. The tax laws are incredibly favorable to foreigners who reside or run businesses in Uruguay. The government realizes that these foreigners are a boon the economy and that it is in everyone’s best interest to encourage them to come to Uruguay. This has created the ideal economic conditions for ex-pats to reap the benefits of this foreigner-friendly policy by getting the most out of their income streams, businesses, and investments.