Uruguay VAT, GST, and Sales Tax Guide

Uruguay

Montevideo GMT -3

EY

Avda. 18 de Julio 984 4th and 5th Floors

Palacio Brasil P.O. Box 1303 11100 Montevideo Uruguay

Indirect tax contacts

Martha Roca +598 (2) 902-3147 martha.roca@uy.ey.com

Inés Eibe +598 (2) 902-3147 ines.eibe@uy.ey.com

A. At a glance

Name of the tax

Value-added tax (VAT)

Local name Impuesto al valor agregado (IVA)

Date introduced 29 December 1972

Trading bloc membership MERCOSUR

Administered by Directorate General of Taxes (http://www.dgi.gub.uy)

VAT rates

Standard 22%

Reduced 10%

Other Zero-rated (0%) and exempt

VAT number format Tax identification number (RUT), which contains 12 digits

VAT return periods

Thresholds

Monthly (small taxable persons, as determined by the VAT authorities, must file annually)

Registration None

Recovery of VAT by non-established businesses No

B. Scope of the tax

VAT applies to the following transactions:

• The supply of goods or services made in Uruguay by a taxable person

• The importation of goods from outside Uruguay, regardless of the status of the importer

C. Who is liable

A VAT taxable person is any taxable person for corporate income tax purposes that makes taxable supplies of goods or services in the course of doing business in Uruguay. Additionally, taxable persons of personal income tax for independent activities are subject to VAT as well as nonresi dents rendering services in Uruguay or performing business activities. No registration threshold

applies. The definition of a VAT taxable person applies to a permanent establishment of a foreign business in Uruguay.

Exemption from registration. The VAT law in Uruguay does not contain any provision for exemp tion from registration. Registration before the tax authority is always mandatory for residents and nonresidents with permanent establishments in Uruguay. For other nonresidents, registration is not mandatory, as long as the foreign VAT taxable person is subject to withholding for the obliga tions.

Voluntary registration. The VAT law in Uruguay does not contain any provision for voluntary VAT registration, as there is no registration threshold.

Group registration. Group VAT registration is not allowed in Uruguay.

Non-established businesses. A “non-established business” is a business that does not have a fixed establishment in Uruguay. To register as a taxable person, a non-established business must have an address in Uruguay.

Tax representatives. To register as a taxable person, a non-established business must have an address in Uruguay and must appoint a tax representative to undertake its VAT obligations (such as filing returns).

Reverse charge. In Uruguay, there is no reverse-charge mechanism, but imports of goods by the acquiring taxable person are taxed and the provision of services from abroad when the nonresi dent comes to Uruguay to provide them.

Therefore, the importer entity should pay VAT on the taxed goods, no matter if it is a local or foreign entity.

Regarding services, when a Uruguayan taxable person acquires a service from abroad, it will not pay VAT unless the nonresident comes to Uruguay to provide the service. In this case, the Uruguayan taxable person will account for the service plus VAT and in turn will withhold VAT from the foreign company for not being a registered taxable person.

Domestic reverse charge. Even though in Uruguay there is no reverse charge, there are some with holding agent regime measures related to VAT that are regarding goods and services that apply in the following cases:

• In the case of security, surveillance and cleaning services rendered to CIT payers for amounts higher than UYU40,000 excluding VAT (approximately USD900), withholding would be 90% of the VAT

• Moreover, if a taxed service is rendered in Uruguayan territory by a nonresident, a 22% VAT should be withheld by the CIT taxable person client

Also, some public bodies are appointed as VAT withholding agents for purchases of goods and services. In general, the withholding amount should be 60% of the total VAT.

Digital economy. Income derived from mediation and intermediation services related to the sup ply and demand of services rendered through the internet, technological platforms, computer applications or other similar means are considered to be Uruguayan-sourced income and, therefore, they are subject to VAT when both parties are located in Uruguay. Intermediation services means all services that are automated, require minimum human intervention and are not available outside of an application or similar software.

To determine whether the service provider is local, the provider will have to verify if the main business is located in Uruguay. To determine whether the acquirer is local, the location of the IP address of the device used for contracting the main service will have to be considered. If the provider’s address or acquirer’s IP address cannot be verified, regulations will treat the acquirer

as located in Uruguay whenever the service is paid by electronic means administered from Uruguay. For mediation and intermediation activities, the withholding obligations are suspended. These provisions will be applicable exclusively when such activities are performed by nonresi dent entities that do not have a permanent establishment in Uruguay.

Nonresident providers of electronically supplied services for both business-to-business (B2B) and business-to-consumer (B2C) supplies are required to register and account for VAT on their supplies in Uruguay. There are no other specific e-commerce rules for imported goods in Uruguay.

Online marketplaces and platforms. Additionally, for VAT purposes, audiovisual services provided directly through the internet, technological platforms, computer applications or similar means are considered entirely Uruguayan-sourced, as long as the acquirer is located in Uruguayan territory. Additionally, the service acquirer is considered as located in Uruguayan territory when the IP address of the device used to contract the service, or the billing address, is located in Uruguay. In the case of continuous services (e.g., subscriptions), the determination of the acquirer’s loca tion must be performed at the time the service is contracted. If the IP or billing address cannot be verified, the acquirer will be deemed as located in Uruguay whenever the service is paid for by electronic means that are administered from Uruguay (e.g., electronic currency, credit or debit cards, and bank transfers).

The aforementioned does not apply to income derived from publicity, promotion and technical services (including distant learning), even if rendered through the internet.

Uruguayan corporate income taxable persons, state and local governments, and others are appointed as withholding agents responsible for collecting VAT on payments or credits for electronic services. Unless the income obtained by the foreign entity is all subject to withholdings, entities are required to register locally, assess their tax and pay, as well as comply with formal require ments locally (e.g., advance payments, tax returns).

Registration procedures. Two printed copies of form 0351 should be submitted to the tax office. Additionally, form 0352 (individuals) or 0353 (legal entities) may have to be submitted in order to register representatives. The registration should be done when operations would take place. Additionally, a notary certification in Spanish would be needed containing information of the company and the representatives. If all documents are duly provided, the registration is finished on the same day the form is submitted. The corresponding representatives of the company submit the registration. The form should be signed by a person authorized by the company, but the sub mission to the tax office can be done by a third party. At the time of preparing this chapter, due to COVID-19, the process for VAT registration begins by sending the scanned documentation by email to a public office email address, or exceptionally, requesting an in-person appointment.

Deregistration. Deregistration is accomplished by submitting form 0351, establishing that the entity is no longer a taxable person. To deregister, the business should stop carrying on the activity that was taxed by VAT.

VAT taxable persons include, among others, CIT taxable persons who perform taxed activities, personal income taxable persons for self-employed activity and nonresident income tax (NRIT) payers, except when their activities are related exclusively to obtaining capital gains or yields of capital.

Changes to VAT registration details. Any change in the taxable person’s registration data (for example: name, address, activity carried out) must be communicated to the tax administration within 30 days from the date of the change.

The procedure can be done online or in person. If it is online, the data in the online services system must be changed, modifying what corresponds. In case of being in person, form 351 must be submitted. At the time of preparing this chapter, due to COVID-19, all procedures can be sub mitted online or, exceptionally, in person.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to VAT, including the zero-rate.

The VAT rates are:

• Standard rate: 22%

• Reduced rate: 10%

• Zero-rate: 0%

The standard rate applies to all supplies of goods or services, unless a specific measure provides for the zero -rate, the reduced rate or an exemption.

• Exports of goods

• Basic foodstuffs

• Soap

• Medicines

Examples of goods and services taxable at 0%

Examples of goods and services taxable at 10%

• Services supplied by hotels in “high season” to resident individuals

• Tourist services

• Health services

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Foreign currencies, securities, bonds, stocks and other financial transactions

• Milk

• Books, newspapers, magazines and educational material

• Water

• Services supplied by hotels in “low season” to resident individuals

Option to tax for exempt supplies. The option to tax exempt supplies is not available in Uruguay.

E. Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” The basic time of supply is either when the goods are transferred or when the services are performed. The invoice for the transaction must be issued at the time of supply.

Deposits and prepayments. In principle, the taxable event for the supply of goods and services is deemed to have taken place on the date of the invoice. However, the tax authority is empowered to establish another date whenever there is an omission, anticipation or delay in the billing. In addition, it is important to note that the tax authority may authorize generally, for all the tax able person’s transactions, that the tax determination should be based on the date of the contracts.

Therefore, deposits and prepayments are not taxed if the taxable event does not ultimately take place (that is, if the services are not rendered or the delivery of goods does not happen) as the payments could not be considered to be the taxable event in themselves.

Continuous supplies of services. For ongoing supplies of services, the taxable event established in the Uruguayan VAT regulations is determined on a monthly basis.

Goods sent on approval for sale or return. The time of supply rules provide that for VAT purposes, the taxable event occurs whenever goods are delivered and property rights are transferred (i.e., the owner can economically dispose of them at its will).

If goods are sent for “approval” or “for sale or return,” the transfer of property on these goods would not happen. Therefore, no VAT is accounted for.

Reverse-charge services. Even though a VAT for reverse-charge regime for supplies of goods and services does not exist in Uruguay, if services are rendered in Uruguayan territory by a nonresi dent, the service provider is considered to be a VAT taxable person and, thus, a withholding obligation arises for the taxable person.

Leased assets. In Uruguay there are two types of leasing: operative and financial. Both are treated as continuous supplies of services from a time of supply perspective (see above).

In accordance with Uruguayan law, by operative leasing includes a contract that gives the pur chase option to the client at the end of the contract, but as long as such option implies a small amount (under certain circumstances determined on local regulations). Otherwise, it would be a financial leasing.

Leasing of real estate property in accordance with the Civil Code is exempt from VAT. Other operational leases are subject to VAT. Financial leasing is considered as sales and is subject to VAT depending on the goods supplied.

The tax treatment for “leasing” transactions with financial institutions is exempt from VAT. The leasing charge is exempted from VAT in the following circumstances:

• The contract must last at least three years

• The goods subject to the contract must comply with the definition of a utility vehicle given by the Uruguayan law and cannot be a real estate property affected to housing

• The user must be a taxable person of one of the following taxes: CIT, farming CIT or transfer of agricultural and livestock assets tax

If any of the circumstances outlined above is not met, the VAT applicable to the leasing would be calculated by the total amount of the payments expected in the contract, including the price of the asset and the accessory services.

Imported goods. The time of supply for imported goods is either the date of importation or the date on which the goods leave a duty suspension regime.

F. Recovery of VAT by taxable persons

A taxable person may recover input tax (or credit VAT), which is VAT charged on goods and services supplied to it for business purposes. A taxable person generally recovers input tax by deducting it from output tax (or debit VAT), which is VAT charged on supplies made.

The time limit for a taxable person to reclaim input tax in Uruguay is one fiscal year. Once the tax return is filed at the end of the fiscal year, if the tax authority considers that there was an excess in the payment of VAT, it will allow that amount to be deducted in the following fiscal year.

Input tax includes VAT charged on goods and services supplied in Uruguay and VAT paid on imports of goods.

A valid tax invoice or customs document must generally accompany a claim for input tax credit.

Credit VAT would be recovered only if related, directly or indirectly, to sales subject to VAT or exports.

Nondeductible input tax. Input tax may not be recovered on purchases of goods and services that are not used for making taxable supplies or for other business purposes (for example, goods acquired for private use by an entrepreneur). In addition, input tax may not be recovered for some items of business expenditure.

The following lists provide some examples of items of expenditure for which input tax is not deductible and examples of items for which input tax is deductible if the expenditure is related to a taxable business use.

Examples of items for which input tax is nondeductible

• Purchase of a car, van or truck by professional individuals

Examples of items for which input tax is deductible (if related to a taxable business use)

• Business gifts

• Purchase, lease or hire of cars, vans and trucks, except by professional individuals

• Advertising and sponsorship

• Parking

• Travel expenses

• Attendance at conferences and seminars

• Business use of home telephones and mobile telephones

Partial exemption. A taxable person generally recovers input tax by deducting it from output tax. If purchases of goods and services are not used for making taxable supplies or for business pur poses, input tax may not be recovered. Input tax related to both taxed and exempted income (other than exports), should be apportioned and recovered based on the taxable person’s taxable and exempt income.

Approval from the tax authorities is not required to use the partial exemption standard method in Uruguay. Special methods are not allowed in Uruguay. The taxable person must make the appor tionment based on the structure of its income, taking into account that the information presented by the accounting is reliable. The tax administration can question it in case it is inspected.

Capital goods. There are no special input tax recovery rules for capital goods. As such, the normal input tax recovery rules apply.

Refunds. If the amount of input tax (credit VAT) recoverable in a month exceeds the amount of output tax (debit VAT) payable, the excess credit may be carried forward to offset output tax in the following tax period. Nevertheless, input tax related to export sales can be recovered through credit certificates issued by the tax authorities.

For annual VAT returns, if the annual purchase VAT is greater than the annual sales VAT, the VAT credit is carried forward to the next fiscal year until it has been absorbed by VAT on sales.

Pre-registration costs. Input tax incurred on pre-registration costs in Uruguay is not recoverable.

Bad debts. A bad debtor is considered to exist in the following situations:

• 18 months after the expiration of the payment obligation

• A check payment without funds

• Other similar situations

When the bad debt is recognized, the VAT that was accounted for by the supplier is reduced in the current VAT period. If the debtor subsequently pays, the company has to recompute the VAT deducted previously.

Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in Uruguay.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses in Uruguay is not recoverable.

H. Invoicing

VAT invoices. A VAT taxable person must generally provide a VAT invoice for all taxable supplies made, including exports. A separate invoice is not required to be issued for an amount of less than UYU170, but all sales made in amounts lower than UYU170 must be recorded together in a general invoice prepared at the end of each business day. A VAT invoice is necessary to support a claim for an input tax credit.

Credit notes. A VAT credit note may be used to reduce the VAT charged and reclaimed on a supply of goods and services. A credit note must contain the same information as a VAT invoice.

Electronic invoicing. Electronic invoicing is mandatory in Uruguay, for certain taxable persons subject to size and category. Where it is mandatory for a taxable person to use electronic invoic ing, it must apply to do so from the tax authorities. The tax authorities have established a calen dar detailing mandatory reporting deadlines according to the amount of sales made by each taxable person. According to this calendar, the taxable persons whose amount of sales exceeded 305,000 indexed units (approx. UYU1,459,425) at the end of their fiscal year in the first semes ter of 2021, must adhere to electronic invoicing by 1 February 2022. If their fiscal year ends in the second semester of 2021 and by then they exceed the same amount, they must adhere to electronic invoicing by 1 December 2022.

Even though the system is not mandatory for all taxable persons, any taxable person can voluntarily request to be included in the system.

There is no need for an agreement between the issuer of the e-invoice and its customers when a taxable person becomes an electronic issuer. When a taxable person becomes an electronic issuer or wants to become an electronic issuer, it should start the reporting process established by tax authorities, which includes complying with a number of mandatory requirements.

An agreement between the electronic issuer and its customers could be necessary in the following scenario: for documents issued by the company to taxable persons who are not included in the electronic invoicing system or to final consumers, for which the issuance of the hard copy of the document involved is required. A hard copy may not be issued if the transaction does not involve the transfer of goods and the recipient expressly authorizes the receipt of the document through other means (e.g., email). This authorization must be obtained separately from the main agreement.

Simplified VAT invoices. Simplified VAT invoicing is not allowed in Uruguay. Nevertheless, a separate invoice is not required to be issued for sales to final customers (i.e., for B2C not B2B sales) amounting to less than UYU170. In such cases, a general invoice should be issued at the end of each business day, including all sales that were not documented due to this exception.

Self-billing. Self-billing is not allowed in Uruguay.

Proof of exports. Uruguayan VAT is not chargeable on supplies of exported goods. However, to qualify as VAT-free, exports must be supported by customs documents confirming that the goods left Uruguay (called a DUA – “Documento Único Aduanero” – which is a single administrative document).

Foreign currency invoices. If an invoice is issued in a foreign currency, the amounts may be con verted to the domestic currency, which is the Uruguayan peso (UYU), using the buyer exchange rate bill used between banks on the day before the transaction.

Supplies to nontaxable persons. Taxable persons are always required to issue invoices for transactions. Documentation related to sales should also include separately the tax to be paid and the applicable tax rate. However, this last requirement does not exist when invoices are printed in the form of tickets using cash registers or electronic tickets (e-tickets).

Records. The records that must be held by taxable persons are as follows:

• Inventory book (which contains the balance sheets of the company)

• Diary book (which contains the accounting entries of the company)

Special accounts for VAT should also be kept and 22%-rate and 10%-rate transactions should be separated.

These records must be kept at the address recorded by the tax authorities.

Record retention period. The general statute of limitations for tax obligations in Uruguay is 5 years, which may be extended to 10 years in cases of tax fraud, or other periods may apply for promoted investment projects.

Electronic archiving. Physical records should be kept physically (e.g., books), and electronic records should be kept electronically (e.g., accounting system).

I. Returns and payment

Periodic returns. VAT returns are generally submitted monthly for “medium and large taxable persons.” “Small taxable persons” must submit returns annually.

The mentioned classification of taxable persons is determined by the tax authorities.

Monthly VAT returns are due in the month following the month in which the transactions are reported. The deadline is published by the tax administration at the beginning of each year.

Small VAT taxable persons must file annual tax returns in the second month following the end of the taxable person’s fiscal year. For example, if a small VAT taxable person closes its fiscal year in December, its annual VAT return is due in February. The exact date for payment depends on the taxable person’s registration number.

In case of professional individuals, VAT returns must be submitted annually (between June and August of the following year, depending on the calendar issued by the tax authority) although payments would be done bimonthly, e.g., payment of taxes corresponding to months January and February would be due in March.

Periodic payments. All VAT taxable persons must make VAT payments monthly. Monthly pay ments are due in the month following the month in which the transactions are reported. The exact date for payment depends on the taxable person’s registration number (RUT). VAT return liabili ties must be paid in Uruguayan pesos (UYU).

Payment is made by submitting the VAT affidavit monthly for taxable persons included in the medium or large taxable person group. Once that tax return is presented, the tax administration’s website will show that the company has an amount to pay for VAT. By following the steps on the page, the taxable person will proceed with payment (either by bank debit or with credit certifi cates if available).

For taxable persons included in the small taxable person group, since VAT is paid annually, they must anticipate the difference between VAT on sales and VAT on purchases for the current month

on a monthly basis. The procedure is the same as the aforementioned, except that instead of submitting an affidavit, they will make a ticket payment (form found on the website) where the data will be completed indicating what will be paid.

Digital economy taxable persons (i.e., those who have income derived from the digital economy, such as those supplies mentioned in the above subsection Digital economy) may choose to file their tax returns (and execute their tax payment) in USD as long as:

• All transactions are documented in that currency

• The taxable person does not carry out other taxed activities in the country, or if they do, they are subject to withholding

If taxable persons choose this option, it must be maintained for at least three fiscal years, provided the conditions to access the option are still met.

For annual VAT returns, if the annual purchase VAT is greater than the annual sales VAT, the VAT credit is carried forward to the next fiscal year until it has been absorbed by VAT on sales.

Electronic filing. Electronic filing is mandatory in Uruguay for all taxable persons. There are, however, some exceptions, for example, if a tax return is reassessed and it includes a fiscal credit.

Payments on account. In certain situations, taxable persons must perform payments in advance before their annual tax return, depending on the company and its activities. The total advanced payments could cover the actual tax due for the whole fiscal year, and therefore, the taxable person could benefit from filing a provisional annual tax return, filed prior to the compulsory date in which it should be submitted, obtaining as a result fiscal credit (see the Annual returns subsection below).

Special schemes. VAT for small enterprises. Small taxable persons that have not exceeded certain revenue thresholds in the previous fiscal year (approx. UYU 1,459,425) can opt to account for VAT through a special regime called “VAT for small enterprises.” Taxable persons using the scheme make reduced and fixed VAT payments on a monthly basis.

Annual returns. Annual returns are not required in Uruguay. However, a VAT taxable person can submit a provisional annual tax return with the sole purpose of requesting fiscal credits with the tax administration. This is because in certain situations taxable persons must perform payments in advance before their annual tax return, depending on the company and its activities (see the Payments on account subsection above). The taxable person could benefit from filing a provi sional annual tax return, filed prior to the compulsory date in which it should be submitted, obtaining as a result fiscal credit. This must be analyzed on a case-by-case basis to verify that the company is in a position to request a tax credit from the tax authority to, for example, cover the payment of other taxes.

Supplementary filings. There are several supplementary filings that apply, depending of the type of business, the type of VAT regime and the type of operation. Examples include:

• Informative form 2181, including details of VAT on sales and purchases, which is applicable only to relevant or large taxable persons

• Informative form 2183, including details of some VAT withholdings

Correcting errors in previous returns. In case of errors or omissions in previous returns, what must be done is to resubmit the affidavit. To do this, the taxable person must present the tax return again, entering all data that had been presented at the time and fixing the error or omission.

In the event that an amount to be paid arises, the amount must be paid with fines and surcharges calculated, taking into account the date on which the amount should have been declared and the date on which it will actually be paid (see the Penalties for errors subsection below). Otherwise,

if the result is a tax credit, it may be requested through credit certificates and it may be used later for the payment of other taxes collected by the tax administration.

Digital tax administration. Electronic invoicing. The only transactional reporting requirement in Uruguay is that electronic invoices are sent digitally in real time through the tax authorities’ system. To do this, the taxable person hires an electronic invoicing provider that develops personalized software for the taxable person and invoicing is carried out through it. In this software, the taxable person can obtain different reports that are useful to control their billing with what is subsequently declared in the VAT affidavits.

J. Penalties

Penalties for late registration. The penalty for late registration established by the tax authority is an economic fine of UYU920.

Penalties for late payment and filings. A penalty of 5%, 10% or 20% is imposed for late payment of VAT, and a penalty of UYU600, UYU620 or UYU670 is imposed for late submission of the VAT return. The penalty rate depends on the date of payment. In addition, interest is charged on late payments of tax at a rate that varies.

Penalties for errors. There are no specific penalties for errors in Uruguay. If taxes are not paid, irrespective of whether or not this arises as a result of an error, the penalties that can be imposed are those outlined above in Penalties for late payment and filings and below in Penalties for fraud.

In the event of not communicating a change to a taxable person’s VAT registration details on time, fines will be generated for breach of formal duties, the amount of which depends on the delay in communication, as outlined below:

• Within 90 days – UYU630

• Within the next year – UYU2,490

• More than a year – UYU3,550

In the case of individuals, sole proprietorships, de facto partnerships and undivided successions, the maximum fine for omission of communication of the modifications will be UYU630.

Penalties for fraud. In cases of tax fraud, fines could total from 1 to 15 times the amount of unpaid taxes due to the infraction and the offense could be punished with a penalty of six months to six years in prison.

Personal liability for company officers. Entities will be sanctioned for the infractions they commit without the need to establish the responsibility of a person.

Notwithstanding to the pecuniary responsibility of the person, their representatives, directors, managers, administrators or agents will be sanctioned for their personal actions in the infraction. Therefore, company directors can be held liable in the event they have not acted with the due diligence for the position they represent.

Penalties will depend on the particular case, not being able to exceed the value of the assets they have, as long as it has not acted with fraud.

Statute of limitations. The statute of limitations in Uruguay is five years. The tax authority’s right to claim payment of taxes expires five years from the end of the calendar year in which the tax able event occurred.

The statute of limitations shall be extended to 10 years when the taxable person or responsible party has incurred in fraud, does not comply with the obligations to register, does not comply with reporting the occurrence of the taxable event, does not comply with filing tax returns, and,

RUGU

in cases where the tax is determined by the tax authority, when the latter was not aware of the taxable event.

Penalties and interest have the same statute of limitations corresponding to the penalized event, except in case of contravention penalties and those related to public instigation not to pay taxes, in which case the period shall always be five years. These terms will be calculated from the end of the calendar year in which the violations were committed.

In case of surcharges and interest, the terms will be calculated as from the end of the calendar year in which they were generated.