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EY
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Palacio Brasil P.O. Box 1303 11100 Montevideo Uruguay
Business Tax Advisory
Martha Roca
+598 (2) 902-3147 Email: martha.roca@uy.ey.com
Inés Eibe +598 (2) 902-3147 Email: ines.eibe@uy.ey.com
A. At a glance
Corporate Income Tax Rate (%) 25
Capital Gains Tax Rate (%) 25 Branch Tax Rate (%) 25
Withholding Tax (%)
Dividends 7 (a)(b)(c) Interest 12 (a)(b)(d) Royalties 12 (a)(b) Equipment Rent 12 (a)(b)
Technical Assistance Payments and Service Fees 12 (b) Income Paid to Entities from Low or Nil Tax Jurisdictions or Benefiting from Low or Nil Tax Regimes 25 (e) Branch Remittance Tax 7 (b) Net Operating Losses (Years) Carryback 0 Carryforward 5
(a) This tax applies to nonresident corporations and individuals and resident individuals. Nonresident corporations are corporations not incorporated in Uruguay. (b) See Section B.
(c) Under Accountability Law No. 19,438, notional dividends are taxable, effec tive from 1 March 2017. For the purposes of this law, notional dividends are determined considering the net taxable income of the company that is more than three years old, less certain items (equity participation investments in other resident entities and investments in fixed and intangible assets, among others), subject to certain limits.
(d) A rate of 7% applies to certain types of interest, mainly in Uruguayan cur rency and indexed units, as well as certain interest on debt securities that are quoted on the Uruguayan stock exchange (under certain conditions).
(e) This tax applies to income paid to entities that are resident, domiciled, consti tuted or located in low or nil tax countries or jurisdictions or that benefit from a low or nil tax regime, except for dividends distributed by Uruguayan corpo rate income taxpayers. This rate applies from 1 January 2017, according to Accountability Law No. 19,438 and Fiscal Transparency Law No. 19,484. In addition, a complementary tax rate of 5.25% applies to income derived from immovable assets.
B. Taxes on corporate income and gains
Corporate income tax. Corporations are taxed on Uruguay-source income, defined as income derived from activities performed, property situated or economic rights used in Uruguay. Any prof its, including capital gains, are taxable.
Rate of corporate tax. The corporate tax rate is 25%.
Capital gains. Capital gains are included in ordinary income and taxed at the regular corporate rate.
Administration. Corporations are required to make monthly advance payments. These payments are calculated by applying to monthly gross income a fraction with a numerator equal to income tax for the prior tax year and a denominator equal to the corporation’s gross income subject to tax for that year (the one that corresponds to the last filed corporate income tax return). Filing of tax returns and payment of the balance must be made by the fourth month after the end of the accounting period, which is the company’s tax year-end.
Dividends and branch remittances. Dividends paid to resident companies are exempt from tax. Dividends paid to resident indi viduals are subject to personal income tax at a rate of 7% if the dividends are paid out of income subject to corporate income tax. Dividends paid to nonresident companies and individuals and branch remittances are subject to withholding tax at a rate of 7% if they are paid out of income subject to corporate income tax. Dividends and branch remittances paid out of income not subject to corporate income tax are exempt from tax. Dividends subject to withholding tax cannot exceed the taxable profit of the company.
Effective from 1 March 2017, companies must calculate and withhold personal income tax or nonresidents income tax on notional dividends, which are be deemed to be paid to sharehold ers. The rates of this tax are 12% on dividends from income from foreign capital investment received by resident individuals and 7% for other dividends and profit distributions. For this purpose, notional dividends are calculated in accordance with specified rules (see footnote [c] in Section A). The payer of corporate income tax acts as the “withholding” agent before it makes the actual income payment. Because no real withholding takes place, it must pay the tax to the tax office. On receipt of actual divi dends, shareholders can credit the taxes already paid against their income tax liability. Consequently, no additional tax is due.
Withholding tax on certain payments to nonresidents. In general, a 12% withholding tax is imposed on the following payments to nonresidents:
• Interest
• Royalties
• Technical assistance payments
• Publicity and advertising services
• Service fees
• Equipment rent
If a nonresident is a low or nil tax entity, the general withholding tax rate is 25%, instead of the general rate of 12%. This rate applies from 1 January 2017, according to Accountability Law No. 19,438 and Fiscal Transparency Law No. 19,484.
C. Determination of trading income
General. Tax is imposed on taxable profit, which is accounting profit earned in the accounting period after tax adjustments. An inflation adjustment is applied currently if certain conditions are met. However, under Accountability Law No. 19,438, for fiscal years ending from 1 January 2017, the inflation adjustment ap plies only if the inflation index increases more than 100% (in a cumulative manner) in the three-year period preceding the rele vant fiscal year. All Uruguay-source income is taxable. Expenses are deductible to the extent that they are incurred in producing or maintaining taxable income, are documented, are accrued in the fiscal year and are taxable to the counterparty.
In general, payments to nonresidents are fully deductible as expenses if the effective income tax rate of the country of the recipient is 25% or higher (to be proved through a specific cer tificate). If the effective tax rate of the country of the recipient is lower than 25%, only a percentage of the expenses is deductible. The percentage equals the ratio of the nonresident withholding tax rate (12%) plus the effective income tax rate of the country of the nonresident (reduced by a tax credit if one exists) to the corporate income tax rate of 25% in Uruguay. If the nonresident withholding tax of 12% applies, the minimum percentage of deduction is 48% (the ratio of the withholding tax rate of 12% to the corporate income tax rate of 25%). Stock is valued according to the cost of purchases, production costs or reposition costs (the valuing of inventory according to reposition costs is accepted only if it is based on quantities, prices and conditions that reflect normal market conditions, based on the taxpayer’s type of busi ness).
Inventories. Last-in, first-out (LIFO), first-in, first-out (FIFO), average cost and market price are acceptable methods. The corporation can choose which method to use, but may not change the method without prior authorization.
Provisions. Only deductions for expenses already incurred are allowed. Provisions for bad debts and severance pay are not allowed. Bad debts may be written off if the debtor goes bankrupt or if 18 months have elapsed since the obligation to pay the debt became due.
Depreciation. A depreciation deduction may be taken on tangible assets based on their useful lives using the straight-line method. The following are some of the applicable rates.
Asset Rate (%)
Commercial and industrial buildings 2/3 (a)
New motor vehicles 10
Office equipment 10 (b)
Machinery and equipment 10 (b)
(a) The 2% rate applies to buildings in urban areas; the 3% rate applies to build ings in rural areas. (b) This is the usual rate. The rate for a particular asset depends on its estimated useful life.
For some assets, the units-of-production method may be used. Goodwill may not be depreciated.
Intangible assets must be amortized based on their expected use ful life. If it is not possible to determine the expected useful life, they should be amortized at an annual rate of 10%.
Tangible assets must be revalued according an index determined by the government. Intangible assets and goodwill cannot be revalued.
Relief for losses. Under Accountability Law No. 19,924, for fis cal years ended from 31 December 2020, the offset of tax losses allowed for a specific fiscal year has no limit. As a result, losses can be carried forward for five years and deducted from income without limit.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax Rate (%)
Value-added tax (VAT), on the sale of products and most services and on imported goods
Standard rate 22
Rate on basic foodstuffs and pharmaceuticals 10 Net worth tax, on corporate net worth, computed using values used for tax purposes; for some companies, up to 50% of this tax may be credited against corporate income tax (the current discount is 1%) Banks and credit card corporations 2.8 Others 1.5
(The rate applicable for entities subject to low or nil taxation that do not have a permanent establishment in Uruguay is 3%.)
Social security contributions, on salaries and wages; imposed on Salaries and wages up to approximately USD4,700; paid by Employer; standard rate 12.625 Employee 18.100 to 23.100
Salaries and wages exceeding approximately USD4,700; paid by Employer 5.125 Employee 3.100 to 8.100
(The salary threshold for social security contributions is updated in February of each year.)
E. Miscellaneous matters
Foreign-exchange controls. Uruguay does not impose foreignexchange controls. No restrictions are imposed on inbound or outbound investments. The transfer of profits and dividends, loan principal and interest, royalties and fees is unlimited. Nonresidents may repatriate capital, together with accrued capital gains and retained earnings, subject to applicable withholding taxes and company law considerations (for example, the requirement that companies transfer a portion of their annual income to a reserve).
Import and export operations are transacted at a free rate deter mined by the market.
Debt-to-equity rules. No specific debt-to-equity rules apply in Uruguay.
Transfer pricing. Transfer-pricing regulations are included in the corporate income tax law. Transfer pricing in Uruguay is based on the arm’s-length principle and is in many aspects consistent with the transfer-pricing guidelines of the Organisation for Economic Co-operation and Development (OECD). Every corporate income taxpayer that has operations with related par ties must perform a transfer-pricing analysis.
F. Treaty withholding tax rates
The maximum withholding tax rates under Uruguay’s double tax treaties are set forth below. The withholding tax rates can never exceed those under domestic law. The withholding tax rates in the treaties can be applied only if the nonresident is the effective beneficiary of the income.
Since June 2020, the agreement covered by the Multilateral Instrument (MLI) has been in force, and since January 2021 it has begun to have effects with respect to several double tax treaties entered into by Uruguay. Therefore, when analyzing a double tax treaty, the MLI should be taken into account to determine possible tax consequences.
Dividends Interest Royalties % % %
Belgium 5/15 0/10 10 Chile 5/15 4/15 10
Ecuador 10/15 15 10/15
Finland 5/15 0/10 5/10
Germany 5/15 0/10 10 Hungary 15 0/15 15 India 5 0/10 10
Italy 5/15 0/10 10
Japan 5/10 0/10 10 Korea (South) 5/15 0/10 10
Liechtenstein 5/10 0/10 10 Luxembourg 5/15 0/10 5/10
Malta 5/15 10 5/10 Mexico 5 0/10 10
Paraguay 15 15 15 Portugal 5/10 10 10 Romania 5/10 0/10 10 Singapore 5/10 0/10 5/10
Spain 0/5 0/10 5/10 Switzerland 5/15 0/10 10
United Arab Emirates 5/7 0/10 0/5/10
United Kingdom 5/15 0/10 10 Vietnam 5/10 10 10
Non-treaty jurisdictions 7 * 12/25 12/25