Uruguay - Income Tax

Uruguay - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

Act 18.083 introduced personal income tax to the Uruguayan tax system as from 1 July 2007. This tax applies on Uruguayan-sourced income obtained by resident individuals. Uruguayan-sourced income is basically defined as that obtained from activities developed, goods located or rights used economically in national territory. As from 2011, as an exception to the source principle regime, some capital income items obtained abroad (basically interests and dividends) are also taxable for personal income tax.

Although the settlement and payment of this tax is annual, several withholding regimes have been established, including monthly withholdings applied by employers over salaries paid to their employees (in most circumstances this system allows the employee not to present an annual tax return).

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Uruguay?

Residents

The taxpayer has to register at the tax office, following the procedures and formalities established by law and regulations.

Non-residents

Non-resident individuals are subject to non-resident income tax on their Uruguayan-sourced income.

In most cases, this tax applies through local withholdings; otherwise the non-resident will have to file his/her own tax return (personally or by means of an appointed representative).

Tax rates

What are the current income tax rates for residents and non-residents in Uruguay?

Residents

Personal income tax is structured as a dual system that distinguishes between labor income and capital income, applying different tax rates to each class.

Labor income (Progressive rates)

Income tax table for 2017

Taxable income (UYU$) Rates (%)
0 - 303.324
0
303.324 - 433.320
10
433.320 - 649.980
15
649.980 - 1.299.960
24
1.299.960 - 2.166.600
25
2.166.600 - 3.249.900
27
3.249.900 - 4.983.180
31
over 4.983.180
36

Family group

As from 2009 the possibility exists, at the taxpayer’s option, to liquidate the personal income tax assessed over labor income as a family group.

If the income of each member of the family group, individually considered, exceeds UYU 143,344 the tax rates are as follows.

Taxable Income (UYU) - Family (when labor income of each member exceeds 12 minimum salaries annually)
Rate (%)
0 - 606.648
0
606.648 - 649.980
15
649.980 - 1.299.960
24
1.299.960 - 2.166.600
25
2.166.600 - 3.249.900
27
3.249.900 - 4.983.180
31
over 4.983.180
36

 

Taxable Income (UYU) - Family (when labor income of one member does not exceed 12 minimum salaries annually)
Rate (%)
0 - 346.656
0
346.656 - 519.984
10
519.984 - 649.980
15
649.980 - 1.299.960
24
1.299.960 - 2.166.600
25
2.166.600 - 3.249.900
27
3.249.900 - 4.983.180
31
over 4.983.180
36

Capital income

Taxable annual income brackets (approximate values)
Tax Rate
  Percent
Interests from local currency bank deposits with a term of more than 1 year 3
Interests from securities or other debt instruments issued with a term of more than 3 years through public subscription and quoted in a stock exchange 3
Interests from local currency deposits of one year or less without readjustment clause 5
Dividends or profits paid or credited by taxpayers of corporate income tax 7
Copyright rents 7
Other capital income 12

Non-residents

Non-resident income tax rates

  Rate
  Percent
Interests from local currency bank deposits with a term of more than 1 year 3
Interests from securities or other debt instruments issued with a term of more than 3 years through public subscription and quoted in a stock exchange 3
Interests from local currency deposits of one year or less without readjustment clause 5
Dividends or profits paid or credited by taxpayers of corporate income tax 7
Other income 12

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Uruguay? 

An individual is considered a resident when any of these conditions is configured:

  • when he/she stays in Uruguay for more than 183 days during any calendar year
  • when the center of his/her vital or economic interests is located in Uruguay

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.
No.
What if the assignee enters the country before their assignment begins?
This situation will not generate any tax effects in itself, but the whole period  of the assignee’s stay in Uruguay will be computed to determine if he/she is a resident or non-resident for tax purposes.

Termination of residence

Are there any tax compliance requirements when leaving Uruguay?  

No.

What if the assignee comes back for a trip after residency has terminated? 

The same comments made to the previous question apply in this case.

Communication between immigration and taxation authorities

Do the immigration authorities in Uruguay provide information to the local taxation authorities regarding when a person enters or leaves Uruguay?  

The local taxation authorities have the power to request this type ofinformation from the immigration authorities.

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate? 

He/she will be subject to the general filing requirements, depending on the taxable income that he/she obtains during that fiscal year and on his/her status as resident or non-resident.

Economic employer approach

Do the taxation authorities in Uruguay adopt the economic employer approach1 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Uruguay considering the adoption of this interpretation of economic employer in the future? 

No

De minimus number of days

Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days? 

Not applicable.

Types of taxable compensation

What categories are subject to income tax in general situations?

Labor income and capital income (please see the applicable rates previously mentioned).

Tax-exempt income

Are there any areas of income that are exempt from taxation in Uruguay? If so, please provide a general definition of these areas.

Almost no exemptions are granted for labor income, but a non-taxable minimum has  been established by law, and income from activities developed abroad is in general not subject to tax under the source principle.

With reference to capital income, some of the applicable exemptions include interests from public debt, distribution of dividends or profits from capital participation in entities not subject to corporate income tax and (under certain circumstances) income from the lease of real estate that does not exceed a certain amount established by law.

Expatriate concessions

Are there any concessions made for expatriates in Uruguay? 

No.

Salary earned from working abroad

Is salary earned from working abroad taxed in Uruguay? If so, how?  

As a general rule, labor income for activities developed abroad will not be taxable under the source principle. However, as from 2011 the labor income obtained by employees of a Uruguayan enterprise for activities developed abroad in favor of their Uruguay employer is also subject to Personal Income Tax.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Uruguay? If so, how?  

Yes. As indicated above capital income of Uruguayan source is subject to tax (personal income tax or non-resident income tax), except if exempted by law.

Dividends, interest, and rental income

As a general rule, dividends or profits paid or credited by a corporate income tax taxpayer to a resident or non-resident individual will be subject to tax at the rate of 7 percent.

Interests are taxed at a rate of 12 percent unless they are obtained from local currency deposits with a term of one year or less without readjustment clause (5 percent), from securities or other debt instruments issued with a term of more than three years through public subscription and quoted at a stock exchange (3 percent) or from local currency bank deposits with a term of more than one year (3 percent).

As an exception to the source principle, dividends and interest received from abroad are also subject to income tax when obtained by Uruguay resident individuals.

Rental income is taxed at the rate of 12 percent unless certain circumstances are met (that is, the rental does not exceed a certain total amount, the owner waives his/her bank secrecy rights and the other capital income that he/she obtains does not exceed a certain total amount).

Gains from stock option exercises

No specific rules have been established with reference to stock options, but ifthey have been granted as part of a labor compensation package they will beconsidered as labor income and subject to tax under the applicable rules forthat category. In principle the moment of taxation would be when the option isexercised.

Residency status Taxable at: 
  Grant Vest Exercise
Resident N N Y
Non-resident N N Y
Other (if applicable) N N Y

Foreign exchange gains and losses

Rents from foreign exchange difference are not subject to tax.

Principal residence gains and losses

Gains and losses corresponding to each income category (labor and income) will be attributed to that category.

Capital losses

Capital losses will be computed in that income category, and can be carried forward for two years.

Personal use items

Not applicable.

Gifts

Donations received by an individual are not subject to personal income tax (the donor will be subject to tax for the difference between the market value and the fiscal value of the donated goods).

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Uruguay? If so, please discuss?

As indicated above, capital gains that qualify as Uruguayan-sourced income will  (as a general rule) be subject to either personal income tax or non-resident income tax.

Are there capital gains tax exceptions in Uruguay? If so, please discuss? 

Not applicable.

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

Not applicable.

General deductions from income

What are the general deductions from income allowed in Uruguay?

Very few deductions will be admitted for personal income tax purposes, among them.

  • In the case of capital income from the rental of real estate, the commission ofthe real estate administrator and certain applicable taxes can be deducted.
  • In the case of labor income from employment relations, the social security contributions, children healthcare (a small predetermined amount per child), pensioners’ healthcare (a small predetermined amount) and housing rental expenses and interests from loans for the purchase of houses for permanent residence (with certain limits) will be deducted.
  • In the case of labor income from self-employment relations, a notional amount of 30 percent of the income will be admitted as a deduction, plus bad credits.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Uruguay?

Not applicable.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Uruguay? Forexample, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

As indicated above, employers have been appointed as withholding agents of thepersonal income tax that applies on their employees’ salaries on a PAYE basis.

Pay-as-you-go (PAYG) withholding

Not applicable.

PAYG installments

Is there any Relief for Foreign Taxes in Uruguay? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Uruguay has Double Tax Treaties in force and effect with Germany, Hungary, Mexico, Ecuador, Finland, Argentina, India, Malta, Portugal, South Korea and Spain (treaties with several other countries are in the process of negotiation but have not been internalized yet and are still not in force).

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Uruguay? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Uruguay has Double Tax Treaties in force and effect with Argentina, Ecuador, Finland, Germany, Hungary, India, Liechtenstein, Luxembourg, Malta, Mexico, Portugal, Rumania, South Korea, Spain, Switzerland, United Arab Emirates, UK and Vietnam (treaties with several other countries are in the process of negotiation but have not been internalized yet and are still not in force).

Unilateral tax credit is also given for foreign taxes applied on taxable dividends and interest received from abroad by IRPF taxpayers.

General tax credits

What are the general tax credits that may be claimed in Uruguay? Please list below.

As a general rule, Uruguay does not grant tax credits for Personal Income Tax purposes (deductions are also extremely limited, as indicated earlier).

Sample tax calculation

This calculation assumes a married taxpayer resident in Uruguay with two children whose three-year assignment begins 1 January 2015 and ends 31 December 2017. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

 

2015

USD

2016

USD

2017

USD

Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = UYU29.00

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Uruguay.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income

Year-ended

2015

UYU

2016

UYU

2017

UYU

Days in Uruguay during year 365 365 365
Earned income subject to income tax
Salary 2,900,000 2,900,000 2,900,000
Bonus 580,000 580,000 580,000
Cost-of-living allowance 290,000 290,000 290,000
Net housing allowance3 92,410 101,468 112,396
Company car4 41,760 41,760 41,760
Moving expense reimbursement 580,000 0 580,000
Home leave 0 145,000 0
Education allowance 87,000 87,000 87,000
Total earned income 4,571,170 4,145,228 4,591,156
Other income 0 0 0
Total income 4,571,170
4,145,228
4,591,156

Calculation of tax liability

 

2015

UYU

2016

UYU

2017

UYU

Taxable income as above 4,571,170
4,145,228
4,591,156
Uruguayan tax thereon 970,318 827,891 1,126,434
Less:   
Deductions (such as, social security and dependent children) 112,677 92,276 58,316
Total Uruguayan tax 857,641 735,615 1,068,118

Footnotes

1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

3Notionally established in 10 BFC monthly. Currently BFC 1.00 = UYU 936.63 (2017 ), UYU 845.57 (2016) and UYU 770.08 (2015). This deemed regime applied only when the housing is provided by the employer or when the employer reimburses the actual housing costs.

4This benefit is valued monthly in 0.24 percent of the historic cost of the vehicle.

© 2017 KPMG Sociedad Civil, a Uruguay limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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