• Satisfying treaty reporting obligations
• Rules on the treatment of low-tax jurisdictions
• Provisions mandating disclosure of the ultimate beneficial owners of certain resident and non-resident entities

The new law’s provisions are effective as of 1 January 2017.

The main purpose of the law (passed by the parliament on 29 December 2016) is to introduce international standards regarding fiscal transparency and to discourage the use of “tax havens.” The new provisions, thus, need to be considered by multinational corporations when structuring their operations and may have an impact on their effective tax burden.   

The new law requires domestic financial entities and subsidiaries of non-resident financial entities to provide certain information about their resident and non-resident clients to the Uruguayan tax authorities on an annual basis. Such information includes account balances as of the end of the calendar year, annual account averages, gains or profits generated by deposits, and financial assets held in custody by the financial entity. 

The new law applies regardless of any bank secrecy obligations the financial entities may have toward its clients. These reporting obligations are effective beginning 1 January 2017.

The new law requires certain resident and non-resident entities to disclose the identity of their ultimate beneficial owners to the Central Bank of Uruguay. “Ultimate beneficial owners” are defined as individuals that, directly or indirectly, hold at least 15% of the entity’s capital or voting rights, or otherwise have control over the entity.

Additionally, owners of nominative shares of Uruguayan entities must also register with the central bank. This reporting obligation already applies to holders of bearer shares.

The reporting requirements will apply to resident entities and nonresident entities that have a permanent establishment or their place of effective management in Uruguay, or that own local assets valued above approximately US $300,000. Certain exceptions apply for securities that are quoted on stock exchanges or held by or through foreign investment funds and trusts duly constituted and supervised in their country of residence, subject to conditions established by subsequent regulations. 

Failure to comply with these reporting obligations will result in monetary penalties and other sanctions, including a prohibition on dividend distributions and the suspension of tax certificates.

Regulations setting forth procedures to comply with the reporting obligations established by the new law are expected to be issued.

The new law also introduces measures to discourage the use of foreign entities located in low tax jurisdictions or that benefit from low tax regimes. These measures include:

• A sourcing exception for certain capital gains: Capital gains from the transfer of shares in a low tax jurisdiction entity will be considered to be Uruguayan-source income and will be subject to tax in Uruguay if more than 50% of the entity’s assets are located in Uruguayan territory. Such transactions previously did not give rise to Uruguayan-source income and were, thus, not subject to Uruguayan tax.
• A sourcing exception for transactions between related taxpayers: When entities in low-tax jurisdictions engage in transactions with related Uruguay entities, 50% of the income obtained by such foreign entities from the sale of goods to the Uruguayan related entities will be considered Uruguay-source income, subject to tax in Uruguay. Such sales previously did not give rise to Uruguayan-source income and where thus not subject to Uruguayan tax.
• Increase in the net worth tax (IP): The rate of the net worth tax (IP), which applies based on the value of local assets owned by such entities (including real estate), is increased from 1.5% to 3%.
• Increase in the non-resident income tax (IRNR): The new law increases teh rate of the IRNR from 25% to 30.25% for rental income from real estate located in Uruguay.
• Increase in capital gains taxation on the transfer of certain goods by non-resident entities: Capital gains of non-resident entities located in low tax jurisdictions from the transfer of goods located in Uruguayan territory will be subject to tax at a rate of 30%, based on the selling price or market value of the goods. Such transfers were previously taxed at a rate of 20%.

These new measures are effective 1 January 2017.  

The new law includes an exemption from taxes levied on the transfer of Uruguayan assets by entities in low tax jurisdictions, provided the transfer takes place on or before 30 June 2017 and is subject to certain other conditions. This provision is meant to facilitate the restructuring of operations that may be affected by the changes introduced by the new law.

The new law incorporates provisions adopting the OECD recommendations under BEPS Action 13, regarding Master file and country-by-country reporting for transfer pricing purposes. These provisions are effective 1 January 2017.

For more information, contact a tax professional with KPMG’s Latin America Markets practice or with the KPMG member firm in Uruguay:

Devon M. Bodoh | +1 (202) 533 5681 | dbodoh@kpmg.com

Alfonso A-Pallete | +1 (305) 913 2789 | apallete@kpmg.com

Luis A. Aisenberg | +598 29024546 | luisaisenberg@kpmg.com

Gustavo Melgendler | +598 29024546 | gmelgendler@kpmg.com