Uruguay: Decree clarifies definitions of low-tax, no-tax jurisdictions

Uruguay: Definitions of low-tax, no-tax jurisdictions

The Uruguayan government issued a decree establishing conditions under which a country, jurisdiction, or tax regime will be treated as a “low-tax” or “no-tax” jurisdiction for Uruguayan tax purposes. The decree (issued 13 February 2017) helps establish whether a foreign legal entity will be subject to the increased tax rates recently introduced in an effort to address tax avoidance through structures that involve low-tax or no-tax jurisdictions.

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Uruguay recently passed Law No. 19.484—a fiscal transparency law establishing a number of measures (e.g., increased income tax rates, exceptions to the territorial principle, CFC rules)—aimed at discouraging the use of entities in low-tax or no-tax jurisdictions.

“Low-tax” or “no-tax” defined

The decree defines the concept of “low-tax” or “no-tax” jurisdictions to provide that a foreign entity will be subject to the fiscal transparency law if the following two conditions are met: 

  • The entity is subject in its country of residence to a tax rate of less than 12% on the activities, assets, or economic rights used or located (as the case may be) in Uruguay; and 
  • A tax information exchange agreement or a income tax treaty with an information exchange clause is not in force between Uruguay and the entity’s country of residence.

The decree also provides the Uruguayan tax administration with the authority to develop a list of countries, jurisdictions, and tax regimes that satisfy these conditions.

Effective date

The decree is effective 1 January 2017.  However, the applicable legislation (i.e., the fiscal transparency law) provides a grace period until 30 June 2017, during which certain corporate restructuring or similar transactions that are implemented by taxpayers in order to exclude the use of entities in low-tax or no-tax jurisdictions will benefit from tax exemptions and certain other advantages (e.g., simplified procedures with respect to re-domiciliation to Uruguay).

 

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

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