URUGUAY: An Introduction to Private Wealth Law

URUGUAY: AN ATTRACTIVE COUNTRY IN WHICH TO LIVE AND INVEST

The High Net Worth Individual Uruguayan market has shown strong growth over the past two years. In addition to the country’s traditional advantages related to its political and legal stability, low levels of corruption, exchange freedom and no restrictions on the inflow and outflow of capital or funds, the new Uruguayan Government (in power since March 2020) has recently approved several measures to encourage the establishment of foreigners in the country. The aim: to promote not only the possibility of residing and living in Uruguay, but the performance of activities and development of business from our country to others.

Moreover, the conditions Uruguay has faced during the COVID-19 pandemic have been much kinder compared to those suffered by most other Latin American countries, which has also resulted in an increased interest in residing in the country.

The most significant measures adopted by the Uruguayan Government are the following:

1. Lessened requirements for the issuance of the tax residence certificate, stipulating that an individual has his/her economic interests in Uruguay if, for example, he/she has local investments in real property greater than USD 400,000 and is physically present in Uruguayan territory for at least 60 days during a calendar year; and

2. Extended the 5-year option period of a tax holiday to 10 years, applicable to assets located abroad, for those foreigners who have been granted Uruguayan tax residency.

These Government incentives are in addition to the existing Free Trade Zone regime benefits, meaning that individuals who choose Uruguay in which to reside, perform commercial activities, or provide services through Free Trade Zone companies will benefit from local tax exemptions (almost completely).

Tax residency 

Uruguayan law defines the concept of tax residency according to two distinct hypotheses. On the one hand, an objective hypothesis based on the physical presence or permanence of an individual in Uruguayan territory (of more than 183 days in the calendar year); on the other, a more subjective hypothesis, based on the establishment of certain economic or vital interests in Uruguay.

In relation to the second, more subjective scenario for achieving tax residency, the centre of an individual’s economic activity is deemed to be located in Uruguayan territory only when that person earns a greater income in Uruguay than in any other country. Thus, the generation of pure capital income, even when all assets are located in Uruguay, does not constitute the centre of an individual’s economic interests in Uruguay, and tax residency is therefore unlikely to be achieved.

Unless the individual provides evidence of his/her domicile for tax purposes in another country, the centre of an individual’s economic interests is deemed to be located in Uruguayan territory when:

a) The individual’s direct investments in real estate property are greater than approximately USD 1,650,000;

b) The individual’s direct or indirect investments in Uruguayan companies pursuing activities or projects deemed of national interest are greater than approximately USD 5,000,000;

c) The individual’s investments in real estate property are greater than approximately USD 400,000, provided that investments are made as of 1 July 2020 and the individual is physically present in Uruguayan territory for at least 60 days during a calendar year (sporadic absences are not to be considered for the achievement of the 60 days permanence in Uruguayan territory);

or

d) The individual’s direct or indirect investment in a company is greater than approximately USD 1,650,000, provided that it is made as of 1 July 2020 and at least 15 new direct positions are created hiring full-time employees during the calendar year concerned.

Alternatively, an individual may obtain tax residency in Uruguay through their vital or personal interests. Living in Uruguay with one’s family also means an individual may achieve fiscal residence and may do so without fulfilling any of the above economic tests. As such, this option has been considered by people of nearby countries looking for both tax optimisation and a good quality of life.

Taxation system for natural persons after obtaining tax residence

Once Uruguayan Tax Resident status has been granted, the individual will be subject to the corresponding taxes in his/her capacity as resident. Therefore, he/she shall be subject to the Personal Income Tax (IRPF).

Notwithstanding the above, recent regulations stipulate that any natural person who acquires the capacity of a Uruguayan Tax Resident, as of 1 July 2020, may choose from the following tax options:

a) To pay the Non-Residents Income Tax (IRNR) for the tax year in which the change of tax residence is verified and for the following 10 years (in total 11 fiscal years); or

b) To pay IRPF from the fiscal year in which the status of Uruguayan Tax Resident is verified at a rate of 7% indefinitely (this is a reduced rate, the standard rate being 12%).

The option of paying IRNR (instead of IRPF) exclusively refers to passive income from abroad, meaning income arising from capital invested in loans and deposits and in general, from any investment of capital or credits of any kind whatsoever, provided that said income derives from non-Uruguayan legal entities and other entities not incorporated under Uruguayan law or domiciled in Uruguay. It should be noted that this option may only be exercised once, allowing the individual to be exonerated for a period of 11 years for those incomes originated abroad.

Conclusion 

Therefore, it is clear that Uruguay has established itself as an attractive international alternative for those in search of tax optimisation, as well as a good quality of life and socio-economic and political stability.