Open Door Consultancy: What You Need to Know on Uruguay Tax Changes
There has been much debate not only the Uruguayan Senate but also amongst nomads and expats whether Uruguay were to upend their entire financial and tax system, making it unviable as a person who works remotely or lives off of remote income.
Fortunately, the changes have been finalized and are now in effect for us, so the guessing game is over–but what exactly has changed for you and I now?
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FOREIGN INCOME TAX TREATMENT
The “source” which means whether it is deemed Uruguayan income or abroad, has been broadened to encompass more activities as being taxable within Uruguay
a) Returns on movable and real estate capital from non-resident entities. This excludes, without limitation, such income derived from the exploitation of royalties, trademarks, patents, goodwill and image rights.
b) Capital increases (capital gains) linked to the assets referred to in the previous paragraph. Now, both capital returns (movable and real estate) and capital increases (e.g.: sale of shares or real estate) generated abroad will be taxed by IRPF at the rate of 12%, except for unique circumstances.
New Currency Risk
Gains on equity increases (capital gains) will be determined in the original currency, converted to Uruguayan pesos at the exchange rate of the day preceding the sale, and calculated as the difference between the sale price and the acquisition cost, depending on the documentation that the regulation may set forth as valid to demonstrate the cost.
– Financial assets listed on prestigious exchanges: tax cost to be counted in a future sale will be its trading value as of 31/12/2025 (for those acquired prior to 1/1/2026).
– Unlisted financial assets: regulations may provide criteria similar to the one mentioned above, provided that their value may be reliably determined.
– General fixed amount (non-real estate): option of fixed determination of tax income at an effective rate of 2.4% of the sale price (20% of fixed gain on the sale value, at the rate of 12%).
– Real estate fixed amount: option of fixed determination of income at an effective rate of 1.8% of the sale price (15% of fixed gain on the sale value, at the rate of 12%).
Tax credit for taxes paid & Compensation
Taxpayers of IRPF who have been subject to tax abroad for capital income, may evidence such tax paid abroad against any IRPF generated. The credit to be charged may not exceed the amount of IRPF that corresponds to such income.
Although it is not yet expressly set forth, the regulatory decree is likely to enable as evidence against IRPF any taxes paid abroad in the event of intermediary companies. Also, negative results from capital increases (e.g., sale of shares) may be compensated with other gains from capital increases or gains from income on movable capital (e.g. dividends and interest) obtained abroad.
No Longer Privacy!
From 1/1/2026, a tax transparency regime will be applicable for non-resident companies and Uruguayan companies that are taxpayers of the IRAE due to their legal status.
Therefore, income of movable and real estate capital, as well as capital increases from abroad, obtained by the aforementioned entities, will be allocated directly to the taxpayers of IRPF, as long as these people are the ultimate beneficial owners of the entities that obtain the aforementioned income.
For this purpose, anyone holding a direct or indirect interest in the company of at least 5% shall be deemed to be the ultimate beneficial owner. Even Canada is listed at 10% for their CFC rules!!
Additionally, the Executive Branch is empowered to demand payments to IRAE taxpayers and non-resident entities whose holders of equity interest are resident individuals, for any tax obligations subject to allocation.
This is one of the most significant changes to the entire tax system, as it effectively destroys their awesome offshore holding company regime.
Taking after the European Golden Visas
For those tax residents who obtain capital income from abroad subject to IRPF, not on the Tax Holiday (more below), they may opt to pay IRPF only once per year for a fixed amount of UI 1,875,000 (approximately USD 300,000) annually for all their income. It essentially is a fixed capped tax rate.
IMPATRIATE REGIME or as you know it… the TAX HOLIDAY
Uruguay’s main appeal is that non-resident individuals who acquire the status of tax resident in Uruguay may choose not to tax IRPF for the income of movable capital from abroad for the financial year where change of residence to Uruguayan territory was verified and during the following 10 years, which were originally 5 (Tax Holiday regime)
Tax Holiday from Now On
People who acquire their status as tax resident in Uruguay from the financial year 2026, may choose to exercise the Tax Holiday option only once, provided that they meet any of the following NEW conditions:
To apply for the regime will be that the individual has not been a tax resident during the two immediately preceding fiscal years and has not previously applied for the Tax Holiday regime.
a) Presence in Uruguay: staying in Uruguay for more than 183 days during the calendar year in each financial year.
b) Investment options:
– Investment in real estate with a value greater than UI 12,500,000 (approx. USD 2,000,000), as provided by the regulations, or;
– Investment in venture capital funds aimed to finance productive projects, research or innovation applied to production as determined by the Executive Branch, for at least UI 625,000 (approx. USD 100,000) per year. (The as determined by the Executive Branch is a key point for me here…)
Extension and Fixed Payment Option
Once the 10-year term of Tax Holiday has been completed, IRPF must be taxed under the general regime once again, however now taxpayers may choose between the following alternatives if they want a continued benefit:
a) Extension for 5 years at reduced rate:
An additional benefit for 5 years, with a reduction of 50% of the rate in force at the time of the option (which would currently imply a reduction from a rate of 12% to 6%) for the income mentioned in item I). In order to access this regime, the following options are further defined as:
– Investment in real estate as determined by the regulation, for a minimum amount of UI 6,250,000 (approximately USD 1,000,000), or
– Investment in venture capital funds mentioned in the previous item for at least UI 625,000 (approximately USD 100,000) per year (for the 5 years).
b) Fixed payment:
This implies paying a fixed amount of IRPF equivalent to UI 1,875,000 (approximately USD 300,000) per year for all the income indicated in item I). This option will be on an annual basis for a period of up to 20 fiscal years after the expiration of the Tax Holiday. In other words, if you go this route, you can extend the benefits for 20 years, not only 5 (albeit spending 300,000 a year in tax).
However to complicate things further…if you go this fixed payment route, there’s a way to reduce the amount to UI 1,250,000 (approximately USD 200,000) in the following scenarios:
– Staying in Uruguay for more than 183 days during the financial year, or
– Investing in a company, aimed at increasing its productive capacity, for a value greater than UI 45,000,000 (approximately USD 7,200,000), according to the conditions determined by the regulations.
These options (reduced rate and fixed payment) may be exercised ONLY by those individuals who have made use of the Tax Holiday, even by those for whom the term of the original benefit has already expired (which the exception of the 300,000 fixed tax route, which is technically valid for 30 years total.
Important Note
Income stemming from work (i.e. wages, salaries, etc.) is subject to progressive rates ranging from 10% to 36%. As only a few expenses are allowed as deductions (such as social security contributions and a notional amount corresponding to education, feeding, health, and housing of dependent underage children), almost the whole gross income is subject to this tax.
This means that paying yourself a foreign-based salary in Uruguay still constitutes as taxable income… the tax holiday is specifically based for investment based income, not other forms of income.
Closing
In short, Uruguay remains to be a jurisdiction that offers a tax holiday for qualifying new residents. The qualification of this can be broken into two main categories
- Put in the time of 183 days or;
- Bring significant amounts of wealth either in the form of real estate, limited-optioned venture capital or flat tax sums.
Uruguay is at a tipping point. As you’ve read in my prior article, it is now becoming a place never better for the wealthy, while the average Uruguayan is genuinely beginning to struggle. Uruguay’s new tax changes are sending a clear message… if you’re not going to bring huge amounts of money to our borders, or live here (so we can get the enormous VAT out of you), we’re not interested.
Honestly, for a socialist government desperate to keep their welfare state kicking… this was a pretty good move as it enabled the tax benefit to stay alive, it will raise millions in tax revenue and likely attract the best of the apples we should say. Having said that, the other changes by broadening the scope of taxes, destroying some of their privacy and murdering the holding company regime for their local citizens and non-tax holiday residents will have a huge negative impact on locals or those who have stayed there for decades.
My elementary idea is that Uruguay is going to remain a hideout and hideaway for wealth and the ultra wealthy in the Americas, in addition to it being a resort town. If you were to move a lot of money into land there–it would be a sound decision…however deciding to move your operating business there, it increasingly doesn’t make sense to choose Uruguay. Even though it is bordering two countries, it is operating like an offshore company more and more.
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