Uruguay

Find legal, tax and practice information for Uruguay, and search for branches, firms and members in the jurisdiction. If you have any comments on the report please contact [email protected]

*Updated July 2019*

Editorial Board

Fernando Elías TEP, The Winterbotham Trust Company (Uruguay) SA, Montevideo
Ricardo Romero TEP, The Winterbotham Trust Company (Uruguay) SA, Montevideo
Iván Hooper TEP (lead editor), Winterbotham Fiduciaria SA, Montevideo

New developments

Uruguay has continued to take actions to comply with OECD requests in respect of the effective exchange of tax information. Having adhered to the Convention on Mutual Administrative Assistance in Tax Matters as from 2018, it has passed Law No. 19.484 and its appertaining regulations, by which the country is expanding its capacity to fight international tax avoidance and evasion.
In May 2019, the Law No. 19.749, targeting the combat of the financing of terrorism and weapons of mass destruction, was approved. The Law consolidates and adapts the legislation against the financing of terrorism and the application of financial sanctions against persons and entities linked to terrorism, their financing and the proliferation of weapons of mass destruction.
The new government committed to add more flexibility to the process foreigners go through to become local tax residents as from July 2020. In this sense, it has passed Decree 163/020 by which individuals can obtain Uruguayan tax residence by either purchasing real estate property and remaining at least 60 days in the country, or investing in local companies. In addition, the government has sent a draft bill to the Uruguayan Parliament, which shall be subject to the approval of the General Assembly that contemplates an increase from give to ten years of the current personal income tax exemption new fiscal residents would benefit from, with respect to foreign-sourced dividends/interest earned.

Legal system

Civil law.

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Inheritance and succession

Succession

Uruguay, differing from those countries ruled by Anglo-Saxon law where the right to dispose of the assets after death prevails over forced heirships, provides for forced heirship rules, irrespective if the person dies testate, intestate or having established a testamentary trust.

It is a quite exceptional practice to grant wills, in particular for people who have direct descendants or ascendants (forced heirs, according to the Civil Code).

Except for extraordinary cases (such as war) the granting of a will is a solemn act. As such, it must be signed as public deed before a Uruguayan notary public and witnessed. If it is an open will, its text will be read by the notary in the presence of the grantor and three witnesses. However, if it is a closed will, the grantor will deliver it to the notary public in a closed envelope in presence of five witnesses. In any case, the notary public must notify the Register of Wills that a will has been granted by a particular individual. The notary public will not give any further information regarding the testamentary dispositions. The same solemnities will be necessary for a will revocation or amendment.

The trust law that came into effect on 27 October 2003 (Law No. 17.703) prescribes, under art.2, for the possibility that a trust be created by will. When a person dies the estate is legally opened and with the death certificate at hand a registrar search shall be conducted to determine whether there is a last will in place.

The judge’s decision to declare heirs is of a declarative nature, as the sole death of the person conveys the assets to their legal heirs (Civil Code, arts.1.037, 1.039).

Family law and defined inheritance rules

Yes. The principle rules relating to forced heirship are if the deceased person had:

One direct descendant, one-half of the estate shall be reserved for this descendant and the other half may be freely distributed under a will.
Two direct descendants, two-thirds of the estate will be reserved for them.
Three or more direct descendants, three-quarters of the estate shall be reserved for them.
No direct descendant, but at least one direct ascendant, half of the estate shall be reserved for this ascendant.

The surviving spouse may have the right to receive a portion of the assets of the deceased in particular cases (this is a specific rule for the assets of the deceased spouse, which is different to those of the matrimonial regime that regulate the ownership of the assets acquired during the marriage). If the deceased had no direct descendants, the surviving spouse’s portion (in cases where these rules apply) shall be one-quarter of the estate. If the deceased had descendants, the surviving spouse’s portion shall be equal to the legitime of one direct descendant.

If there are neither descendants, ascendants nor a surviving spouse, there may be other heirs (such as brothers, sisters, nieces, nephews, cousins, etc), but they will not be forced heirs, and will not be entitled to any legitime. In this case, a testator may freely distribute all their assets by means of a will, in favour of anybody, without legal restrictions.

If there are no heirs and the deceased has not granted a will, the ultimate heir will be the government (currently, the Agency of Public Education).

Probate process

The Uruguayan law of probate will be applicable to the assets of the deceased located in Uruguay. Heirs (both testamentary and non-testamentary) must be declared by a court after a judicial process in which the intervention of the Attorney General’s representative is mandatory. The court’s declaration will also ratify the rights of the surviving spouse in accordance with the matrimonial regime that regulated the ownership of the assets acquired during the marriage.

Mental capacity

Individuals obtain full legal capacity at the age of 18, except when they are declared legally incapable by a court, as a result of a judicial process in which the intervention of the Attorney General’s representative is mandatory. Any adult may be declared legally incapable by a court, the court must then appoint a curator for this person. The process must be initiated by a relative of the individual or the spouse, or the Attorney General. In a case of mental incapacity, the judge must personally interrogate the individual and receive at least two medical reports (Civil Code, arts.431–450).

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Estate planning

Use of trusts in estate planning

In Uruguay, the use of trusts in estate planning is limited. The trust business market is developing along the lines of other established Latin American markets. Local trusts have been used primarily as a tool to raise funds for different purposes, as well as a conduit to channel pension funds’ investments into assets in the farm, forestry, renewable energy or real estate sectors. For example, trusts have been used to issue bonds to the public to finance investments made by public utility companies, as this vehicle is very helpful at the time of securitising accounts receivable and to shield future cash flows. Local trusts are also used to structure guarantees, for example in real estate development projects, as security for lenders when the borrowing party is issuing debentures. Foreign institutional investors have implemented Uruguayan trusts to acquire distressed debt and other assets in the local market.

Use of foundations in estate planning

NOT APPLICABLE

Types of entities

Sociedad Anonima Uruguaya (SAU): SAUs are Uruguayan domestic companies regulated by the Commercial Companies Law (Law No. 16.060). They follow the Uruguayan territorial tax regime and pay taxes, in general, only if they carry out activities, generate profits or hold assets within Uruguay.
Sociedad Anonima De Zona Franca (SAZF): SAZFs (free trade zone companies) were created within the scope of the Free Trade Zones Law (Law No. 15.921 of 1987) and subsequent decrees. SAZFs can carry on all types of commercial and industrial activities and provide services within the free trade zones and outside Uruguay. SAZFs are exempt from all taxation, except for the annual cannon (USD650 per year). By-laws must specify that the company is incorporated under the Free Trade Zones Law, and the company must receive a Free Trade User Card. The user may be direct (i.e. the SAZF enters into a contract directly with the administration of the free trade zone) or indirect (i.e. the SAZF hires the services of a direct user already established in the free trade zone). The government is fostering the establishment of those SAZFs that create jobs and take advantage of free trade zone service providers, to the detriment of those ‘paper’ SAZFs established for the purpose of doing business offshore only.
Sociedad de Responsabilidad Limitada (SRL): The Commercial Companies Law prescribes for the establishment of partnerships. It is mandatory that they have at least two partners and, in general, they are liable to the same local taxes as SAUs when they do business locally.
Sociedad Anonima Simplificada (SAS): Decree 399/019 was enacted on 23 December 2019 to finally give birth to this new type of commercial entity created by Law No. 19.820. The SAS aims to cater for the needs of entrepreneurs looking for a flexible investment vehicle that combines some of the attributes of the existing SAU and SRL to simplify its incorporation process and its ongoing administration, while at the same time providing the required level of legal certainty.
Sociedad Anonima Financiera de Inversion (SAFI): SAFIs are no longer in existence. Legislation effective 1 July 2007 made it no longer possible to incorporate SAFIs and, as of 31 December 2010, existing SAFIs lost their tax benefits and are now treated as regular SAUs from a tax point of view.

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Taxation

Income tax system

Uruguay’s income tax system is, save for minor exceptions, territorial. Local companies, local branches of foreign companies and resident individuals pay taxes on income generated in or derived from activities or assets located in Uruguay. However, from 1 January 2011, changes were introduced to the territorial system (for Uruguayan residents only):

Income deriving from movable assets obtained abroad (dividends, interest) are now liable to income tax at the rate of 12 per cent.
Worldwide income for salary payments received by staff are subject to corporate income tax when they work overseas.

Personal income tax system

The personal income tax system is divided into two categories: employee remuneration and capital gains. Employee remuneration is taxed at rates ranging from 0 to 36 per cent. The capital gains rate is, in general, 12 per cent (i.e. real estate rental income or gain on its disposal).

Corporate income tax rates

Corporate income tax is levied at a rate of 25 per cent.

Capital gains tax

The capital gains rate for an individual is, in general, 12 per cent. In general, unless there is an exemption, local companies are taxed for all the revenue they generate from a Uruguayan source, at a rate of 25 per cent.

Non-residents taxable on

Dividends (7 per cent), interest (12 per cent), rental income (10.5 per cent), technical services (12 per cent).

Withholding tax rate (non-treaty)

The general withholding tax rate for income is 12 per cent, for dividends it is 7 per cent.

Withholding tax rate (treaty)

Rates vary depending on the particular agreement.

Taxation at death

Estate tax applies, as follows:

3 per cent on the value of the estate for direct heirs (children, grandchildren).
4 per cent on the value of the estate for remaining heirs.

Estate tax is applicable only to real estate property. The tax rate will be 3 or 4 per cent of the fiscal value of each real property, which is in general lower than the market value of the assets.

Other taxes

Wealth tax is levied at 1.5 per cent on assets located in Uruguay or receivable balances due from Uruguay.

Value-added tax is levied at a rate of 10 or 22 per cent. Other taxes in Uruguay include immovable property transfer tax, social security contributions, education tax, municipal property tax, import duty, and dividends tax (7 per cent on taxable income).

Tax treaties

Uruguay has signed double-taxation agreements with the following states: Argentina, Belgium, Chile, Ecuador, Finland, Germany, Hungary, India, Liechtenstein, Luxembourg, Malta, Mexico, Paraguay, Portugal, Romania, Singapore, South Korea, Spain, Switzerland, the UAE, the UK and Vietnam.

Tax information exchange agreements (TIEAs)

Uruguay has signed TIEAs with Australia, Brazil (not yet in force), Canada, Chile, Denmark, the Faroe Islands, France, Greenland, Guernsey, Iceland, Norway, the Netherlands, South Africa, Sweden and the UK.

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Residence and domicile

Special rules on becoming resident

A legal resident must have obtained an authorisation from the National Immigration Office and a national identity document. A legal Uruguayan resident may not be a resident for tax purposes because different rules apply.

However, a person is considered a tax resident if they:

Stay more than 183 days in the Uruguayan territory during any calendar year (unless the person provides evidence of tax residence in another country); or
have their main economic activities or personal interests in Uruguay (for example, when their spouse and minor children have permanent residence in Uruguay).

Special rules on ceasing residence

Legal residency ceases when the national identification document expires for not being renewed.

Tax residency is a factual situation, thus it will cease whenever the person no longer complies with the requirements explained above.

Domicile concept for gifts and inheritance

NOT APPLICABLE

Taxation of holdings by non-residents on death and of gifts

Gifts: general rules apply.
Death: general rules apply.

Reporting/auditing requirements

Different financial reporting and audit requirements may be imposed on Uruguayan entities by the tax authority and/or the Internal Audit of the Nation if certain asset/revenue levels are met.

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Other relevant information

Asset protection laws

Local commercial and civil laws provide for the protection of creditors' rights against the fraudulent transfer of debtors' assets.

Foreign currency restrictions

No foreign currency restrictions apply in Uruguay nor is there any restriction to bring lawful funds into or transfer funds out of Uruguay.

Foreign ownership restrictions

No.

AML/due diligence and other requirements and regulatory procedures for advisors

The country is fully committed to the fight against money laundering and terrorist financing. In this respect, during recent years Uruguay has significantly strengthened its legal framework regarding AML and counter-terrorist financing (CTF), and regulations were updated and brought into force with the approval of Law 19.574 in January 2018 plus updates to Central Bank regulations specifically targeted to financial players. The new legislation presents a solid scenario in terms of the regulatory environment promoting, at the same time, an effective implementation of the mandate.

The Central Bank of Uruguay’s FIU has been a full member of the Egmont Group since 2010, an organisation comprising financial intelligence units from 155 different countries and jurisdictions. International cooperation is carried out through this group and is crucial in order to achieve efficient results against crime.

The country, as part of its commitment with AML/CFT matters and in order to be aligned with international best practices, reinforced the controls on regulated non-financial institutions such as casinos, auctioneers, corporate administrators and real estate agents.

During 2019, the Financial Action Task Force on Money Laundering in South America conducted the peer-to-peer review, which resulted, as expected, in a satisfactory report on the country, being rated in all the recommendations as compliant or mostly compliant. The purpose of the review is to assess compliance with international standards on AML/CFT matters, as contained in FATF's 40 Recommendations, both from the point of view of technical compliance and effectiveness in its application.

Other points of interest

Regarding disclosure and transparency of taxpayers’ accounts, changes were introduced allowing investigation of taxpayers’ accounts at the request of the tax authority’s managing director and always provided there is enough evidence to conclude that there has been fraudulent activity. Investigation of taxpayers’ accounts may also be initiated at the request of a foreign tax authority with which Uruguay has signed a TIEA.

Key resources for further information

Central Bank of Uruguay: www.bcu.gub.uy
Centre of Economic Research CINVE: www.cinve.org.uy
Free Trade Zone Montevideo: www.zonamerica.com
Montevideo Stock Exchange: www.bvm.com.uy
URUGUAY XXI: www.uruguayxxi.gub.uy
Uruguayan Academic Net: www.rau.edu.uy
Uruguay Parliament: www.parlamento.gub.uy
Uruguayan government: www.presidencia.gub.uy

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