Expatriate tax ebook - Uruguay

Basis of taxation

Charge to tax
Residence
Income from employment
Source of employment
Benefits (in kind)
Expatriate concessions
Deductions against income


Charge to tax
The application of income tax on individuals will depend on whether the individual fits in the definition of fiscal resident or he is considered a non- fiscal resident.

A Uruguayan legal resident may be a non-resident from the fiscal point of view. Below we detail the conditions to be met for an individual to be considered fiscal resident in Uruguay.

Income obtained by non- fiscal residents is taxed by Income Tax on Non-Residents (IRNR) and fiscal residents are taxed by Income Tax on Residents (IRPF).

Both taxes are calculated in the same way and at the same rates for the case of income arising from capital factor, but this is not the case for income arising from work factor. In the case of IRPF, deductions are allowed and the tax to be paid is calculated according to progressive rates depending on annual incomes. On the other hand, non-residents will pay at a 12% rate (deductions are not allowed).

Note that income taxed by IRPF is in general the one obtained from activities developed, assets located or rights economically used in the Uruguayan territory. Our country used to consider the source criteria both for the income tax and for contributions to Social Security.

However, since January 2011 the criteria of the source changed for IRPF and the following is also taxed:

i)     income derived from capital gains derived from deposits, loans or any kind of collocation or credit, obtained abroad by fiscal residents in Uruguay

ii)    income derived from activities developed abroad by dependent workers, if such activities are rendered to an income tax on economical activities (IRAE) taxpayer or an IRPF taxpayer

iii)    income derived from technical services rendered by non dependant workers, from abroad to local Uruguayan income taxpayers in case there are related to obtaining income levied by IRAE. Techincal services shall be those rendered in all kinds of management, technical, administration, or advisory areas. 

Residence
A person is considered to be tax resident in Uruguay when he meets any of the following conditions:

  • The person stays over 183 days in the Uruguayan territory during a calendar year. Sporadic absences shall be taken into account unless the person provides evidence of tax residence in another country.
  • The economic activities or individual interests of the person be located in Uruguay, whether directly or indirectly.

 

It is presumed that the individual has his residence in Uruguay if his wife and children under age depending on him have permanent residence in Uruguay.

In order to determine if the person stays the 183 days in Uruguay, it will be considered all days in which the person has physical presence in the country, no matter the time of comings and goings. The days in which persons are in transit to third countries will no be computed.

Sporadic absences will be considered in the case they do not exceed 30 business days, unless the taxpayer demonstrate its fiscal residence in other country.

The fiscal residence in other country should be demonstrate by a certificate issued by the fiscal authority in such country.

It is understood that the economic activities or individual interests of a person are located in Uruguay, when it generates in Uruguay the highest volume of income that in the other or others countries.

The Tax Authority will be the one in charge of the issuance of certificates related to the fiscal residence in Uruguay.

Income from employment
In general, all labor income obtained by fiscal residents (whether under a dependent work relationship or otherwise), in cash or in kind, regular and extraordinary income, among others, are taxed by IRPF.

In case of severance compensation, only the sum exceeding the obligatory legal amount payable shall be taxed, as well as food items, vacation salary, extraordinary items, health coverage and any other type of income for personal activity.

Source of employment
Until 2010, the personal income tax used to be based on the source principle, in the sense that IRPF was applied on income derived from activities developed, assets located or rights economically used in Uruguay.

In the case of income derived from labor factor, the general rule in order to be taxed was that the income had to be obtained from an activity performed in Uruguay, regardless of the place the service contract was signed or the place of salary payment.

However, this has been changed since January 2011, as mentioned, and from that date onwards IRPF will apply over all income obtained by individuals as dependant employees of Uruguayan companies taxed by IRAE, disregarding if the individual worked in Uruguay or abroad.

Benefits (in kind)
All the income a person receives for his activity in Uruguay is taxed with IRPF. The employer is obliged to withhold this tax and then pay the public agencies, the same for the case of social security contributions.

In case of severance pay, only the amount exceeding the mandatory amount will be taxed. Unemployment insurance, sickness insurance, maternity subsidy and accident temporary indemnity are not included.

Expatriate concessions - Tax-Free Zone
At any time a Tax-Free Zone company may simultaneously employ Uruguayan or foreign staff (total foreign staff working at a Tax-Free Zone company may not exceed 25% of the payroll). Foreigners may opt not to make contributions to social security. For this purpose, the companies shall provide a list with foreign staff names. Each foreign worker shall declare, individually and by means of an affidavit, that he wants to be excluded from social security regime

Foreigners who work in companies located in Tax-Free Zones may choose to be liable for IRPF or IRNR provided they have opted for not making contributions to Social Security in Uruguay.

Deductions against income
In case of labor income, contributions to the Social Welfare Office (BPS) and other social security funds when contributions are made, contributions to FONASA (Health Insurance Office), to the Labor Re-conversion Fund and the consideration allocated to the Solidarity Fund and the additional thereof may be deducted from the nominal salary.

An amount of 13 B.P.C. (Base of Contributions and Benefits) per child a year (currently, $31,421 approx. US$1,571) may be deducted as health expenses. This amount shall be doubled in the event of children of age or under age legally adjudged incapacitated, as well as upon serious disability.

Also amounts paid during the year in relations to mortgage loans installments for the purchase of permanent housing can be deducted, provided that the cost of the house does not exceed approximately US$99,250. The deductible amount may not exceed 36 B.P.C annually (currently $87,012 approx US$4,350). The benefits applies from the year 2012 onwards. 

In order to calculate the IRPF to be deducted (negative IRPF) all the expenses above mentioned should be added and the following rates scale should be applied to such amount:

Deduction Amount Rate
Up to non-taxable minimum of 36 BPC ($ 87,012) (approx. US$4,351) 10%
Over 36 BPC and up to 96 BPC ($ 232,032) (approx. US$11,602) 15%
Over 96 BPC and up to 516 BPC ($247,172) (approx. US$62,359) 20%
Over 516 BPC and up to 816 BPC ($1,972,272) (approx. US$98,614) 22%
Over 816 BPC and up to 1.296 BPC ($3,132,432)(approx. US$156,622) 25%
Over 1,296 BPC 30%

IRPF taxpayers shall make monthly advanced payments of the tax on account of the annual settlement. The foregoing scale of bands divided by 12 shall be taken into account for the monthly calculation.

In the case of dependent employee, the withholding is done in a monthly basis by the employer.

There are no other deductions when calculating income arising from the work factor taxed by IRPF beyond those previously mentioned.

Note that legally recognized marriages or concubines may opt to determine their IRPF by considering the incomes of both members of the couple jointly. In order to calculate the negative IRPF in such case, differential rate scales will apply.

If the annual earnings of each member exceed 12 National Minimum Salaries ($86,400) (approx. US$4,320) the rates applicable will be the following:

Deduction Amount Rate
Up to non-taxable minimum of 12 BPC ($29,004) (approx. US$1,451) 15%
Over 12 BPC and up to 432 BPC ($1,044,144) (approx. US$52,207) 20%
Over 432 BPC and up to 732 BPC ($1,769,244) (approx. US$88,462) 22%
Over 732 BPC and up to 1,212 BPC ($2,929,404) (approx. US$146,470) 25%
Over 1,212 BPC 30%

If the annual earnings of one member of the couple does not exceed 12 National Minimum Salaries the rates applicable will be the followings:

Deduction Amount Rate
Up to non-taxable minimum of 48 BPC ($116,016) (approx. US$5,800) 10%
Over 48 BPC and up to 84 BPC ($203,028) (approx. US$10.151) 15%
Over 84 BPC and up to 504 BPC ($41,218,168) (approx. US$60,908) 20%
Over 504 BPC and up to 804 BPC ($1,943,268) (approx. US$97,163) 22%
Over 804 BPC and up to 1,284 BPC ($3,103,428) (approx. US$155,171) 25%
Over 1,284 BPC 30%

Other deductions or advance payments
A recent change in relation to the personal income tax (IRPF) admitted taxpayers that rent a building for permanent housing during the year, to deduct up to the 6% of the leasing price from the net tax to be paid, as an advance payment.

The Uruguayan Government is also now considering to extend this benefit to temporary leasing with tourist purpose.


Information about Uruguay:

  • introduction
  • facts and figures
  • basis of taxation
  • what taxes?
  • tax planning opportunities
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    Last updated March 2013
    This information has been provided by Grant Thornton S.R.L. Uruguay, a member firm within Grant Thornton International Ltd and is for informational purposes only. Neither Grant Thornton S.R.L nor Grant Thornton International Ltd can guarantee the accuracy, timeliness or completeness of the data contained herein. As such, you should not act on the information without first seeking professional tax advice.
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