Tax residency is one of the tools many countries use to attract investment and talent from abroad. In the case of Uruguay, its political and economic stability, as well as its competent management of the health crisis caused by the coronavirus, make it an attractive place to land and tax.
The changes the country made to the law transforming the tax system (Law No. 18,718) and to the budget law (Law No. 18,719) make it necessary to review the effects they have to determine what income tax should be paid in Uruguay in the case of natural persons.
Law No. 18,718 included the profits obtained abroad of movable capital from loan deposits, and investments of capital or credit of any kind, obtained from 2011 as taxed income as per income tax of natural persons.
Moreover, Law No. 18,719 included those profits derived from personal services in treatment of dependency developed abroad as taxed income, only when they are provided to taxpayers of income tax on economic activities or IRPF (income tax).
Conceptually, the tax residence determines the personal income tax applicable to each person, and it is assigned to the income of non-residents in case they are not residents. It should be noted that this concept is relatively recent, being introduced in 2007 in tax reform Law No. 18,083 to differentiate it from the legal residence that foreigners who settle in Uruguay can obtain.
Requirements for obtaining tax residence in Uruguay
The norm establishes two modalities for obtaining fiscal residence in Uruguay, and both are valid. In one case, it is necessary to have an annual presence on Uruguayan territory of 183 days and the sporadic absences to be of less than 30 calendar days. The other is when the person has their economic or vital interests in the country, evidenced by the economic activity they carry out and generates higher incomes than in any other country, or through the residence of their family (spouse and children under age). In both cases, it is the general tax directorate (DGI) that certifies the status of tax resident.
These two modalities are not the only ones, since the conditions that previously existed in the regulations for granting tax residence without the requirement of permanence are maintained, with a significant decrease in the amounts required, but to which new conditions are added. In the first case, it is necessary to have an investment in a company that is within the framework of the Investment law and for a total of 15 million indexed units (UI), about 1.6 million dollars, but with the new condition of creating 15 jobs. The other possibility is to have an investment in real estate higher than 3.5 million IU, approximately 375 thousand dollars, to which the requirement of a minimum presence in the territory of 60 days is added.
The Uruguyan government has formulated a bill to extend by 10 years, for those who obtain the status of tax resident the tax on the income of movable capital by the non-resident income tax (IRNR by its acronym in Spanish). In addition, from the 2020 financial year, it is allowed to permanently charge , at a rate of 7%, the income tax of natural persons (IRPF by its acronym in Spanish) to whom obtain fiscal residence.
Avoiding double taxation
One thing the person who changes their tax residence should verify is that they no longer belong to this category in their country of origin, thus avoiding double taxation for having a second residence. “It is essential to carefully evaluate the requirements of the country to where they want to move, as well as from where they want to leave since this analysis will give clarity on the appropriateness of such an operation,” explains Ricardo De Leon, director of Englobally Uruguay.
In this regard, Uruguay has signed 21 agreements with several countries to avoid double taxation. In America with Argentina, Chile, Paraguay, Canada, Ecuador and, Mexico. In Europe with Belgium, Denmark, Germany, Greenland, Finland, France, Hungary, Iceland, the Faroe Islands, Liechtenstein, Luxembourg, Malta, the Netherlands, Norway, Guernsey, Portugal, Spain, Sweden, the United Kingdom, Romania and, Switzerland. And in Asia, Africa, and Oceania with South Korea, the United Arab Emirates, Australia, Singapore, India, South Africa, and Vietnam.
Agreements ratified by the Uruguayan Congress, but not yet in force, with Brazil and Italy are added to this.