Newly introduced regulation supporting software technology business in Uruguay sets precedent for other Latin American countries. Uruguay is a pioneer in regulations for and development of technologies in the region; the country has a tax framework that reaches streaming service providers such as Netflix and Spotify, which is something that other countries in Latin America such as Peru are still working to implement.
In the midst of technological disruption around the world, the development of appropriate legal frameworks to support tech innovation is a crucial focus for most governments. In Uruguay, software companies are now eligible for certain tax exemptions to support their growth. In this article, we touch upon the current regulation for the software technology business in Uruguay.
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What are the tax exemptions for software technology business in Uruguay?
The Uruguayan government evaluates several factors to determine whether software technology companies are eligible for tax exemptions or deductions. In general terms, software technology businesses in Uruguay can apply for exemptions from the Economic Activity Income Tax (Impuesto a la Renta de Actividades Económicas, IRAE) or applicable for deductions.
The eligibility conditions for these tax benefits include:
- Software production companies: income derived from the lease, use, grant or transfer of software can receive tax deductions, provided that the relevant software is registered according to the intellectual property regulations in Uruguay. The deductive percentage is calculated based on a coefficient that considers expenses and costs.
- Software services companies: companies can receive IRAE exemptions if they employ full-time human resource in accordance with the services provided. In addition, the direct expenses and costs incurred in the country where the services will be provided must exceed 50% of the total direct expenses and costs incurred.
The framework for calculating a Uruguayan software technology business’ taxes can be complex to navigate. In this regard, it is very important to contact a local accountant to obtain advice and comply with all required documentation and regulation.
Taxes applicable to digital platforms
According to Law No. 19,535, audiovisual services provided directly through the Internet are subject to tax in Uruguay. Technological platforms, computer applications or similar are considered Uruguayan-sourced if the service consumer or user is in Uruguay, considering IP or invoice address. This means that the Non-Resident Income Tax (Impuesto a las Rentas de No Residentes, IRNR) or the IRAE apply to platforms such as Netflix and Spotify, who under this law contribute to the Uruguayan tax system.
Companies around the world that provide these services now have a clear tax landscape to work by when expanding into Uruguay and, consequently, can conduct their commercial activities with greater certainty. In countries where the taxation framework for providing new and innovative technology services is not clear, tech companies are more vulnerable. One example of this is the activities of and overall outcome for Uber in Colombia. This company has been banned from operating in the country as it is considered not part of Colombia’s legal framework for providing such services. In Uruguay, this type of service is classified as intermediary services.
Classification of intermediary business in Uruguay
In Uruguay, intermediary activities include the supply of or demand for services, provided directly through the Internet, technological platforms, computer applications or similar. These are considered as 100% Uruguayan-sourced in cases where the buyer and seller of the service are located within the national territory. In this sense, they are legally eligible for tax contributions.
A company is considered partially Uruguayan if a supplier or buyer is operating from abroad. This category applies to international companies serving customers through digital platforms, such as Uber, Cabify and AirBnb.
Value Added Tax for intermediary business
Companies providing these intermediary services must contribute VAT when both the buyer and seller are operating in Uruguayan territory.
The fact that software technology businesses in Uruguay can access these tax incentives shows how important this industry is at a national level. In addition, the clarity of regulation for services through digital platforms offers legal support for these types of companies.
Information about the technological potential of Uruguay
Uruguay is a country preparing for the ongoing and future impact of technology in business. In April 2019, Uruguay became the first country in Latin America to launch 5G technology in its territory. The implementation of this technology is crucial for the development of artificial intelligence and big data management. In this sense, it is remarkable that Uruguay is taking the lead for its implementation.
Get corporate secretarial support for your technology business in Uruguay
Interested in the promising market for software technology business in Uruguay? Uruguay is an attractive destination for technological investment in Latin America, given incentives and support from the government. Investors seeking to enter the country are strongly advised to contact a local professional accountant to assist them with legal and fiscal compliance processes.
At Biz Latin Hub we support foreign multinationals from all over the world enter the Uruguayan market. Our team of local lawyers and accountants provides a range of market entry and back-office solutions to support your expansion, including tax compliance, company incorporation, due diligence and visa services.
The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.