Uruguay is becoming an increasingly appealing country for regional and overseas investors who are looking to expand their organizations and create new revenue streams. In 2019 and beyond, startups in Latin America and around the world require diversification and global ties in order to thrive, so an expansion into Uruguay could be the first stepping stone. Learn more about Corporate Accounting and Taxation in Uruguay
However, before launching a business in the country, you should first get to grips with its accounting and taxation requirements, to ensure you’re primed for investment. Below, we offer a summary of both, as well as guidance on maximizing your profitability in the country.
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Accounting and Taxation in Uruguay – Corporate Income and Capital Gains
Corporate income tax in Uruguay is currently set at a flat rate of 25%. All businesses are expected to register with the Direccion General Impositiva (DGI) and file their annual returns within four months of the year ending or will face financial penalties as a result.
For both residents and non-residents with permanent establishment in Uruguay, corporate income tax sits at 25%. This figure applies only to income generated through activities in the country and requires businesses to correctly label, monitor, and document their expenses in the country.
Personal Income Tax
In the National Budget Bill of 2010, income tax on resident individuals was broadened and currently stands at between 10% and 36% of salaries, depending on industry and location. This is up from a record low of 0% tax back in 2005 and is currently at its highest level in order to help fund vital government services and infrastructure projects around the country.
In addition, foreign investors who spend more than 183 days per year in Uruguay will receive a five-year window during which they will not pay income tax on any type of foreign income. It is another reason why investors choose to incorporate in Uruguay, and why foreign direct investment (FD) in the country is so important. According to the UNCTAD 2018 World Investment Report, the country’s FDI is estimated to be worth USD$30.4 billion, representing 52.4% of the country’s GDP, demonstrating the power of becoming an attractive nation to invest in.
Value Added Tax (VAT)
One of the most common taxes in Uruguay is a standard Value Added Tax (VAT), which stands at 22% on all commercial transactions. Some goods and services are exempt or subsidized to a 10% VAT tax rate in the country, so it’s important to find out whether your company’s products and services fall into that category, as it could lead to profit increases.
As a foreign investor, the chances are that you hope to incorporate a company in Uruguay and maximize profitability in the country, with the plan to send assets back to your native country. Indeed, the whole point of international expansion is to grow profits and diversify income streams, but it is important to calculate your profit margins and long-term profitability once you have factored in a 7% withholding tax that is applicable on dividends paid to non-resident firms. In companies where Uruguay has a tax treaty (more on that later), the rate may be reduced.
Withholding tax on interests that are paid to non-resident companies stands at 3%, 5% or 12%, depending on the type of currency or the duration of a business loan, and a 12% tax is applicable on technical service fees and royalties that are paid to non-resident companies.
Foreign Branch Offices
Rather than subjecting a business to the risks of market expansion and incorporating a new business abroad, some entrepreneurs choose to incorporate foreign branches of their businesses in other territories. This allows them to enter a market and trade freely without the initial upfront investment. In Uruguay, opening a branch office is certainly something to consider, although legal entities will be required to pay a 7% withholding tax on remittances sent to their native countries, which could impact their bottom line and cut profitability levels.
Something to consider, however, is that the Republic of Uruguay is a signatory to 13 double tax treaties around the world, including Mexico, Spain, Germany, and Argentina, increasing the chance of succeeding in a Latin American business environment. In addition, Uruguay is home to several free trade agreements, including ALADI and the MERCOSUR, allowing you to trade freely with several other nations without the worry of a withholding tax on assets.
Taxes for Employers in Uruguay
Most foreign investors entering into Uruguay hire local employees, and as such are subject to monthly social security contributions. This contribution can be up to 23% of an employee’s monthly salary. In addition, businesses are required to pay 13% of their total monthly payroll to the Uruguay social security fund.
There are several other taxes to consider when working in Uruguay, including a 1.5% capital duty tax, that is levied on the total net worth of a company, and a 2% transfer tax for companies transferring or selling their real estate. Something to bear in mind, however, is that tax losses in the country can be carried forward for up to five years, although carryback (that is, applying a loss to the tax return) is not permitted, so working with an experienced local accountant – or indeed hiring an accountant in-house in Uruguay – is key to success.
Common Questions when understanding accounting and taxation in Uruguay
Based on our extensive experience these are the common questions and doubts from our clients when looking to understand accounting and taxation in Uruguay
The corporate tax rate in Uruguay is (25%) and the business wealth tax rate is (1.5%).
Companies in Uruguay are taxed based on local tax regulations. Income tax is calculated on the difference between fiscally adjusted income and expenses.
The IRS in Uruguay is called Dirección General Impositiva (DGI) and is responsible for controlling the correct application of tax regulations.
In Uruguay, it is mandatory to apply the International Financial Reporting Standards (IFRS) decreed by the International Accounting Standards Board (IASB). Depending on the income of the company, the IFRS FULL standards or the IFRS for SMEs are applied. There are annual accounting closings in local currency and additionally in functional currency if applicable.
The equivalent to the CPA in Uruguay is the collegium of accountants, economists, and administrators of Uruguay. (CCEA)
Yes. FULL or SME IFRS are mandatory to apply.
Get Started with your Accounting and Taxation in Uruguay
With the right products and strategy, establishing a business in Uruguay and making a success of your new international venture couldn’t be simpler – but it is important that you have access to local business experts who can guide you through market entry and growth.
At Biz Latin Hub, our experienced Uruguayan tax and accounting experts are on hand to help you take your business to the next level covering everything from company incorporations to due diligence and legal services, contact us now.
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.