With the final draft of the tax bill now submitted to Congress, I wish to provide a detailed explanation that shows why foreign residents do not need to worry at all. Uruguay’s proposed tax changes: Foreign residents will not face new taxes. In May of 2010, Uruguay announced it would make some adjustments to its tax laws. Unfortunately, some unnecessary panic was generated when an early draft of the law that was still under discussion within the cabinet surfaced.
The aim of the tax changes is (and was from the start) to tax interest on deposits and dividends that Uruguayan citizens hold abroad, not to tax foreign residents living in Uruguay. In fact, the final draft of the law makes specific distinctions to ensure that those who relocate to Uruguay do not face extra taxes as a result.
Shortly after announcing the tax changes, the government made four successive announcements, to clarify matters:
On May 28th, the Ministry of Finance issued an official statement ratifying that there will be no new taxes on Uruguayan companies, and that their offshore assets will not be taxed.
It also clarified that there will be no taxes on assets owned abroad by foreign residents in Uruguay. The tax on assets is only for citizens (at a very small scale; and remember that this asset tax is gradually being phased out since 2007, and will disappear by 2017).
On June 1st, another official announcement was made, stating that the law will in no way jeopardize the country’s policy of attracting foreigners to relocate in Uruguay. And that their income will not be taxed or double taxed.
And finally, on August 3rd, the Minister of Finance announced, when submitting the final draft of the bill to Congress, that it contains an explicit solution to avoid double taxation: a tax credit is granted to those who pay income tax abroad. This ensures that foreign residents in Uruguay are not double taxed.
In sum, then, the tax changes that will result, and will likely be effective from 2011 onwards, if the bill is voted, are:
A) On assets:
Citizens (not foreign residents) will face a small tax on overseas deposits, securities and loans. The rate is 0.07% to 0.5%. (Between less than a tenth of a percentage point and half a percentage point). This tax, the asset tax (known as “IP”) is being phased out, annually, and will disappear by 2017.
B) On income:
Only three types of income generated outside of Uruguay will be taxed: interest on deposits, interest from loans to a foreign company and dividends. The rate will be a flat 12%. But, if a person already pays income tax abroad, on any of those three types of income, he or she will not have to pay in Uruguay. The person gets a tax credit, to avoid paying taxes twice. Any other type of income generated abroad (besides the three listed ones) is excluded. Thus, salary, capital gains on sale of shares or property, pensions, lease, income, or any other type of income are all untaxed.
The author, Juan Federico Fischer, is Managing Partner FISCHER & SCHICKENDANTZ \Rincón 487, Piso 4 Montevideo 11000, Uruguay Tel: (+598) 2 915-7468 ext. 130 Cell: (+598) 99 925-106 Fax: (+598) 2 916-1352 email@example.com – www.fs.com.uy
Additional articles and resources from Juan Federico Fischer:
Obtaining Residency In Uruguay – Uruguay’s New Tax Rules by Juan Federico Fischer – Understanding What Really Changes For Investors, Expats & Foreign Nationals. Uruguay Is A Tax Haven! With International Banks, Offshore Corporations & A Free Trade Zone – While it is not generally known as such, Uruguay is indeed a tax haven. For foreign citizens, and for Uruguayan citizens with offshore income, taxes are a neutral issue. On July 1, 2007, Uruguay overhauled its tax legislation, what do those changes forebode for the international seeking to relocate to and/or do business in Uruguay? This article answers those questions with specifics. Uruguay’s new tax rules: understanding what really changes for investors, expats & foreign nationals is written by Juan Federico Fischer. – Juan Federico Fischer, Esq. is recommended by EscapeArtist.com
Obtain Residency, Citizenship and a Second Passport in Uruguay by Juan Federico Fischer – Uruguay is an open country to foreign citizens. Not only to those doing business or buying property, but also to those seeking legal residency. Any foreign citizen that meets certain basic requirements may apply for residency in Uruguay ..and, if one wishes to, one can subsequently apply for citizenship, and a second passport. Uruguay offers many advantages to the foreign or offshore resident, thus its reputation as “the Switzerland of South America”
How Will the New Proposed Tax Law in Uruguay Affect Foreign Investors? – We Have The Facts! – Anyone who is considering investing or has invested all or some of their assets in Uruguay may be alarmed by recent news that Uruguay is proposing a new tax law that may have a detrimental effect on banking privacy currently enjoyed by foreign residents. What has leaked out on to many blogs and news sites has been inaccurate and misleading. We would like to put the record straight.