Corporate tax in Uruguay

Summary

Corporate Income Tax Rate (%) 25
Capital Gains Tax Rate (%) 25
Branch Tax Rate (%) 25
Withholding Tax (%)
Dividends 7 (a)(b)
Interest 12 (a)(b)
Royalties 12 (a)(b)
Equipment Rent 12 (a)(b)
Technical Assistance Payments and Service Fees 12 (b)
Branch Remittance Tax 7 (b)
Net Operating Losses (Years)
Carryback 0
Carryforward 5

a) This tax applies to nonresident corporations and individuals and resident individuals. Nonresident corporations are corporations not incorporated in Uruguay.

b) See Section B.

Taxes on corporate income and gains

Corporate income tax. Corporations are taxed on Uruguay-source income, defined as income derived from activities performed, property situated or economic rights used in Uruguay. Any prof­its, including capital gains, are taxable.

Rate of corporate tax. The corporate tax rate is 25%.

Capital gains. Capital gains are included in ordinary income and taxed at the regular corporate rate.

Administration. Corporations are required to make monthly ad – vance payments. These payments are calculated by applying to monthly gross income a fraction with a numerator equal to income tax for the prior tax year and a denominator equal to the corpora-tion’s gross income for that year. For the months of the current year prior to filing the income tax return, however, the income tax and gross income used are from the corresponding months of the prior year. Filing of tax returns and payment of the balance must be made by the fourth month after the end of the accounting peri­od, which is the company’s tax year-end.

Dividends and branch remittances. Dividends paid to resident com­panies are exempt from tax. Dividends paid to resident individu­als are subject to personal income tax at a rate of 7% if the divi dends are paid out of income subject to corporate income tax. Dividends paid to nonresident companies and individuals and branch remittances are subject to withholding tax at a rate of 7% if they are paid out of income subject to corporate income tax. Dividends and branch remittances paid out of income not subject to corporate income tax are exempt from tax. Dividends subject to withholding tax cannot exceed the taxable profit of the company.

Withholding tax on certain payments to nonresidents. In general, a 12% withholding tax is imposed on the following payments to nonresidents:

  • Interest
  • Royalties
  • Technical assistance payments
  • Service fees
  • Equipment rent

Determination of trading income

General. Tax is imposed on taxable profit, which is accounting profit earned in the accounting period after tax adjustments. An inflation adjustment is applied. All Uruguay-source income is tax­able. Expenses are deductible to the extent that they are incurred in producing or maintaining taxable income, are documented, and are accrued in the fiscal year.

In general, payments to nonresidents are fully deductible as ex – penses if the effective income tax rate of the country of the recip­ient is 25% or higher (to be proved through a specific certificate). If the effective tax rate of the country of the recipient is lower than 25%, only a percentage of the expenses is deductible. The per­centage equals the ratio of the nonresident withholding tax rate of 12% plus the effective income tax rate of the country of the nonresident (reduced by a tax credit if one exists) to the corporate income tax rate of 25% in Uruguay. If the nonresident withhold­ing tax of 12% applies, the minimum percentage of deduction is 48% (the ratio of the withholding tax rate of 12% to the corporate income tax rate of 25%).

Inventories. Stock is valued according to cost of purchases and production costs. Last-in, first-out (LIFO), first-in, first-out (FIFO), average cost and market price are acceptable methods. The cor­poration can choose which method to use, but may not change the method without prior authorization.

Provisions. Only deductions for expenses already incurred are allowed. Provisions for bad debts and severance pay are not allowed. Bad debts may be written off if the debtor goes bankrupt or if 18 months have elapsed since the obligation to pay the debt became due.

Depreciation. A depreciation deduction may be taken on tangible assets based on their useful lives using the straight-line method. The following are some of the applicable rates.

Asset Rate (%)
Commercial and industrial buildings 2/3 (a)
Motor vehicles 10
Office equipment 10 (b)
Machinery and equipment 10 (b)

a) The 2% rate applies to buildings in urban areas; the 3% rate applies to build­ings in rural areas.

b) This is the usual rate. The rate for a particular asset depends on its estimated useful life.

For some assets, the units-of-production method may be used. Good will may not be depreciated.

Intangibles assets must be amortized at a rate of 10%.

Tangible assets must be revalued according an index determin­ed by the government. Intangible assets and goodwill cannot be revalued.

Relief for losses. The general rule is that losses may be carried for­ward for five years and deducted from income without limit. No carryback is possible.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax (VAT), on the sale of
products and most services and on
imported goods
Standard rate 22
Rate on basic foodstuffs and pharmaceuticals 10
Net worth tax, on corporate net worth,
computed using values used for tax
purposes; for some companies, up to
50% of this tax may be credited against
corporate income tax (the current
discount is 1%)
Banks and credit card corporations 2.8
Others 1.5
Social security contributions, on salaries and wages; imposed on
Salaries and wages up to approximately USD4,200; paid by
Employer; standard rate 12.625
Employee 18.125 to 23.125
Salaries and wages exceeding
approximately USD4,200; paid by
Employer 5.125
Employee 3.125 to 8.125

(The salary threshold for social security contributions is updated in February of each year.)

Miscellaneous matters

Foreign-exchange controls. Uruguay does not impose foreign-exchange controls. No restrictions are imposed on inbound or out bound investments. The transfer of profits and dividends, loan principal and interest, royalties and fees is unlimited. Non residents may repatriate capital, together with accrued capital gains and re­tained earnings, subject to applicable withholding taxes and com­pany law considerations (for example, the requirement that com­panies transfer a portion of their annual income to a reserve).

Import and export operations are transacted at a free rate deter­mined by the market.

Debt-to-equity rules. No specific debt-to-equity rules apply in Uruguay.

Treaty withholding tax rates

The maximum withholding tax rates under Uruguay’s double tax treaties are set forth below. The withholding tax rates in the trea­ties can be applied only if the nonresident is the effective benefi­ciary of the income.

Dividends

%

Interest

%

Royalties

%

Ecuador 10/15 15 10/15
Finland 5/15 10 5/10
Germany 5/15 0/10 10
Hungary 15 15 15
India 5 0/10 10
Korea (South) 5/15 10 10
Liechtenstein 5/10 10 10
Malta 5/15 10 5/10
Mexico 5 10 10
Portugal 5/10 10 10
Romania 5/10 10 10
Spain 0/5 0/10 5/10
Switzerland 5/15 0/10 10
Non-treaty countries 7 * 12 12

* See Section B.