Working and living in Uruguay A brief overview to …...export. Agriculture (soya, rice, and wheat), cattle raising (cows and sheep) and agro industry derived products (meat, leather,

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Working and livingin UruguayA brief overview totax planningJanuary, 2015

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2 | © Deloitte S.C. © Deloitte S.C. | 3

1. Preface 3

2. Uruguay Overview 5

3. Immigration requirements 7

4. Individual Taxation – Generalities 8

5. Income Tax – Work Income 9

6. Capital Gains and Holding Income 12

7. Social Security 13

8. Tax on Net Worth 15

Appendix I Personal Income Tax (IRPF) rates 16

Our services for expatriate

Deloitte in Uruguay

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Contents

This booklet has been prepared in order to give you a general overview on the mainaspects of Immigration regulations, Individual Taxation and Social Security regime inUruguay as at January, 2015.

The idea is to provide a quick guide for employers considering sending internationalassignees to Uruguay and for employees who are contemplating a working assignment to this same country.

The booklet only presents a broad overview and does not provide in-depth answers tospecific questions. Given the complexity of the various laws and possible changes in our tax legislation, theinformation in this booklet should not be relied upon for tax planning in particularsituations but only as a general overview. Rather, we encourage the reader to contact our Global Employer Services specialists to obtain detailed and up-to-date answers toquestions.

1. Preface


2. Uruguay overviewRepública Oriental del Uruguay (The Oriental Republic of Uruguay normally rendered asUruguay) is a South American country which lies on the Atlantic coast, located betweenBrazil and Argentina, with a population of 3.3 million people. According to the UnitedNations, Uruguay is one of the Latin American countries with the highest alphabetizationrates, lower inequity index and highest human development levels.

Uruguay‘s economy is largely based on agribusiness making up the most substantialexport. Agriculture (soya, rice, and wheat), cattle raising (cows and sheep) and agroindustry derived products (meat, leather, milk and dairy) are the country’s main resources.In the same way, over the last decades, a sustainable development of forest and treeresources is favoring the emergence of a booming export forest industry (mainly cellulose).Services (financial, logistics, transport and communications) also stand out as well as thedynamic IT industry, particularly software development and linked services.

Montevideo, is the capital city but also the most important port, followed by the ports ofColonia del Sacramento, Fray Bentos, Nueva Palmira, La Paloma. Other major cities arePaysandú and Salto on the River Uruguay, and on the Atlantic coast, 140 kilometers eastof Montevideo: Punta del Este, one of the best-known seaside resorts in South America.

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3. Immigration requirements

Legal ResidenceLegal residence –either temporary orpermanent – and the Uruguayan IdentityCard (Cédula) are required for foreigners tolegally work in Uruguay and be able toregister before different entities.

If legal residence is not obtained, then theindividual may only enter our country as atourist and stay for a period not exceedingthree months.

Assignees from Argentina and BrazilIn the case of assignee’s coming fromeither Brazil or Argentina, a specific LegalResidence may be issued with less formalrequirements for a period of one year –that may be extended to a second year.

Documentation and procedureIn order to obtain legal residence, aworking contract with a local company isrequired (secondment agreement).

This contract together with otherdocumentation required, needs to be filedbefore the Migration Office. It is importantto get in contact with the Global EmployerServices team in Uruguay to make sure alldocuments required for this procedureissued by the home country have beenprepared prior leaving.

After obtaining the legal residence, theassignee will be given the UruguayanIdentity Card as a temporary legal workerfor the period established in the workingcontract.

The process to obtain the legal residencemay take up to six months depending onthe complexity of the individual’s situation.However, a temporary residence permitcan be obtained within a few weeks.

Identity FormIn case the assignee´s period of presence inUruguay does not exceed 180 days, it isnot necessary to carry out the procedureto obtain legal residence. Instead, theindividual needs to apply for an IdentityForm which requires less formalprocedures.

VISAAlthough a working VISA is generally notrequired to enter the country, there aresome specific exceptions for individualsfrom certain countries who do require aVISA.

It is important to bear in mind this in orderto initiate the corresponding procedureswith sufficient time before travelling toUruguay.


4. Individual taxationGeneralities

Taxation in UruguayUruguay has a territorial concept oftaxation. This means, in general terms,that income of Uruguayan source is taxed.Both resident and non-resident individualsare taxed on Uruguayan-sourced incomethey receive.

Tax YearThe tax year corresponds to the calendaryear for individual’s taxation.

Source of IncomeUruguayan-sourced income is defined asthat which stems from activitiesdeveloped, goods placed or rights used inUruguay. It also includes, however, incomereceived by employees of a local company(IRAE or IRPF taxpayer) when workingabroad as well as that received byindependent workers when providingtechnical services from abroad to an IRAE(Corporate Income Tax) taxpayer.

Tax residents are subject to PersonalIncome Tax (IRPF), while non-residents aresubject to Non-residents Income Tax(IRNR).

Both of these taxes are levied on twodifferent categories:– Work Income– Capital Gains and Holding Income

Taxation of these categories is calculatedseparately. For Work Income see point 5.of this booklet. For Capital Gains andHolding Income see point 6.

Tax ResidenceAn individual is considered as tax residentif he/she has been in Uruguay for morethan 183 days in the calendar year, if theindividual carries out activities in Uruguayor if his/her economical or vital interestsare in Uruguay (there is an assumption thatan individual has his/her vital interests inour country when his/her spouse andunderage children live here).

The tax that has to be paid (IRPF or IRNR)depends on whether the individual isdeemed to be resident or nonresident.

Treaties to avoid Double TaxationUruguay has double taxation treaties inforce with Argentina, Ecuador, Finland, Germany, Hungary, India, Liechtenstein, Malta, Mexico, Portugal, Republic of Korea, Romania, Spain and Switzerland.

Please mind that in case of the existence ofa tax treaty between Uruguay and theassignee’s home country, the tax regimeapplicable might be different to thatexplained in this booklet. These casesshould be particularly analyzed.

5. Income TaxWork Income

Personal Income Tax (IRPF)

GeneralitiesTax Resident individuals are subject toPersonal Income Tax. This tax is levied onboth: capital gains/holding income andwork income, although calculatedseparately.

This chapter of the booklet covers taxationof Work Income received by employees(not independent workers). For taxation ofcapital gains and holding income, pleasesee point 6 of this booklet.

Work Income is taxed at progressive ratesranging from 0% to 30%. In the case ofemployees of local companies, this tax iswithheld monthly by the employer andpaid directly to the Tax Authority.

Taxable IncomeIn general terms, all benefits received byan employee –either in cash or kind– aresubject to this tax.

A “Primary Tax” is first calculated applyingthe corresponding scale (Appendix 1) to allthe gross income – each rate is applied tothe range of income, not the marginal rateto all of it.

DeductionsThere are very few admitted deductions –and basically include Social SecurityCharges paid in Uruguay, a notionalamount per under-aged child andmortgage loans. The corresponding scale(Appendix 1) has to be applied to thesedeductions, resulting in a “Deductionstax”.

To determine the actual Tax, two amountsneed to be calculated: a “Primary Tax” anda “Deductions Tax”. The tax payable willbe the difference of them both.

Filing ObligationsCompanies are required to make an annualadjustment of this tax by the end of theyear to each of their employees.

Individuals working for only one employerwho are also included in the Uruguayanpayroll as at 31st December each year are,in general, not required to file a tax returnfor Work Income.

In all other cases, a tax return is most likelyto be required.

Filing of the tax return is usually duebetween May and August of the yearfollowing the tax year-end.


Payment / CreditIf there is a balance due, the payment ofthe owed amount is made the followingyear to the tax year-end.

In case the return results in a credit, suchwill be reimbursed by the Tax Authority.

Joint AssessmentTaxpayers may opt between paying as anindividual or joint taxation (husband andwife). In this case, a different scale isapplicable.

Although it may seem moretax-advantageous at first, this option is notalways convenient because it may entailfurther expenses. Hence, each individualcase should be analyzed.

Non-Resident Income Tax (IRNR)

GeneralitiesWhen an individual is considered anon-resident from the tax point of view, itis subject to Non-Resident Income Tax.This tax is levied on both, capital gains/holding income and work incomealthough calculated separately.

Work gross income of Uruguayan source istaxed at a flat rate of 12%.

For capital gains/holding income, pleasesee point 6. of this booklet.

In the case of employees, this tax – likeIRPF – is withheld by the local employermonthly and paid directly to the TaxAuthority.

However, there might be cases in which nowithholding agent has been designed.Thus, the non-resident should appoint aresident individual or entity to represent ittowards the Uruguayan Tax Authority(DGI).

Filing ObligationsIn general, since this tax is usually paid viawithholding, there is no obligation to file atax return.

Employees of a Free Zone user Foreign employees of a Free Zone who optout of the Uruguayan Social SecuritySystem may choose to be subject toNon-Resident Income Tax (IRNR) instead ofpaying Personal Income Tax (IRPF) for theincome related to the activity in the Free Zone.


6. Capital gains andholding income

GeneralitiesBoth, residents and non-residents are taxed on the capital gains and holding income ofUruguayan source by Personal Income Tax and Non-residents Income Tax respectively.Capital gains are those derived from the sale of an asset (profits on the sale of real estate,shares, etc.), while holding income is that derived from the possession of an asset andbasically includes dividends, interests, rents and royalties.

Tax residents are also taxed on holding income (not capital gains) derived from movableassets such as loans, deposits and any kind of capital investment in non-resident entities.

There is a tax credit for taxes paid abroad for this foreign-sourced income.

However, those individuals who became resident may opt, for holding income obtainedabroad, to be taxed by IRNR (Non-Residents Income Tax) instead of IRPF (Residents IncomeTax). Foreign-sourced holding income is not taxed by IRNR, it is only taxed by IRPF. Theoption can be used only once and is applicable for the next five years. RatesThe general rate is 12% for taxed holding income and capital gains in both, IRPF andIRNR. A 7% rate is applicable in the case of dividends of Uruguayan companies. However,if these dividends relate with holding income from non-resident entities, the rateapplicable is 12%. Also, reduced rates may apply to certain deposits in local financialinstitutions as well as some interests derived from local debentures and other local debtsecurities.

Payment and filingIn all cases where there is no designated withholding agent, the individual is required toinclude these income in an annual tax return filed the following year to the tax-year end.In some cases payments in advance are required.

7. Social security

GeneralitiesSocial Security Charges are payable byboth, the employer and the employee overall the payment received by employeesrelated to their activity in Uruguay.

Personal charges are withheld monthly bythe local company and paid directly to theSocial Security Authority.

Employee Employer

Retirement Benefit Contributions

15% 7,5

Medical Insurance Charges

4.5% - 8% 5%

Fund for retraining the unemployed

0.125% 0.125%

RatesRetirement benefit contributions arecapped to approx. USD 4.500 (this amountchanges in February each year).Contributions over this amount areoptional.

The rate applicable to Medical InsuranceCharges will depend on whether theindividual has under-aged children or notand whether it has a non-working spouse.This was established by law so that morepeople could be included in free privatemedical assistance.

Private Pension Funds (AFAP)Uruguay has a “mixed” regime in terms ofRetirement Benefit Contributions.

Depending on the salary of the individualand age, the withholding made by theemployer will be paid partly to a PrivatePension Fund (AFAP) – which may bechosen by the individual – and partly tothe Social Security Authority. Uponretirement, these contributions may or notbe recovered depending of the yearsworked in our country and the existence ornot of a Social Security Agreementbetween Uruguay and the home country.

Social Security AgreementsThere are Social Security Agreementsbetween Uruguay and several countrieswhich basically benefit secondedindividuals from accumulation of years ofwork while in Uruguay and the possibilityto opt not to be included in the UruguayanSocial Security System – which iscommonly referred to as a Certificate ofCoverage.

Individuals holding a certificate ofcoverage will be subject to Social SecurityCharges in their home country for theirwork in Uruguay. However this option canonly be developed for a period of one year–and sometimes extended to a secondyear.


The countries with which Uruguay hassocial security agreements with areArgentina, Austria, Belgium, Bolivia, Brazil,Canada, Chile, Colombia, Ecuador, ElSalvador, France, Greece, Israel, Italy, Luxemburg Netherlands, Paraguay, Peru, Portugal, Quebec, Spain, Switzerland and Venezuela.

Employees of a Tax Free Zone userForeign employees of a Tax Free Zone usermay opt out of the Social Security systemin Uruguay and not pay thesecontributions in our country. Further tothis, those individuals who do opt out mayalso choose to pay Non-Resident IncomeTax (IRNR) rather than Personal Income Tax(IRPF).

8. Tax on Net Worth

GeneralitiesAn annual Personal Net Worth Tax isimposed on residents and non-residents.The tax is levied on assets situated inUruguay on the 31st December each yearvalued according to fiscal regulations. Onlydebts with local banks can be deductedfrom taxable assets.

RatesIndividuals are taxed at progressive ratesranging from 0% up to 1,2%.The non-taxable amount is ofapproximately USD 128.000.

Joint assessmentIndividuals are taxed at progressive ratesranging from 0% up to 1,2%.The non-taxable amount is doubled in thecase of joint assessment.


Appendix 1

Rates for 2015Primary Tax

Monthly scales in UY$

from to

- 21,364 0%

21,364 30,520 10%

30,520 45,780 15%

45,780 152,600 20%

152,600 228,900 22%

228,900 350,980 25%

350,980 30%

Deductions Tax

Monthly scales in UY$

from to

- 9,156 10%

9,156 24,416 15%

24,416 131,236 20%

131,236 207,536 22%

207,536 329,616 25%

329,616 30%

Annual scales in UY$

from to

- 256,368 0%

256,368 366,240 10%

366,240 549,360 15%

549,360 1,831,200 20%

1,831,200 2,746,800 22%

2,746,800 4,211,760 25%

4,211,760 30%

Annual scales in UY$

from to

- 109,872 10%

109,872 292,992 15%

292,992 1,574,832 20%

1,574,832 2,490,432 22%

2,490,432 3,955,392 25%

3,955,392 30%

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Our services for expatriates

Entrance MeetingWe inform the assignee, from an unbiasedperspective, about Personal Income Taxes(IRPF/IRNR), Social Security Contributions(CESS), Personal Net Equity Tax (IPPF) as well asany specific regime that may be applicable.

Procedures to obtain Legal ResidencyWe carry out the necessary procedures toobtain the documents which entitle foreignersto work in Uruguay.

Revision of employment contract andbenefitsWe go through the employment contract andbenefits received by the assignee in order toanalyse the proper taxability for IRPF/IRNR andCESS, as well as possible tax savings applicable.

Advice on Social Security Agreements andobtaining a Certificate of CoverageUruguay has signed several Social SecurityAgreements which benefit seconded individualsfrom temporary transfers as well asaccumulation of working periods. In order to bebenefited by these agreements, we carry outthe necessary procedures to obtain theCertificate of Coverage required.

Advice on agreements to avoid doubletaxationUruguay has signed several treaties regardingthis issue, some of which are currently in forcewhile others are still waiting for parliamentaryapproval.

Tax equalization/Hypo Tax calculationWe assist the company and the assignee incomparing the remuneration received in thehome country to that received in the hostcountry, in order to offset any difference sothat working abroad is tax neutral for theworker.

Tax Return / Tax amendmentsThose employees working for only oneemployer during the calendar year and includedin payroll in each December, do not need to filea Tax Return. The obligation to do so arises theyear in which the assignee leaves the country.Deloitte can calculate and file the Tax Returnwhen it is compulsory as well as when it isoptional and the assignee decides to do so.Amendments of Tax Returns are also handledby our team in order to ensure full compliancewith local taxes.

Tax reconciliationIn cases where the expatriate’s contractestablishes that part of the salary will be borneby the company and part by the assignee, oftena Tax Reconciliation process needs to be carriedout after the annual tax is calculated. Our teamcan provide support in these calculations toensure a proper allocation of income anddeductions when calculating the taxburden/credit supported by each party.

Exit MeetingWe give advice and support regarding taxobligations that may arise in the year leavingthe country, as well as on claiming tax creditsconsequence of that year’s taxation.

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[email protected] | +598 2916 0756 ext. 6153

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Deloitte S.C.

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Montevideo 11000

Uruguay

Phone number: +598 2916 0756

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Documents

Working and living in Uruguay A brief overview to …...export. Agriculture (soya, rice, and wheat), cattle raising (cows and sheep) and agro industry derived products (meat, leather,