The following is a guest post from Bergstein Abogados, Montevideo, Uruguay
Over the last few years, Uruguay has fully aligned with OECD standards. For example, Uruguay has entered into more than 10 tax information exchange agreements and more than 15 double taxation agreements. Uruguay became a member of the Committee on Fiscal Affairs, signed the Convention on Mutual Administrative Assistance in Tax Matters. Uruguay, and also agreed to start the automatic exchange of information in September 2018.
In this context, on December 29, 2016, Uruguayan Parliament passed the Tax Transparency Act. The Act entered into force on January 1, 2017 and introduced three main innovations, namely:
(i) The obligation of Uruguayan banks to provide to the Tax Office (Dirección General Impositiva — DGI) information regarding their clients’ accounts (no matter the clients resides in Uruguay or not). Such information shall include the balance of the corresponding account at the end of the calendar year, the annual average of the deposited moneys and the interests accrued during such year.
According to press sources, such information will be provided in relation to those accounts which would exceed the following thresholds: US$250,000 for non-resident individuals; and US$1 million for non-resident legal entities.
The Act also authorizes the Executive Branch to establish that, under certain situations of high tax risk, the banks shall be required to report the Tax Office who the beneficial owners of their − dividends, interests, royalties − exceeds 50 percent of its total income.
Those banks which fail to comply with their reporting duties, shall be subject to fines ranging between approximately US$110,000 and US$220,000.
(ii) The creation of a registry − in the framework of the Uruguayan Central Bank (Banco Central del Uruguay — BCU) − with the names of the beneficial owners of companies operating in Uruguay (i.e., the names of those individuals who, regardless of their nationality and/or residence, ultimately and effectively control such companies). Those foreign companies which have assets in Uruguay with a tax value higher than US$300,000, should also identify their beneficial owners.
In order to guarantee the compliance with the obligation to identify the names of the beneficial owners, the Act imposes severe penalties: (i) fine of approximately US$23,000; (ii) prohibition to distribute dividends and profits; and (iii) suspension of the certificate issued by the Tax Office.
Entities using inadequate legal forms which mislead or hinder access to the knowledge of the identity of the beneficial owners, will be subject to a fine in the approximate sum of US$230,000.
In addition, those entities issuing nominative shares will start to report also the names of their shareholders. Up to now, only the names of holders of bearer shares were provided to the Central Bank.
(iii) Several amendments to the tax treatment on those legal entities domiciled in null or low taxation jurisdictions (the offshore companies). Such amendments tend to discourage the use of offshore companies sharply increasing their taxation.
The Act includes several provisions which, precisely in that line, shall raise the tax burden on real estate properties owned by such offshore companies, namely:
(a) Taxation on rent shall rise
When an offshore company leased a real estate property located in Uruguay, the offshore company payed Non-resident Income Tax (Impuesto a las Rentas de los No Residentes — IRNR) at a rate of 10.5 percent over the rent. With the approval of the Act, the same offshore company shall pay the same tax (Non-residents Income Tax) at a rate of 30.25 percent.
(b) Taxation on value shall rise
Up to now, real estate properties owned by offshore companies were subject to Wealth Tax (Impuesto al Patrimonio− PAT) at a rate of 1.5 percent. With the approval of the Act, such tax rate shall rise to 3 percent.
In order to facilitate restructuring of offshore companies with real estate properties in Uruguay, the Act establishes two alternatives, namely:
(a) The selling of real estate properties settled by offshore companies no later than June 30, 2017 shall be fully tax exempted, provided that (i) the selling offshore company shuts down its businesses in Uruguay − before the Tax Office and before the Social Security Office (Banco de Previsión Social — BPS) − and (ii) the buyer is not another offshore company.
(b) The Act enables offshore companies to transfer their domicile to Uruguay through an abridged procedure (as of today, re-domiciliation proceedings are very bureaucratic and lengthy), as long as such re-domiciliation is conducted before June 30, 2017. The characteristics of such abridged procedure shall be determined by the Executive Branch.
For more information please contact the authors:
Guzmán Ramírez email: firstname.lastname@example.org
Jonás Bergstein email: email@example.com
Bergstein Abogados, Montevideo, Uruguay