As a rule all the Uruguay source income obtained by individuals will be subject to income taxes (IRPF or IRNR depending on the fiscal residence of the individual).
Liability for income tax
A person’s liability for Uruguayan tax is determined by residence status. A person can be a resident or a non-resident for Uruguayan tax purposes. A resident of Uruguay generally refers to an individual who stays in Uruguay for more than 183 days during a calendar year or whose center of vital or economic interests is located in Uruguay.
A non-resident of Uruguay is generally someone who spends less than 183 days in Uruguay. Extended business travelers are likely to be considered non-residents of Uruguay for tax purposes, unless their center of vital or economic interest is located in Uruguay.
Definition of source
Employment income is generally treated as Uruguayan-sourced compensation where the individual performs the services while physically located in Uruguay. Income obtained from goods located in Uruguay, or rights used economically in Uruguay, is also considered Uruguayan-sourced income.
Beginning in the year 2011, there are certain exceptions to this rule:
- labor income obtained by resident individuals for the development of activities abroad under an employment relationship with local taxpayers is considered as Uruguayan-sourced income and, therefore, is taxable
- foreign dividends and interest received by resident individuals are considered as taxable.
Tax trigger points
Technically, there is no minimum threshold/number of days that exempts the employee from the requirements to file and pay tax in Uruguay. To the extent that the individual qualifies for relief in terms of the dependent personal services article of the applicable double tax treaty, there will be no tax liability.
Types of taxable income
For extended business travelers, the types of income that are generally taxed are employment and Uruguayan-sourced income and gains from taxable Uruguayan assets (such as real estate).
IRPF: Net taxable labor income is taxed at graduated rates ranging from 0 percent to 30 percent. The maximum tax rate is currently 30 percent on labor income earned over 3,890,220 Uruguayan pesos (UYU). Capital income, such as interest, dividends, and other capital income, is taxed at rates between 3 and 12 percent, depending upon the nature of the income and residency status.
IRNR: The rates of this tax are as follows:
- interest from deposits in national currency and in indexed units of more than 1 year in local financial institutions:
- interest from debentures and other debt titles issued with a term of more than 3 years through public subscription and quoted at a stock exchange: 3 percent
- interest from deposits of 1 year or less in national currency without readjustment clauses: 5 percent
- dividends or profits paid or credited by corporate income tax taxpayers: 7 percent
- other income (including labor income): 12 percent.
Liability for social security
There is a social security contribution system that covers all employees. All expatriates working in Uruguay temporarily or permanently, even for periods of less than 1 year, are subject to the social security system. Where social security contributions are being paid in their country of origin, however, and Uruguay has entered into a social security treaty with that country, the expatriate is exempt.
In calculating the amount of compensation subject to social security contributions, all remunerative items that the employee receives from the employer must be included. Nevertheless, certain items like food and health assistance and life and accident insurances have been declared exempt from employee social security charges if their aggregate amount does not exceed 20 percent of the worker’s taxable remuneration.
The rates of contribution are as follows:
6.5% or 8.0%
11.5% or 13.0%
Source: KPMG in Uruguay, 2013
Pension fund contributions
Pension fund contributions are calculated as a percentage of salary, and under the general regime, this percentage will amount to 22.5 percent, of which 7.5 percent is borne by the employer and 15 percent is withheld from the employee. It is, however, worth noting that these contributions apply only to the portion of salaries that does not exceed approximately 4,800 US dollars (USD) monthly.
Accidents at work are insured separately at the sole expense of the employer. Other contributions to the social security system are as follows:
Labor reconversion fund
This amounts to 0.25 percent (0.125 percent borne by the employer and 0.125 percent by the employee).
This amounts to 8 percent of which 5 percent is borne by the employer and 3 percent, 4.5 percent, 5 percent, 6 percent, 6.5 percent or 8 percent is withheld from the employee (depending on the employee’s salary and on the number of dependent children, covered spouse or common law partner).
Uruguay has entered into formal social security totalization agreements with 24 countries, including the 20 other Iberoamerican Organization countries, to prevent double taxation and allow cooperation between Uruguay and overseas tax authorities in enforcing their respective tax laws.
Employee compliance obligations
Income tax returns are due by June-August (as per the Tax Office annual calendar) following the tax year-end, which is 31 December. Taxpayers will be required, however, to file a return only to the extent that their tax liability was not satisfied through mandatory withholding.
Employer reporting and withholding requirements
Withholdings from employment income are covered under the Pay-As-You-Earn (PAYE) system. If an individual is taxable on employment income, including both residents and non-residents, the employer has a PAYE withholding requirement.
Work permit/visa requirements
In general, only a valid passport is required to enter Uruguay on business. There are, however, some limited cases where a visa will be necessary prior to entry. Visas will be granted for 90 days. MERCOSUR nationals (individuals from Argentina, Brazil, and Paraguay and of associate member countries Bolivia and Chile) require only their identity cards. The type of visa required will depend on the purpose of the individual’s entry into Uruguay.
Double taxation treaties
In addition to Uruguay’s domestic arrangements that provide relief from international double taxation, double taxation treaties are in force and effect with Argentina, Ecuador, Finland, Germany, Hungary, India, Liechtenstein, Malta, Mexico, Portugal, South Korea, Spain and Switzerland to prevent double taxation and allow cooperation between Uruguay and overseas tax authorities in enforcing their respective tax laws. Additional treaties are in the process of negotiation or approval and are expected to come into force and effect in the near future.
Permanent establishment implications
There is the potential that a permanent establishment (PE) could be created as a result of extended business travel, but this would depend on the type of services performed and the level of authority the employee has.
The standard value-added tax (VAT) rate is 22 percent imposed on the sale of goods, the provision of services, and on imports. Registration is mandatory. Non-resident entities providing services in Uruguay must pay VAT through withholding.
Uruguay has a transfer pricing regime. A transfer pricing implication could arise to the extent that the employee is being paid by an entity in one jurisdiction but performing services for the benefit of the entity in another jurisdiction, in other words, a cross-border benefit is being provided. This would also be dependent on the nature and complexity of the services performed. Uruguay’s transfer pricing regime is based upon the Organisation for Economic Co-operation and Development (OECD) guidelines.
Local data privacy requirements
Uruguay’s data privacy regime is contained in Act 18.331 (Personal Data Protection and ‘Habeas Data’ Action), which also covers employee data. In addition, Act 16.713 protects confidentiality of employment history and other labor records. The tax code and banking laws likewise have data privacy provisions that might affect extended business travelers to Uruguay.
Uruguay does not restrict the flow of Uruguayan or foreign currency into or out of the country.
Non-deductible costs for assignees
Non-deductible costs for assignees include contributions by an employer to non-Uruguayan pension funds.