OCTOBER 2016

Reproduced with permission from Tax Practice International

Review, 43 TPIR 27, 10/31/16. Copyright 2016 by The
Bureau of National Affairs, Inc. (800-372-1033)
http://www.bna.com
The End of an Era:
Farewell to the Use of
Offshore Companies
in Uruguay
Guzman Ramrez
Bergstein Abogados, Uruguay
The Executive Branch in Uruguay has recently submitted a Bill
which will introduce a number of signicant tax changes aimed at
discouraging the use of offshore companies. The main
amendments are considered here.
A
s a result of a certain event of international
prole having become public knowledge
(namely, the so-called Panama Papers affair),
a debate began in Uruguay in connection with the use
of foreign companies incorporated in countries/
jurisdictions with low or no taxation (offshore com-
panies).
In such context, the Executive Branch has recently
submitted a bill (the Bill) whichonce passed by the
Uruguayan Parliamentwill introduce several signi-
cant tax amendments aimed to discourage the use of
such corporate vehicles in the domestic market.
This article is dedicated to analysis of the Bill.
I. Analysis of the Bill
A. General Features
The Bill does not provide any list of those countries/
jurisdictions which would be deemed as countries/
jurisdictions with low or no taxation. However,
currently such list already exists, and includes: Ameri-
can Virgin Islands, Anguilla, Antigua and Barbuda,
Aruba, Bahamas, Bahrain, Belize, Bermuda, British
Virgin Islands, Cayman Islands, Cook Islands, Cyprus,
Guzman Ramrez is Dominica, Island of Jersey, Island of Man, Island of
Senior Associate Montserrat, Island of Guernsey, Gibraltar, Grenada,
at Bergstein Abo- Malta, Mauritius, Nauru, Netherlands Antilles, Niue,
gados, Uruguay Panama, Saint Kitts and Nevis, Saint Lucia, Saint Vin-
2 10/16 Copyright 2016 by The Bureau of National Affairs, Inc.
cent and the Grenadines, Samoa, San Marino, Sey-
chelles, Turks and Caicos Islands, and Vanuatu.
The Executive Branch expects that the Bill will
enter into force before December 31, 2016.
Although the most relevant amendments included
in the Bill aim to increase the tax burden of offshore
companies, the Billin order to encourage the deni-
tive abandonment of such corporate vehicles
establishes a tax exemption (for a limited period of
time). The selling, by offshore companies, of assets lo-
cated in Uruguay, settled no later than June 30, 2017,
shall be 100 percent tax exempted, provided that: (i)
the selling offshore company shuts down its busi-
nesses in Uruguay before the Tax Ofce (Direccion
General Impositiva, DGI) and before the Social Secu-
rity Ofce (Banco de Prevision Social, BPS); and (ii)
the buyer is not another offshore company.
B. Most Relevant Amendments
The most relevant amendments provided in the Bill
are listed below:
1. Higher Net Worth Tax (Impuesto al Patrimonio,
IPAT) Rate
All foreign companies are obliged to pay net worth tax
on their assets located in Uruguay at the end of each
scal year. Such companies currently pay net worth
tax at a rate of 1.5 percent.
TPIR ISSN 0309-7900
 The Bill proposes that offshore companies pay net
worth tax at a rate of three percent.
2. Higher Nonresident Income Tax (Impuesto a
las Rentas de los No Residentes, IRNR) Rate
Offshore companies currently pay nonresident
income tax at a general rate of 12 percent.
Once the Parliament passes the Bill, such offshore
companies will begin to pay nonresident income tax
at a general rate of 25 percent(with the exception of
dividends received from Uruguayan companies).
Such dividends are currently, and in the future will
continue to be, taxed at a preferential rate of seven
percent.
3. Tax Burden on Real Estate Properties Will Rise
(a). Taxation on Rent
When an offshore company leases a real estate prop-
erty located in Uruguay, the company currently pays
nonresident income tax at a rate of 10.5 percent on the
rent.
Once the Bill is passed, the offshore company will
pay the same tax (nonresident income tax) at a rate of
30.25 percent.
(b). Taxation on Sales
At present, when an offshore company sells a real
estate property located in Uruguay (purchased before
July 1, 2007), the offshore company pays nonresident
income tax at a rate of 1.8 percent over the selling
price.
In the future, the same offshore company will pay
nonresident income tax at a rate of 25 percent on the
balance between the sale price and the purchase price.
This tax amendment would not enter into effect
until January 1, 2018.
4. More Taxes on the Sale of Shares
The Bill proposes: (i) to raise the tax burden on the
sale, by offshore companies, of Uruguayan compa-
nies shares; and (ii) to tax the sale of offshore compa-
nies shares.
(a). Nonresident Income Tax Paid by Offshore
Companies on the Sale of Uruguayan Companies
Shares Will Rise
At present, offshore companies pay nonresident
income tax on the sale of Uruguayan companies
shares, at the rate of 2.4 percent on the price of sale.
Once the Bill is passed by the Parliament, the non-
resident income tax paid by offshore companies on
the sale of such shares will rise to 7.5 percent (on the
same price of sale).
(b). Sale of Offshore Companies Shares will be Taxed
in Uruguay
Up to now, only the sale of Uruguayan companies
shares is taxed in Uruguay. Once the Bill is passed, the
sale of offshore companies shares will also be taxed in
10/16 Tax Planning International Review Bloomberg BNA
Uruguay, provided that more than 50 percent of the
offshore companys assets are located in Uruguay.
Where the seller of the shares is a resident company,
such seller will pay a 25 percent tax on the balance be-
tween the sale price and the purchase price. Where
the seller of the shares is a resident individual or a
nonresident individual/company, such seller will pay a
2.4 percent tax over the sale price (unless the seller is
an offshore company, in which case the offshore com-
pany will pay a 7.5 percent tax on the same sale price).
5. Income Stemming from the Export of Goods to
Uruguay and the Resale of Goods Imported from
Uruguay will be Taxed in Uruguay
Once the Uruguayan Parliament passes the Bill,
income stemming from the sale of goods by an off-
shore company to a Uruguayan company (the Im-
porter) will be subject to nonresident income tax at
the rate of 25 percent. Such a tax will be assessed on a
tax base of 50 percent of the price paid by the Uru-
guayan company to the offshore company.
In addition, income stemming from the resale, by
an offshore company, of goods previously sold by a
Uruguayan company (the Exporter), will also be
taxed at the rate of 25 percent on a tax base of 50 per-
cent of the price of such resale.
How will the Tax Ofce be able to make the collec-
tion of such tax effective? Simple: the Uruguayan
company (as Importer in the rst scenario, or Ex-
porter in the second one) will be deemed jointly liable.
6. Offshore Companies will Begin to pay
Nonresident Income Tax on the Sale, to
Uruguayan Companies, of Trademarks, Patents,
Software and other Intangible Assets
Until the present, offshore companies paid nonresi-
dent income tax only when they license, in favor of
Uruguayan companies, the use of intangible assets for
a limited period of time.
The Bill proposes also to tax offshore companies
when they sell such intangible assets, in a denitive
way, to Uruguayan companies. Such taxation (25% on
the price of sale) would be conditional on whether the
intangible assets are used in Uruguayan territory.
7. Offshore Companies shareholders will pay
Personal Income Tax (Impuesto a la Renta de las
Personas Fsicas, IRPF) on all Capital Incomes
Received by such Offshore Companies even
before the Distribution of Dividends
Individuals residing in Uruguay, who are shareholders
of offshore companies, now pay personal income tax
on certain capital income (dividends, interests, royal-
ties) received by such offshore companies, even before
the distribution of dividends to the shareholders.
Once the Bill is approved, the same rule (i.e., the ob-
ligation to pay personal income tax even before the
distribution of dividends) will also apply to other capi-
tal income received by offshore companies, such as
real estate rents and capital gains.
Guzman Ramrez is Senior Associate at Bergstein Abogados,
Uruguay
He may be contacted at: gramirez@bergsteinlaw.com
ISSN 0309-7900 3