A long tradition of openness

In June 2020, Uruguay’s new president, Luis Alberto Lacalle Pou, approved Decree No. 163/020 (the Decree), which created two new ways of obtaining tax residency in Uruguay through investments. In September, its congress passed Law No. 19,904 (the Law), complementing the Decree, which extended the ‘tax holiday’ period for new residents in Uruguay from five to ten years. This article offers a brief description of the main characteristics of these regulations.

Investments in real estate

The Decree requires an investment in real estate not less than USD390,000.1  For that purpose, a foreigner may invest in one or more real estate properties, but all of them must be held directly by the same individual. In this case, investors are not allowed to hold the real estate property through companies or other entities.

However, there are no requirements regarding the destiny or location of the real estate properties, which can be for rent or personal use, as well as for both residential and commercial or industrial activities. They can be in urban and rural zones, including seaside resorts.

The other requirement for obtaining tax residency under this route is that the investor must be present in Uruguayan territory for a total of at least 60 days during the year.

These requirements apply to each individual. Therefore, if a couple wishes to obtain tax residency for both spouses, each of them will have to prove they have been in the country for at least 60 days during the calendar year. Moreover, the investment amount must be at least USD780,000 and the property must be in both their names. To maintain tax residency, investors must also keep the property and comply with the effective presence requirement every year.

Investments in local firms that generate jobs

The Decree further establishes how to obtain Uruguayan tax residency through an investment in a local company. This can be made directly by an individual or indirectly through a controlled company or other structure. The investment amount must be at least USD1.67 million and is applicable for each individual investor (e.g. not for a husband and wife together).2

For this route, there are no requirements for the investor to stay in Uruguay. However, the Decree does require that the investment generate at least 15 new direct and full-time jobs in the investee company during the same year that the investment is made. Besides that, the Decree contains some rules designed to avoid the abuse of the regulation by investors looking for tax residency.

The activity or industry of the investee company is not relevant and it can be a new entity or a firm that has been in the market for years. It could even be a firm operating in a local free trade zone.

Pre-existing ways to obtain tax residency

The possibility of obtaining tax residency in Uruguay through investments is not new. However, the Decree has significantly reduced the amounts required for the investments. For example, in the case of an investment in real estate by a foreign individual, a pre-existing regulation establishes that its value must be at least USD1.67 million in order to allow the investor to obtain Uruguayan tax residency. Nevertheless, the advantage of this regulation, which remains valid, is that the investor does not need to stay in the country for a minimum amount of time.

Other regulations require a higher investment in local firms: USD5 million. In addition, this amount must be applied in a project declared of ‘national interest’ by the government. The advantage of this regulation, however, is that the local firm is not required to create new jobs.

In addition to investments in real estate and local companies, there are other traditional alternatives for obtaining tax residency, including permanence in Uruguayan territory for at least 183 days. In this regard, Uruguayan authorities do not discount ‘transitory departures’, meaning departures for fewer than 30 days and in exceptional form.

Other traditional alternatives for obtaining Uruguayan tax residency include establishing Uruguay as the base of economic activities for the new resident or the base of their ‘vital interests’.

Taxation of individual residents in Uruguay and the ‘tax holiday’

Consistent with the fiscal territoriality criterion, Uruguayan residents are taxed on all income generated in the country. However, since 2011, Uruguayan residents are also taxed on the income generated by some investments abroad considered ‘movable assets’, including securities, loans, deposits in bank accounts, etc. Essentially, Uruguayan residents are currently taxed on dividends and interests paid to them from abroad by firms and individuals.

However, in 2012, congress passed Law No. 18,910 establishing an exemption from income tax on investments in movable assets abroad for individuals who have moved their tax residency to Uruguay. This exemption (or ‘tax holiday’) was applicable during the year in which an individual became a Uruguayan tax resident and for another five years thereafter.

In passing the Law, duration of the tax holiday was extended to ten years.

Further, the Law created an option for new residents. They can obtain the benefit of the tax holiday described above or, as an alternative, they can now choose to be taxed on their income from movable assets abroad at a rate of 7 per cent (instead of 12 per cent, which is the standard tax rate for that type of income) without a time limit.

Therefore, new tax residents in Uruguay may choose between:

• not being taxed on their income from abroad (dividends and interests) for a maximum of ten years after the year they obtained their residency; or
• paying income tax on dividends and interests from abroad at a rate of 7 per cent since the year in which they became residents and as long as they keep their Uruguayan tax residency.

Conclusion

For decades, businesspeople from Argentina and Brazil and their families have found an alternative tax residency in Uruguay. Investors from those countries have also been, and continue to be, owners of important real estate properties in the country, especially in its capital, Montevideo, and in its main resort, Punta del Este. Further, people from other countries, including Europe and the US, have been willing to invest and live in Uruguay.

Therefore, it seems natural that most of the new residents will be Argentinians and Brazilians. But there are also indications that Uruguay can be an attractive alternative for high-net-worth families from other countries in South America and beyond.

As a result of the economic crisis in Argentina that the pandemic has worsened, some Argentine businesspeople and their families have moved (or are considering moving) their residencies to Uruguay. As a result, criticisms of the Uruguayan government for adopting the resolutions referred to in this article have emerged in Argentina. However, Uruguay has a long tradition of openness for qualified immigration, which has been followed and respected by governments of different political parties and different ideologies. Therefore, the purpose of facilitating the obtention of tax residency by investors from any jurisdiction is consistent with said tradition and with current authorities expressed before taking office.

• 1The exact figures may vary over time due to changes in the exchange rate.
• 2See note 1.