To conduct business in Uruguay, investors can opt to establish a Uruguayan business entity, either by creating one or acquiring a pre-existing company, or alternatively, operate directly or through a permanent establishment.

The most common chosen corporate structures are:

• corporations (“Sociedades Anónimas” or SA); and
• simplified joint-stock companies (“Sociedades por Acciones Simplificadas” or SAS).

SA

• Corporate structure commonly used for commercial or industrial activities, particularly by large enterprises.
• It has no specific operational limitations and can engage in various types of activities, though certain activities may require prior state authorisation (eg, banking).
• Subject to control by the National Internal Auditing Office during their constitution, modification of statutes or capital, dissolution, transformation, merger, or spin-off.
• Uruguayan Central Bank maintains a confidential registry of shareholders for non-publicly traded SAs.

SAS

• SAS is a favourable option for entrepreneurs or foreigners establishing businesses in Uruguay.
• It offers a more flexible corporate structure than SA; SAS has a simplified incorporation process and lower costs.
• Administration and representation are flexible, requiring only a legal representative.
• No special formalities for corporate meetings, which can be held anywhere and by any means.
• SAS are not subject to control of the National Internal Auditing Office, unless the company’s annual income exceeds approximately USD5.4 million, in which event financial statements must be submitted to the National Internal Auditing Office.

Tax Treatment

• SA need to pay a tax applicable to their incorporation process (ICOSA), while SAS are exempted.
• Regarding IRAE (Impuesto a las Rentas de las Actividades Económicas), if annual income is below approximately USD570,000, SAS can opt for a favourable fictitious regime.
• SAS are also subject to a possible exemption on 7% of dividends tax paid to shareholders as long as such dividends are lower than USD570,000 annually.

Additionally, contractual entities such as trusts and consortia are available options. Legal separation is conferred upon business entities from the date of incorporation.

Certain personal entities can achieve fiscal transparency if specific conditions are satisfied:

• the entity must be a civil partnership or a de facto partnership; and
• partners in such an entity must be individual residents, or if the income originates solely from capital, non-resident entities may also serve as partners. Meeting these conditions exempts the entity from being considered a taxpayer, and its income is directly attributed to the partners, who are then subject to personal income tax.

In contrast, trusts, though contractual and not legal entities, are recognised contributors for tax purposes. However, guarantee trusts exhibit fiscal transparency. Funds, operating similarly to trust structures without legal entity status, differ in their tax treatment: closed-ended funds are contributors under IRAE, while open-ended funds are fiscally transparent.

Uruguay applies the place of incorporation criteria to determine the tax residence of companies. Therefore, all companies incorporated in Uruguay are considered tax residents and companies incorporated abroad, will be considered tax residents in Uruguay if they establish its domicile in Uruguay. All companies incorporated or domiciled in Uruguay can ask for a Tax Residence Certificate in order to apply any of the 25 double tax treaties currently in force.

The tax rates paid by incorporated businesses vary depending on the type of tax imposed. Typically, corporate income (IRAE) is subject to a rate of 25%, while non-resident income tax is generally set at 12%, and wealth tax at 1.5%. It is important to note that there may be exceptions applicable to these rates in specific cases. For businesses owned by individuals directly, the tax rate is the 25%. For transparent entities owned by individuals, the applicable tax would be IRPF, and the tax would be levied according to progressive rates shown here.

If the income obtained by an individual during the financial year is greater than approximately USD700,000, then the individual becomes an IRAE taxpayer and is levied at the 25% rate for the corresponding economic period.

Taxable profits are calculated using the accounting net result as the starting figure and applying fiscal adjustments in accordance with local tax law. Accrual basis is utilised in order to determine both income/expenses for accounting and tax purposes. The most common adjustments have to do with expenses deductibility. General costs deduction rules are explained in 2.5 Imposed Limits on Deduction of Interest. Other typical fiscal results that are usually applied to the accounting net result have to do with exchange rate derived from fluctuations of currency, allowance for bad debt, and financial expenses.

Income derived from intangible assets like software can be exempted from corporate income tax if developed in the national territory and registered in the National Library following intellectual property regulations. Additionally, software development services rendered by Uruguayan companies to either local or foreign third parties, can qualify for income tax exemption, when performed by the taxpayer in national territory, provided that direct expenses costs incurred in Uruguay exceed 50% of the total costs.

Uruguay has specific tax regimes which grant benefits to investors upon the fulfilment of certain conditions. The main regimes in relation to corporate taxation are: (i) free trade zones; (ii) investments promotion; (iii) free port and airport; (iv) trading activities regime (either goods or services); and (v) forestry.

• (i) Free trade zones – provide full exemption from local taxes, including IRAE, Wealth Tax, VAT, IMESI, ICOSA, and trading taxes. Also, import duties are waived.
• (ii) Investment promotion – grants automatic benefits to all investors, such as exemptions from wealth tax, VAT, and partial IRAE reduction on reinvestment. Specific companies or activities may receive additional benefits, including VAT refunds, duty exemptions, and extended tax breaks.
• (iii) Free port and airport – allows for unrestricted commercial, industrial, or service activities with full exoneration of local taxes within designated zones.
• (iv) Trading activities regime – offers tax benefits for trading goods or services, including a 0.75% effective tax rate on certain income attributed to Uruguayan sources.
• (v) Forestry – governed by the Forestry Law, providing tax incentives for forestry projects, such as IRAE and Net Worth Tax exemptions, and rural real estate tax exemption for approved projects meeting specified criteria.

These regimes aim to attract both domestic and foreign investment, ensuring equitable treatment and free movement of capital and profits.

Tax losses can be carried forward for up to five years from the year they occurred, allowing offset against positive results on tax returns. Accumulation of losses within this five-year period is permitted, and annual updates must be made based on the inflation rate. When calculating the net fiscal result, losses from previous years are deducted, offsetting positive and negative results chronologically.

There are no thin capitalisation rules or Earning Stripping Rules

Interest expenses can be deducted to the extent that the receiving counterparty pays income tax; for entities that pay at least 25%, the expense will be 100% deductible for the paying company.

If the receiving company pays a lower rate, the expense will be deductible proportionally. For example, an entity from abroad receiving interest will be taxed at a 12% IRNR rate; the expense for the paying company will be deductible at 48% (12/25).

Furthermore, financial expenses in general have a deduction limitation, the total amount deductible should be multiplied by the following ratio: Local Assets/Total Assets.

Refer to 9.7 Territorial Tax Regime for further information.

While Financial Statements can be consolidated for accounting purposes, there is no provision for consolidated tax reporting. Therefore, within a group of companies, each entity reports its own gains or losses independently, and there is no option to offset results with other companies within the group for tax purposes. For transfer pricing purposes there are reports that require consolidated information such as CbC reports.

Corporations in Uruguay are taxed on locally sourced capital gains, such as those arising from the sale of shares in other corporations, by treating them as ordinary business income. These capital gains are subject to corporate income tax at the standard rate of 25% applied to the net result of the operation. For the sale of foreign subsidiaries, refer to 6.1 Foreign Income of Local Corporations.

Transactions by businesses incorporated in Uruguay are taxed in various ways. Some of them are listed as follows.

• The internal circulation of goods and provision of services is taxed by VAT at a 22% rate.
• At least one Director must pay contributions to social security (BPS) which will also entitle him/her to mutual coverage (in health) in the case of having a Uruguayan identity card. These contributions are around USD3,000 annually.
• Uruguay implements a commercialisation tax – IMESI (Specific Internal Tax), applied only to the first sale. Depending on the type of good, it is calculated based on the real sale price or on the official price set by the state. Goods subject to the highest IMESI rates are alcoholic beverages (from 20.20% to 80%, depending on the alcohol degree), tobacco (from 28% to 70%), lubricants (from 5% to 35%), and gasoline, fuel, and other petroleum products (from 5% to 133%).
• In the event of the dissolution and liquidation of a company, the assignment of real estate to the shareholders constitutes a triggering event for the property transfer tax (ITP).

In Uruguay, incorporated businesses are also subject to the wealth tax at a rate of 1.5%, which levies certain assets located in Uruguay. Additionally, if the company takes the form of a public company (Sociedad Anónima) they are also subject to a corporate tax known as ICOSA, applicable only for this corporate structure, which is a fixed amount set annually by the government (USD700 approximately).

Last, companies may be withholding agents when performing certain type of payments abroad, refer to 4.1 Withholding Taxes.

The term “closely held local business” is not regulated in Uruguay. However, it is common in the country for companies to be closely held, with shares owned by a few individuals. These businesses do not have different regulations, and they commonly operate in a corporate form.

Professionals in Uruguay are taxed at individual rates (IRPF), ranging from 0% to 36% (the threshold is shown in 1.4 Tax Rates) based on income from employment or independent work. There is a notional tax deduction of 30% of the income that must be considered before calculating the tax. While professionals can opt for corporate taxation, choosing this method binds them to the decision for at least three years. However, those earning over approximately USD700,000 in a fiscal year are required to be taxed as a corporation, paying 25% on tax profit, calculated as the difference between taxable income and expenses.

Also, individuals obtaining income derived from the combination of capital and labour are taxed at the 25% rate, irrespective of the level of income perceived.

Uruguay has implemented regulations to discourage companies from accumulating earnings without a clear purpose. If the taxable net income at the end of the fiscal year is four years old or more, it is treated as “notional dividend”, and companies are obligated to pay 7% of the result. This measure aims to address the possibility of a covert distribution that has not been subjected to taxation.

In Uruguay, individuals are taxed at a 7% tax on dividends that are paid from income already taxed by IRAE. Foreign-sourced dividends are taxed at a 12% rate. Capital gains from the sale of shares of Uruguayan entities are taxed at a 12% on the 20% of the purchase price, resulting in an effective tax rate of 2.4%. Foreign-sourced capital gains are tax exempt.

The tax treatment applicable to dividends or gains from the sale of shares in this type of company is the same as in 3.4 Sales of Shares by Individuals in Closely Held Corporations.

The general withholding tax rate for interest, royalties, and technical services is 12%, while the rate for dividends is 7%. These rates may vary provided that the receiving country has a tax treaty signed with Uruguay.

In these cases, the withholding is triggered only if the foreign counterpart obtains locally sourced income.

In the case of technical services, this includes income derived from the provision of services provided from abroad to IRAE taxpayers, linked to income taxed by IRAE for such taxpayer.

In this context, technical service is understood to include those within the scope of management, technical, and advisory services of all kinds, with the provider possessing suitable knowledge for its provision.

There is also a reduced rate that applies when the service recipient’s taxable income (for IRAE purpose) is lower than 10% of its total income, then only 5% of the technical service is considered locally sourced, deriving in an effective tax rate of 0.6% (5%*12%).

There may be reliefs available depending on the treaty signed by the counterpart.

The main treaty partners include countries such as Spain, Finland and Portugal.

Uruguay has 32 Investment Agreements in force with 34 countries and has two signed agreements not yet in force with India and Turkey (the intra-MERCOSUR agreement is in force with Argentina and Brazil, but not yet with Paraguay). Most of these Treaties are Investment Promotion and Protection Agreements (IPPA) and there are Bilateral Investment Treaties (BTIs) with United States, Chile, and Japan.

As per 2022 the following countries toped direct foreign investment in Uruguay: Spain (17%), Finland and Argentina (13% each), Brasil 10%, Switzerland (8%) and the USA (7%) – all of them have an IPPA or BTI in place.

To disregard the application of a treaty in the circumstances asked, treaties need to have LOB provisions or an applicable PPT. These provisions are contained, for example, in tax treaties in place with Chile or Ecuador, and subsequently in several others due to the OECD Multilateral Convention. However, they have not yet had practical impact in Uruguay, and there is no administrative or jurisdictional casuistry regarding this matter.

In Uruguay, inbound investors operating through local corporations may face transfer pricing challenges, especially concerning royalty payments and services received from related parties abroad. Scrutiny also extends to persistent losses in low-risk entities, payments for licences to low-tax jurisdictions, and business restructurings. The burden of proof during inspections generally lies with the tax authority, except in specific cases involving low-tax jurisdictions where the burden shifts to the taxpayer.

TP rules are applicable for operations that are 100% local.

The local transfer pricing rules in Uruguay are generally aligned with OECD standards. However, there is an important variation from the OECD guidelines in the case of import and export transactions of goods for which there is an international, public and well-known price (“commodities”). The so called “Sixth Method” essentially consists in putting into consideration the higher price between the one agreed upon by the parties and the price in the “transparent market” where the goods are traded at the time of shipment.

Uruguay currently lacks experience in engaging in the Mutual Agreement Procedure (MAP) for resolving transfer pricing disputes. With the ratification of the OECD Multilateral Instrument (MLI), Uruguay now enables the possibility of arbitration to alleviate double taxation, provided the treaty partner country also agrees, at least 14 treaties have been affected with the MAP provision.

No information has been provided in this jurisdiction, but it is noted to be a vast topic.

Local branches of non-local corporations are not taxed differently from local subsidiaries of non-local corporations.

As mentioned earlier, when a foreign company sells shares of a local company, the former is subject to paying non-resident income tax, at an effective rate of 2.4%, unless a double tax treaty is applicable. The tax applies only in the sale of the shares of the local company, an indirect sale of the local company through the sale of the offshore holding company, does not trigger tax, unless the holding company is domiciled in a BONT jurisdiction, and +50% of the underlying assets are in Uruguay.

It is also worth mentioning that by effect of some of the DTA signed, Uruguay may lose its power to tax this type of transaction.

Usually, treaties signed by Uruguay include in their 13th article a clause permitting taxation in the residence of the seller, unless the underlying assets of the company sold include real estate located in Uruguay.

Uruguay’s Tax Transparency Law has implemented measures to align with international standards on tax transparency and combat money laundering. These provisions specifically target entities residing, domiciled, or situated in Low or No Tax Jurisdictions. According to the rules, income resulting from the transfer of shares or participations in entities from LONT, where more than 50% of their total investments are in Uruguay, is considered sourced in Uruguay and, therefore, subject to Corporate Income Tax.

In these cases, the applicable tax rate increases from 12% to 25%, and the notional result increases from 20% to 30%, deriving in an effective tax rate of 7.5%, instead of 2.4%.

Foreign owned local affiliates are taxed by IRAE at a 25% rate, like all other companies in Uruguay are taxed on income, for the selling of goods and/or provision of services.

The deduction standard in this case follows the general criterion, expenses can be deducted in its entirety from the Gross Income Expenses provided that the non-local affiliate pays income tax. If such tax rate is lower than the IRAE rate (25%), it can be deducted proportionally. This is known as the “Padlock Rule” and is explained in 2.5 Imposed Limits on Deduction of Interest.

Related-party borrowing shall be subject to Transfer Pricing regulations. Any costs related to such loans shall be subject to the Padlock Rule.

While foreign business income is tax exempt without any condition, passive income obtained by a local company belonging to a multinational group, will be exempt if such income is considered “Qualified Income”. Income is deemed qualified when it is derived from companies that meet certain local economic substance criteria described below:

• employ human resources in accordance with numbers, qualifications, and remuneration to manage the assets, and has adequate facilities for the development of this activity in the national territory;
• makes strategic decisions and bears the risks in national territory; and
• incurs adequate expenses and costs.

Holding companies and real estate holding companies need only to fulfil the second point.

A company is to be considered a holding company if:

• the assets directly associated with these activities represent at least 75% of the total assets of the company; and
• the company is included in the consolidated financial statements of the group.

For exploitation of IP rights, income (both foreign and local) derived from the lease, use, assignment of use, or sale of such IP, is exempt from IRAE, provided that the asset has been developed in national territory and is registered locally according to intellectual property regulations.

The exempted amount will result from applying the following coefficient to the income:

Direct Expenses and Costs incurred to develop the asset x 1.3 / Total Expenses and Costs incurred to develop the asset.

Only expenses directly tied to generating taxable income are deductible. If a taxpayer has both taxable and non-taxable income, 100% deduction of expenses, like administrative and financial costs, is not allowed. For partially related non-financial expenses, a coefficient is applied, often based on the ratio of non-taxable income to total income. Once defined, this coefficient cannot be changed by the taxpayer without explicit or tacit approval from the Administration; tacit approval being the lack of resolution within 90 days of the request.

Foreign dividends follow the rules for passive income described in 6.1 Foreign Income of Local Corporations – dividends shall be subject to the Qualification Rules to be exempted.

Intangibles developed by local corporations can be used by non-local subsidiaries in their business without incurring local corporate tax. To qualify for an exemption from local corporate tax (Royalties) related to the use of intangible assets if the transaction has a price, the income generated from such intellectual property must meet the criteria outlined in 6.1 Foreign Income of Local Corporations as specified in the relevant provisions. If the transaction is free, then TP rules would apply, and eventually taxation may be triggered if the criteria mentioned in 6.1 Foreign Income of Local Corporations is not adequately met.

Uruguay does not have CFC-type rules for companies.

Rules related to the substance of non-local affiliates do not apply in Uruguay.

Foreign capital gains, as passive income, are subject to the Qualification Companies Income rule described in 6.1 Foreign Income of Local Corporations.

Furthermore, if the non-local affiliate is in a low or zero taxation jurisdiction and has over 50% of its assets in Uruguay, such sale would be considered of Uruguayan source and the selling local corporation will be taxed by IRAE at a 7.5% effective rate, even though income may be considered as Qualified.

In Uruguay there is no GAAR, although there has been an attempt to confer such character to the qualification rule of Article 6 clause 2 of the Tax Code. However, such rule only obliges the interpreter to qualify legal acts according to the underlying reality, when there is a discordance between form and economic substance.

Recently, with the introduction of the economic substance requirements for the exemption of passive income, an anti-avoidance rule very similar to the one defined in ATAD was included, but its scope of extension is limited only to such cases; so, it cannot be categorised as a GAAR.

From a tax authority perspective there are no routine audit cycles.

In accordance with the Tax Administration (DGI) regulations, certain companies must audit their financial statements and keep them on record for review upon request from the tax authorities.

Such companies are:

• Large taxpayers that always have Audit Reports.
• CEDE Companies (Special Control of Companies), which must have a Limited Review Report, whenever their assets exceed 6,000 Re-adjustable Units (UR) or USD250,000 approximately.
• Free Trade Zone.
1. Companies must have Audit Reports when the total assets exceed UR30,000 (USD1.3 million approximately) or which record net operating income exceeding UR100,000 (USD4.23 million approximately).
2. For the rest of the financial statements, a Limited Review Report will be required.
3. If the user had no activity during the whole fiscal year, a certification from a Certified Public Accountant stating the non-existence of economic activity will be required.

Uruguay joined the Inclusive Framework of BEPS in 2016, committing to implement key minimum standards outlined in Actions 5, 6, 13, and 14. This update highlights Uruguay’s progress in adhering to these standards.

Action 5 (Harmful Tax Practices) – Uruguay, recognising the significance of Action 5, has diligently reviewed preferential tax regimes, including Free Trade Zones and Software Regimes, which constitute a substantial part of Uruguay’s economic growth. These regimes, initially considered as potential ring-fencing practices, have been subject to comprehensive assessments in alignment with BEPS recommendations.

Action 13 (Country by Country Report) – implementation of Action 13 occurred in 2017, marking a pivotal step in enhancing transparency. Uruguay has successfully integrated the Country by Country Report, contributing to a more comprehensive understanding of multinational entities’ activities within this jurisdiction.

Action 1 (Tax Challenges of Digital Economy) – in 2021, Uruguay committed with both Pillar solutions proposed under Action 1 to address the tax challenges posed by the digital economy.

Actions 8–10 (Transfer Pricing) – Uruguay has long-standing rules aligned with the arm’s length principle and OECD guidelines for Transfer Pricing (Actions 8–10). Practical application of these rules ensures fairness and adherence to international standards in cross-border transactions.

Action 15 (Multilateral Instrument) – parliament’s approval in 2019 marked a significant milestone for Uruguay in implementing Action 15. This approval led to modifications in several treaties, incorporating essential minimum standards, such as Action 6’s Principal Purpose Test (PPT) clause and a Simplified Limitation on Benefits (LOB), alongside Action 14’s Mutual Agreement Procedures (MAPs).

Uruguay’s commitment to BEPS standards is evident in the successful implementation of Actions 5, 13, and 15, as well as its proactive stance on addressing the challenges of the digital economy through Action 1. The alignment with Transfer Pricing guidelines further reinforces the dedication to fostering of transparent international tax practices.

As previously mentioned, Uruguay committed to the minimum standards of the BEPS project, encompassing both Pillars in 2021. This commitment serves as the government’s response to the pressure exerted by the OECD and the EU. Despite the country’s strong international reputation, the government found itself compelled by these international organisations to implement significant changes. A notable example occurred in 2023 when Uruguay reformed its tax system to ensure removal from the EU’s “grey list” and prevent entry into the more severe “black list”. Inclusion in these lists can have profound repercussions, including restrictions on EU funding, economic sanctions, heightened withholding taxes, impaired reputation, and challenges in opening bank accounts in Europe, among other consequences. The challenges faced by smaller nations in maintaining a conducive business environment under such pressures are evident. Importantly, this pressure extends beyond the OECD, notably from the EU’s CoC Group, which blacklists countries based solely on their tax systems.

Uruguay encounters substantial pressure from the EU to transition from a territorial tax system to a worldwide system. To uphold fundamental principles, the decision was made to implement economic substance rules, akin to those imposed in offshore jurisdictions, and introduce special rules for foreign-source passive income. An illustrative example is the taxation of holding companies, similarly to European participation exemption regimes of which they had concerns.

Regarding Pillar I, there is an international consensus that it may not be universally implemented. However, in 2017, Uruguay implemented a unilateral solution for the digital economy, taxing non-resident companies that provide services from abroad through the internet, technological platforms, or similar means, when the acquirer of the services is located in Uruguay. This provision specifically applies to audio-visual services rendered through the internet. Moreover, this is not limited to ADS, since UY has a WTH for technical services provided from abroad to corporate taxpayers.

Similarly, mediation and intermediation services are considered 100% from Uruguayan source when the supplier and the acquirer of the service are located in Uruguay. If either of them is located abroad, only 50% of the income is considered from Uruguayan source. The term “intermediation” is defined very similarly to the UN 12A article, and the definition aligns with that provided by the OECD for ADS

Concerning Pillar II, the situation is very different since the EU has already adopted a Directive implementing a “Global Minimum Tax”, which will undoubtedly affect subsidiaries located in Uruguay particularly the ones located in the Free Trade Zones. As a developing country, Uruguay needs to create tax incentives for foreign direct investment, aligning with the strategies employed by many capital-importing nations. The economic return generated by Free Trade Zones is over seven times higher for every dollar exempted, showcasing its vital role in the Uruguayan economy.

Pillar II presents a significant challenge for the country, leaving no room for inaction. Failure to implement measures could result in another jurisdiction stepping in. Yet, addressing this challenge is not as straightforward as implementing, for instance, the QDMTT. The overarching concern is the rationale behind multinational corporations opting to invest and generate production in Uruguay when their home country offers a similar tax burden. Pillar II still exhibits deficiencies, leaving room for countries to remain competitive.

This shift in policy from addressing “harmful tax competition” to limiting competition, even in cases with economic substance such as Free Trade Zones and software regimes, raises concerns about the infringement of the country’s sovereignty. Uruguay is currently evaluating the optimal approach to implement Pillar II, demonstrating caution and a measured stance to avoid hastily introducing measures that could disrupt various sectors of the economy.

In summary, Uruguay is navigating the complexities of Pillar II, acknowledging the necessity for proactive measures while carefully considering the potential ramifications on the country’s economic sectors.

Historically, international tax did not have a high public profile in Uruguay, which is understandable considering its territorial tax system and being a capital import country. However, since 2007, year of a tax reform that introduced concepts such as tax residence, EP and transfer pricing regulations, and particularly 2011, when Uruguay was blacklisted by the OECD as a non-co-operative jurisdiction, international tax indeed increased its public exposure. Nowadays, with the impact that Pillar 2 will certainly have in mayor economic sectors as the Free Trade Zones, international tax will probably achieve a high public profile. Indeed, we are not talking here about BEPS recommendations, which our different governments addressed pretty well, but impositions from the OECD and the EU that affect Uruguay (and every country) tax sovereignty.

As already mentioned, for the last 15 years Uruguayan authorities were forced to introduce changes or to celebrate treaties to comply with international regulations in order to avoid being catalogued as a tax heaven. So far, those changes have been sufficient to maintain Uruguay away from such lists, and at the same time to keep all those tax advantages that make the country attractive.

Considering Pillar 2, the more vulnerable key features in Uruguay are the Free Trade Zones, the software and tech services regime and the international trading regime.

There is no legislation nor are there proposals for dealing with hybrid instruments in Uruguay.

Uruguay has a Territorial Tax Regime and there are interest deductibility restrictions in place, through which only interest necessary to obtain taxable income and taxed at a 25% rate in head of the lender, are deductible in the liquidation of IRAE. In this sense, in case the taxpayer has both taxed and non-taxed income, it will not be able to deduct 100% of those expenses that are necessary to obtain both types of income (typically administrative expenses and financial expenses).

The regulation establishes that the deductible amount of non-financial expenses partially allocated to obtain taxable income will be obtained by applying a technically acceptable coefficient on them, which arises from the actual operations of the company. A frequently used ratio is the ratio of untaxed income to total income. Part of the untaxed income usually corresponds to the exchange difference generated by placements or credits with entities located abroad.

Since Uruguay is a territorial taxation country for companies, there are no CFC proposals.

Although being a capital import country and having a territorial tax regime, Uruguay has a considerable tax treaty network. Several of those treaties include Limitation on Benefits provisions, such as the one with Chile, Paraguay and Ecuador. Being Uruguay a signatory party of the MLI, most of its tax treaties were affected and at least the Principal Purpose Test included as an anti-avoidance provision.

No transfer pricing changes were introduced due to BEPS.

Taxation of IP creates nor controversy since Uruguay has a specific regulation for both IP exploited within Uruguay (see 9.14 Taxation of Offshore IP) and outside of Uruguay, with Law 20.095. Such Law established that Income derived from intellectual property rights obtained by an entity member of a multinational group related to patents or registered software, sold or used economically outside the national territory - in the part that does not correspond to Qualified Income – would be considered Uruguayan taxable income.

Refer to 6.1 Foreign Income of Local Corporations to see the requirements introduced by Law 20.095.

From an empirical perspective, the high cost of compliance for most of the companies versus the possibility of tax administrations to analyse the information and make good use out of it, is not proportionate.

Uruguay has been at the forefront of the taxation of the Digital Economy Business with the passing of Law 19.535 in 2017 and its regulating Decree N 144/018.

As mentioned, in 2017, Uruguay implemented a unilateral solution for the digital economy, taxing non-resident companies that provide services from abroad through the internet, technological platforms, or similar means, when the acquirer of the services is in Uruguay. Similarly, mediation and intermediation services are considered 100% from Uruguayan source when the supplier and the acquirer of the service are in Uruguay. If either of them is located abroad, only 50% of the income is considered from Uruguayan source.

Royalty payments to non-residents are generally taxed and withheld at source at a 12% rate, unless such rate is reduced by a tax treaty.