Income tax in Uruguay
April 24, 2018
Residents are taxed on their Uruguayan-sourced income. Married couples may be taxed jointly or separately.
INCOME TAX (impuesto a la renta de las personas físicas, IRPF)
Income is classified into two categories:
- Category I: capital income and capital gains, and
- Category II: labor income (income from dependent or independent personal services and pension)
Calculation of taxable income and applicable income tax rate depends on the classification of income.
Category I (Capital Income and Capital Gains)
Capital income realized by individuals is subject to 12% tax. Rental income and capital gains realized from selling Uruguayan property are considered as capital income.
Taxable income from category I is generally defined as gross income less certain expenses (e.g. in the of case of letting of immovable property, housing agency commission, the real estate tax and the primary education tax), capital losses and bad debts. Bad debts and certain losses may be deducted, provided that the relevant income or profit is derived or accrues after the new individual income tax entered into force.
Although the general rate of income tax is 12%, there are differential rates in connection with certain deposits with financial institutions (taxable rate at 3%), the return on capital over negotiable notes under certain conditions (taxable rate at 5%), and the profits and dividends distributed by local Uruguayan taxpayers and profits derived from author rights (taxable rate at 7%).
Rental income is taxed at 12%. When calculating the taxable income, the following are deductible: real estate taxes, property tax for basic education, notary fees of the lease contract, administration costs, maintenance and repairs, housing agency commission, capital losses and bad debts.
Entities in charge of collecting the monthly income derived from renting a property (real estate administrators) are considered income tax withholders. Otherwise, those who obtain income derived from renting properties shall pay a monthly payment in advance of the abovementioned tax. The amount of withholding tax arises to 10.5% of the total amount of income received each month.
In case the only income obtained by individuals is derived from renting properties, advance payments can be considered as definitive tax payments.
Income from capital gains (net worth increases) can be obtained from selling, disposition promises, assignment of hereditary rights, assignment of possessors' rights, and in certain declaratory judgments regarding tangible and intangible assets. Additionally, the result of comparing the market value with the declared fiscal value of received donations is included when the market value is higher.
Capital gains are taxed at 12%. Taxable capital gains are the difference between the sales price and acquisition costs, as adjusted for inflation in accordance with the changes in the consumer price index.
Losses derived from capital gains could only be deducted from other incomes derived from capital gains, and only when the origin of these losses comes from a real estate transaction.
Category II (Labor or Earned Income)
Income from dependent or independent personal services, such as salaries and wages, and pension are taxed at progressive rates. The tax rates are levied on the contributions and benefits base (bases de prestaciones y contribuciones, BPC). For 2018, 1 BPC is set to UYU3,848 (US$137).
INCOME TAX ON LABOR
IN BPC (US$)
|Up to 60 BPC|
|60 BPC - 120 BPC|
|120 BPC - 180 BPC|
|180 BPC - 600 BPC|
|600 BPC - 900 BPC|
|900 BPC - 1380 BPC|
|Over 1,380 BPC|
|Source: Global Property Guide|
INCOME TAX ON LABOR INCOME 2018
|TAXABLE INCOME, UYU (US$)|
|Up to 230,880 (US$8,246)|
|230,880 - 461,760 (US$16,491)|
|461,760 - 692,640 (US$24,737)|
|692,640 - 2,308,800 (US$82,457)|
|2,308,800 - 3,463,200 (US$123,686)|
|3,463,200 - 3,310,240 (US$189,651)|
|Over 3,310,240 (US$189,651)|
|Source: Global Property Guide|
For income from employment, individuals can deduct certain deductions from the gross income such as social security contributions, medical expenses, and allowances for minor dependents.
For income from independent personal services, a standard deduction of 30% of the gross income is available.
NET WORTH TAX (impuesto al patrimonio, IAP)
The net worth (or capital) tax is an annual tax calculated on 31 December of each year for individuals, households, and undivided estates. The net worth of these taxpayers consists of properties, assets, and rights economically located, placed, or used within the country.
The taxable amount is the difference between taxable assets and deductible liabilities. Assets and rights located, placed or used economically in Uruguay are computed for tax purposes. Only debts with banks in Uruguay paying the banking assets tax are deductible. The deductible liability is calculated by the difference between these liabilities less assets abroad or exempted assets.
The tax is applied (by brackets with progressive rates) on the amount exceeding the non-taxable minimum. Said minimum is adjusted annually per the cost of living index. Currently, it is approximately equivalent to US$100,000 (double for households or US$200,000). Public debt instruments (e.g., Treasury bonds, Treasury bills, etc.) are not included in calculating the taxable amount.
Likewise, not included in the calculations are shares or quotas issued by corporations (who pay this tax on the net worth of the issuing company), bonds or debentures, savings bonds and similar items subject to payment of this tax by way of withholding or substitution, and deposits with banking institutions (these last assets are computed solely for the purpose of calculating the fixed value for furniture and fixtures in dwellings).
Valuation of Major Items
Real property used by taxpayers as dwellings is subject to a deduction of up to 50% of their tax value (which is fixed by assessment by the General Real Estate Registry), up to the equivalent of the non-taxable minimum. Works of art, books, and collections, regardless of their value, are included as household goods and furniture, which are assessed at a progressive rate from 10% to 20% of the net assets (non-residents do not compute this fixed amount). Vehicles are valued per the municipal assessment for Motor Vehicle Registration. Chattel and livestock of agricultural establishments are computed at 40% of the total tax value of the real property housing same, but these assets are exempted in this period.
Rates are applied by progressive brackets beginning with the non-taxable minimum and range from 0.7% to 1.50%.The prescribed tax-free amount (minimo no imponible or MNI) is established annually by the central government.
Property Tax (Contribución Imobiliaria)
Real estate tax is levied on immovable properties in Uruguay and is payable by the owners. The tax base is the cadastral value of the property as determined by the Cadastral Bureau. The tax rates vary from 0.15% to 0.30%, depending on the property value.
INCOME TAX (impuesto a las rentas de las actividades económicas, IRAE)Companies earning Uruguayan-sourced income and capital gains are subject to corporate income tax at a flat rate of 25%.
The taxable income is computed by deducting income-generating expenses from the gross income. Other allowable deductions include advertising costs, bad debts, commissions, gifts, goodwill, guaranties, interest expense, rents, representation expenses, research and development, remuneration (to owners, partners, directors), royalties and technical assistance, salaries and wages, service fees, social welfare, taxes on income-generating assets and activities, training costs, travel expenses, and depreciation expenses. A fiscal adjustment for inflation is mandatory.
BUSINESS NET WORTH TAX (impuesto al patrimonio, IAP)
The tax rates vary from 1.5% to 3.5%, depending on the taxpayer's classification and the type of assets involved. The standard tax rate is 1.5%.
The tax base for the business net worth tax is computed by deducting the company's total liabilities (e.g. debts with local financial institutions, local commercial debts, and debts in the form of bonds or debentures publicly traded on a stock exchange) from its total assets.