Castellán

To this end, we will delve into the tax treatment of an operation in which a Uruguayan company purchases goods and/or services abroad, and then resells them abroad as well, without these goods entering Uruguayan territory at any time or without these services being provided from Uruguay.

DGI Resolutions numbers 51/997 and 1139/007

Trading or triangulation operations have a particular treatment in Uruguay in the Tax on the Income of Economic Activities (IRAE), according to these resolutions issued by the Uruguayan tax authority (Direccion General Impositiva).

Indeed, they establish a fictitious way of determining the net income of Uruguayan source corresponding to the following intermediation operations carried out in national territory:

- purchase and sale of goods located abroad (that do not have their origin or destination - nor pass through - Uruguayan territory);
- intermediation in the provision of services (provided that they are rendered and economically used outside of Uruguay).

The net income of Uruguayan source in these cases is fictitiously determined as 3% (three percent) of the difference between the sale price and the purchase price of the aforementioned goods and services. Upon this result, the Tax on the Income of Economic Activities (IRAE) rate of 25% is applied, thus determining the amount of tax to be paid exclusively in the equivalent of 0.75% of the gross margin.

FICTITIOUS TAXABLE INCOME = (SALE PRICE LESS PURCHASE PRICE) x 3%
INCOME TAX (IRAE) = 25% X FICTITIOUS TAXABLE INCOME
EFFECTIVE IRAE RATE = 0.75% OF GROSS MARGIN

Distribution of dividends obtained from these operations

As a general rule, the Uruguayan company that distributes dividends to its shareholders must withhold the corresponding income tax (Non-Resident Income Tax IRNR, or Individual Income Tax IRPF, as the case may be) at a rate of 7%.

However, Uruguayan regulations provide that the portion of dividends associated with income not subject to the Tax on the Income of Economic Activities IRAE will also not be subject to IRPF and/or IRNR.

Therefore, Uruguayan companies engaged in international trading will have dividends paid to their shareholders subject to tax, but the 7% rate will be applied exclusively to the top of the taxable net income, that is, 3% of the difference between the sale price and the purchase price of trading operations. This results in an effective tax rate of only 0.21% of that difference.

IRNR / IRPF = 7% x FICTITIOUS TAXABLE INCOME
IRNR / IRPF = 7% x 3% x (SP LESS PP)
EFFECTIVE IRNR / IRPF RATE = 0.21% x FICTITIOUS TAXABLE INCOME

Technical services paid abroad

Uruguayan companies engaged in this type of operation also receive preferential treatment regarding technical services contracted abroad.

In fact, according to current regulations, technical services contracted abroad are considered of Uruguayan source as long as they are linked to obtaining income subject to the Tax on the Income of Economic Activities (IRAE), obtained from technical services provided from abroad to IRAE taxpayers, in the areas of management, technical, administrative, or advisory services of all kinds.

In these cases, only 5% of the total income will be considered as Uruguayan source income for the non-resident provider of such services, to the extent that such services are substantially linked to income not subject to IRAE. This condition will be considered met when the income subject to the Tax on the Income of Economic Activities obtained by the user of such services is less than 10% of their total income. And as mentioned earlier, this type of taxpayers only have 3% of their income subject to IRAE, so this condition is met. Ultimately, the payment abroad for this concept will be subject to IRNR withholding applying an effective withholding rate of 0.6% on the amount of the technical services contracted.

IRNR = 12% x 5% x SERVICE AMOUNT
EFFECTIVE IRNR RATE = 0.6% PER SERVICE AMOUNT

Value Added Tax

Regarding VAT, the operations do not fulfill the spatial aspect of the tax trigger, so the amount of income from the operation not subject to this tax must be considered.

Property Tax

If the Uruguayan company decides to open bank accounts in Uruguay, the existing balance of these accounts at the end of the fiscal year will be subject to Property Tax at a rate of 1.5%. Also, if these accounts generate interest income and/or exchange rate differences, they will be subject to Income Tax at a rate of 25%.

On the other hand, if the bank accounts are opened in a country other than Uruguay, these assets will not be subject to this tax nor will the income generated by the Tax on the Income of Economic Activities.

Final Considerations

As can be seen, Uruguay has a very beneficial tax regime for Uruguayan companies engaged in trading operations outside the country, allowing them to pay very low taxes and carry out their operations with all necessary guarantees.

Montevideo, July 22, 2020