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But it also meets a basic rule for achieving that goal: the profits of these companies are either not taxed or taxed exceptionally little.

In the past, business groups often chose to set up the Holding Company in low-tax countries (tax havens or BONT). But in recent years, with the aim of converging towards international standards of International Fiscal Transparency, different countries have sought to discourage the use of these jurisdictions.

This last point generates increasing interest in the national and international market to resort to Uruguayan companies as an efficient instrument to act as a Holding Company.

Why establish a Holding Company?

A Holding Company is a commercial company mainly established with the objective of investing or acquiring in the capital of other companies, whether local or foreign, exercising control over the management of the subsidiary companies through its direct participation in the capital, since it owns the majority of its shares or participations. The subsidiary or controlled companies carry out a real economic activity and have their own legal personality, so they are legally autonomous.

Despite the independence of the group's companies, the economic control is exercised by the parent company, as well as the strategic decisions, which allows for a broader strategic vision, more agile decision-making, traceability of plans and objectives more transparent, avoiding duplication of work and reducing cost structure.

Why Uruguay?

As we said, Uruguay is a country with a strong respect for the rules of the game and the essential foundations of economic activity. That is why it ranks high in Latin America in the main rankings that assess aspects of political stability and democratic strength.

In Uruguay, there are no differences in the treatment of national and foreign capital, and incentives for promoting investment are available to both. There are also no limits on the allocation of foreign capital in companies. The Uruguayan Holding Company has total freedom to dispose of and move capital without tax implications for itself or its shareholders.

Companies in Uruguay can be established with a single shareholder, who can be a natural or legal person, resident or non-resident. Similarly, Uruguayan companies can be managed and represented by residents or non-residents.

What is the Tax Treatment of the Uruguayan Holding Company?

The tax system in Uruguay is based on the criterion of territorial source, taxing only income from Uruguayan sources and assets located in Uruguayan territory, so both assets located abroad and income generated by those assets will not be subject to Income Tax or Wealth Tax. The distribution of dividends by a joint-stock company to its shareholders will not be taxed if the income that generated the dividend payment was from foreign sources.

Income Tax. Income derived from Holding activities

Whether the holding company participates in Uruguayan and / or foreign companies, both the result from holding shares and the gain derived from dividends received from the companies are not taxed by the Income Tax on Economic Activities (IRAE).

Income Tax. Transfer of Shares

If the Holding Company sells shares of some of the companies in which it participates, the treatment will depend on the country of residence of the companies whose shares are sold:

- if they are from a Uruguayan company, the result is taxed at a rate of 25%;

- if they are from a foreign company, we must differentiate two situations:
a) domiciled in "NON BONT" countries: the result derived from the sale of shares is not taxed by IRAE;
b) domiciled in "BONT" countries: the result derived from the sale of shares is taxed at a rate of 25%, but only when more than 50% of the assets of the foreign company are integrated, directly or indirectly, by assets located within Uruguay.

Wealth Tax

In Uruguay, the Wealth Tax (IP) taxes assets at a rate of 1.5% at the end of the fiscal year. However, the holding of shares of other Commercial Companies by the Holding Company, whether local or foreign, is not taxed.

Dividends distributed by the Holding Company to its shareholders.

The first thing we must distinguish is whether the dividends distributed by the Holding Company to its shareholders come from Uruguayan companies or foreign companies.

- dividends distributed by the Holding to its shareholders received from Uruguayan companies:

a) if the dividends received from the Uruguayan company come from income subject to the Income Tax on Economic Activities (IRAE), the Holding Company in these cases must withhold the Personal Income Tax (IRPF) or the Non-Resident Income Tax (IRNR) at a rate of 7% on the amount of the distributed dividend;

b) if they come from income not subject to IRAE, no withholding is required.

 - dividends distributed by the Holding to its shareholders received from foreign companies:

a) if the shareholder of the Holding is a natural or legal person not resident in Uruguay, the dividends distributed by the Holding will not be subject to IRNR;

b) if the shareholder of the Holding is a natural person resident for tax purposes in Uruguay, the distribution of such dividends will be subject to IRPF at a rate of 12%. Notwithstanding this, it should be noted that if the legal form chosen to set up the Holding in Uruguay is that of a Simplified Stock Company (SAS), and the income from the holdings of the shares from the previous year (whether local or foreign) does not exceed approximately USD 450,000, the distributions are not taxed.

Final Considerations

The scheme of a business holding facilitates divestment, allows for a reduction in the group's cost structure, streamlines decision-making, provides a strategic vision, diversifies risks, and represents significant tax advantages. For all the reasons mentioned, Uruguay is clearly a great option when choosing to set up the Holding Company in the country, especially to participate in companies located abroad.

Montevideo, June 18, 2021