Uruguay -- Personal Income Tax -- Worldwide Taxation Of Passive Income
- Uruguay
- 06/05/2012
- Estudio Bergstein
Uruguay, historically known as “the Switzerland of America”, has traditionally followed the principle of the source, under which only Uruguayan sourced income, assets based in Uruguay and services rendered in Uruguay, are subject to taxation in Uruguay.
The principle is still in force. Except that in recent times, the tax system has been amended as far as individuals are concerned. (Corporate entities remain taxed only for their Uruguayan sourced income).
Under legislation passed in December 2010, and for fiscal periods starting 1 January 2011, individuals are subject to Personal Income Tax (so-called: “Impuesto a la Renta de las Personas Físicas” or “IRPF”) also in connection with their income originated from “deposits, loans and in general any placement of capital or credit” stemming from non-resident entities) (collectively: “Passive Income”).
The legislation contemplates a transparency regime (“the Transparency Regime”) under which where individual taxpayers of Personal Income Tax (IRPF) participate in the capital or stock of foreign entities, the above Passive Income obtained by such non-resident entities is attributed to the individual taxpayer, as long as the above non-resident entities are subject (abroad) to an effective taxation of less than 12% (“the Transparent Entity”).
In those cases, and in order to encourage compliance, the above non-resident entities are allowed to designate a tax representative in Uruguay who remains jointly and severally liable for the IRPF pertaining to the tax Passive Income. In such way, the name of the individual (on whose behalf the tax is being paid) remains undisclosed.
In the above context, the above legislation has been recently implemented by Executive Branch Decree published in the Official Gazette on 2 February 2012 (“the Decree”).
The Decree has clarified the following aspects:
The effective tax rate abroad is presumed to be the same as the nominal one, except where the foreign tax jurisdiction recognizes regimes of tax exemptions or presumed income which diminish the emerging effective tax rate.
Regulations spell out that where the Passive Income is obtained by a Transparent Entity, the Passive Income is deemed to have accrued at the time the same is perceived or obtained by the Transparent Entity.
The Transparency Regime is excluded in the cases of pension funds and investment funds, where their financial statements (and those of their administrators or fiduciaries) are audited by firms of recognized prestige.
Where a Corporate Income Tax taxpayer in Uruguay (for instance, a Uruguayan corporation) participates in the capital of a Transparent Entity, the Transparency Regime applies, so that the Passive Income is attributed or recognized to the Corporate Income Tax taxpayer (as long as such Passive Income is the single income of the Corporate Income Tax taxpayer, or the same is obtained in combination with purely capital-sourced or labor-sourced income, or, otherwise, if the Tax Office determines that an individual has conducted a financial investment abroad through a Corporate Income Tax taxpayer).
Where the Passive Income is obtained through a Corporate Income Tax taxpayer, the Passive Income is deemed to have accrued where the appropriate corporate bodies have decided pertaining dividend distribution (as long as the Corporate Income Tax taxpayer has “sufficient book-keeping”).
Income which stems from real estate assets based abroad and income which stems from capital gains, are excluded from the above taxation on Passive Income. If the taxpayer obtains abroad both Passive Income and capital gains, he/she must discern the income attributable to each of both items. Where such a discrimination is not possible, the taxpayer will have the option of allocating 50% to each item.
Regulations establish that those taxpayers who have been subject to taxation abroad over the above Passive Income, are recognized a tax credit for the analogous tax paid abroad.
Financial intermediation institutions (essentially: banks), stock exchanges, stock brokers, and all those entities or individuals who act on behalf of third parties and pay or make available the Passive Income, are designated Whithholdg Agents (“Agentes de Retención”).
