Uruguay’s New Decree: Financial Compliance Regulations for Corporate Income Tax Adjustments

Overview

Montevideo, Uruguay - The Ministry of Economy and Finance has issued a new decree, Decree 236/0005/2022, to modify Uruguay’s Corporate Income Tax (CIT) regulations to comply with European Union (EU) requirements. The changes will take effect from January 1, 2023.

• President Luis Lacalle Pou signed the decree on December 14, 2022, implementing the modifications enacted by Law 20,095 earlier that month.
• The new regulations deal primarily with sourcing rules and qualifying conditions for CIT purposes.

Key Clarifications

1. Eligible Entities: To qualify as an eligible entity for an asset throughout the possession period, all conditions must be met.
2. Human Resources: Demonstration of adequate human resources within Uruguayan territory is required.
3. Director or Skilled Employees: For companies primarily focused on property ownership and holding investments, they must have:
   • A Uruguayan tax resident director with sufficient qualifications.
   • Most Uruguayan tax resident employees with relevant skills.
4. Third-party Personnel: Qualified human resources provided by third parties located in Uruguay are acceptable, as long as there is proper supervision and control.
5. Documentation: Documentation related to human resources, including third-party personnel, should be included with tax returns.

Defining Eligible Entities

An entity is considered to have a primary focus on real estate acquisitions or holding investments when assets related to those activities make up at least 75% of the company’s total assets.

Exemptions

Banks are exempt from having to demonstrate their qualification as eligible entities.

Qualified Income

Taxpayers must provide indisputable evidence to the tax office of the relevance and cost of all expenses and incurred costs through documentation and registry to ensure transparency and control.

Anti-abuse Clause

Regulations adopted under commercial reasons (which include financial reasons) are considered proper under the anti-abuse clause.

Tax Credit Claim

To claim the tax credit, taxpayers must prove the overseas payment to the tax office, and adjustments should be made within the same fiscal year in which they are made or credited.

Contact Information

For further information, please contact the following Ernst & Young offices:

• Ernst & Young Uruguay
  • Martha Roca, María Inés Eibe, Lucia Giagnacovo, Piero de los Santos
• Ernst & Young LLP (United States)
  • Latin American Business Center, New York
  • Lucas Moreno, Ana Mingramm, Pablo Wejcman, Enrique Perez Grovas
• Ernst & Young LLP (United Kingdom)
  • Latin American Business Center, London
  • Lourdes Libreros
• Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific
  • Raul Moreno, Tokyo
  • Luis Coronado, Singapore.

For a full list of contacts and email addresses, please visit the Tax News Update: Global Edition (GTNU) version of this Alert.