Deemed dividends in the Uruguayan National Budget Act

The Uruguayan National Budget Act No. 19.438 of fiscal year 2015, was enacted on October 14, 2016 and began to be effective on January of the current year. Said law sets a series of amendments to different norms among which are those related to income tax.

Among the posed amendments, is the adoption of deemed dividends and profits regime. Companies that closed their fiscal year on December 31, 2016, are the first ones affected by the implementation of this new regime.

According to the new regime the deemed dividends and profits will be taxed, qualifying as such the net fiscal income taxed by the Economic Activities Income Tax (Impuesto a la Renta de las Actividades Económicas, IRAE), which by the closing of each fiscal year is older than three fiscal years and has not been distributed. A number of items that are specifically set in the norm can be deducted from the accrued net fiscal profits. Deemed dividends or profits will be deemed distributed on the third month after the closing of each fiscal year.

The applicable rate in these cases will be 7%.

It includes taxed fiscal profits of IRAE taxpayers in case partners or shareholders are also taxpayers of said tax. In these cases deemed dividends and profits will be directly charged to taxpayers of the Personal Income Tax (Impuesto a la Renta de las Personas Físicas, IRPF) and Non Residents Income Tax (Impuesto a la Renta de No Residentes, IRNR).

However, there are two exceptions to the application of this regime. In first place, there is an exception on the income obtained by partnerships that in their first fiscal year their income does not exceed 4.000.000 Indexed Units (approximately U$S 500,000); and in second place, on companies paying the IRAE and Tax on the Transfer of Agricultural and Livestock Assets (Impuesto a la Enajenación de Bienes Agropecuarios, IMEBA) which shares are traded/listed in the Uruguay Stock Exchange.

Additionally, according to the norm, the Tax Authority (Dirección General Impositiva, DGI) may apply the payment facilities regime set in Act No. 17.555 dated September 18, 2002, to the deemed dividends and profits from the net fiscal profits for tax periods ended on December 31, 2014.

Image: Sarah Dorweiler