Draft Law regarding banking secrecy amendments, Tax transparency in Uruguay in relation to Ultimate beneficial owner registration

In 2004, Uruguay started to change its policies with the announcement of the Law against money laundering in order to emerge from ambiguity and open up to international economic insertion. Uruguay’s development strategy aims to adopt measures to prevent tax evasion and money laundering. For this purpose, and within the frame of said policy, this past June, Uruguay adhered to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters of the Organization for Economic Co-operation and Development (OECD).

Given the adhesion to said Convention, the Uruguayan Executive Power sent the Parliament a bill of law with modifications to the banking secrecy and tax transparency norms and with it the Uruguayan government plans to accomplish two goals: compliance with international standards of tax transparency and to discourage the use of companies for illicit acts.

The Bill of law was submitted by the Executive Power to the Congress on July 15 of the present year and the following are the proposed modifications:

Modifications to the banking secrecy:

There is an obligation of the financial institutions to report automatically on an annual basis to the Tax Administration Department (DGI, for its initials in Spanish) the balance and income accounts (included: debt securities, beneficial interests and investment funds) kept by individuals, legal entities whether tax residents in Uruguay or not.

Entities considered as “high risk” according to the criteria established by the Executive Power for purposes of its definition, must submit information on those accounts to the final beneficiary.

Creation of the Registry of Final Beneficiaries and Shareholders of Companies:

Entities residing in Uruguay, including sociedades anónimas (stock companies) with registered shares or bearer shares, trusts, investment funds or nonresident entities that act under the figure of permanent establishment or that have their main office in Uruguay, must register their shareholders and final beneficiaries. The creation of this Registry is considered an extension of the already existing Registry of the Central Bank of Uruguay.

Entities that will have access to the existing information in said Registry will be the Tax Administration Department (DGI, for its initials in Spanish), the National Secretary’s Office against the Money Laundering, Judicial Power, Public Transparency and Ethics Board, and any other entity expressly authorized and in writing by the registered entity.

The Project indicates that this Registry will start on January 1, 2017.

Modifications to the tax norms:

Reforms to the tax norms in force are established and will be applicable to resident entities, domiciled entities, incorporated or located in tax havens or that are beneficiaries of a special regime having a low or null taxation.

The objective is to increase the general rate for the Uruguayan source income obtained by these companies to 25%. Likewise, all income obtained by an offshore which owner is an individual, will be assigned to its owner, i.e. to the natural person. This represents a broadening of the taxable income, since it includes all foreign income and not only the dividends and interest which is what is currently stated in the norms.

Additionally, it proposes to increase the general rate for income obtained from rent or transfer of real estate property of these companies from 25% to 30%. Likewise, it proposes to increase the net worth tax to 3%. Additionally, there is a tax exoneration period until June 30, 2017 to transfer real estate property, provided it is not another offshore company and the transferring company carries out its closure in the Tax Administration Department.

The Project indicates that the proposed reforms in tax matters enter into force once the text of the law is published in the Official Gazette.

Modifications to the Transfer Pricing Regime:

Now there is the possibility to extend the entering into advanced pricing agreements set for taxpayers when applicable in accordance with tax administrations of other countries and to treaties to avoid double taxation ratified by Uruguay which are in force. Likewise, it establishes that multinational groups, i.e., two or more entities with an existing link between them having presence in different countries, must file a report per each country.

Image: Oliver Cole