Tax Residency in Uruguay

Uruguay is an attractive country if one is contemplating complete estate planning that includes the place of residence of the individual, especially considering its tax regime based on the territoriality or source principle.

The tax residency concept in Uruguay was introduced by the tax reform law number 18.083 of 2007. Due to this concept it is possible to know which tax will be paid by an individual for income levied in Uruguay. Therefore, resident individuals will have to pay Personal Income Tax (IRPF, for its initials in Spanish), while in the case of non residents, they will have to pay the Non Residents Income Tax (IRNR, for its initials in Spanish).

It must be noted that being a legal resident in Uruguay does not imply being a tax resident, nor the other way around, since they are two independent concepts.

An individual is considered a tax resident, if any of the three facts mentioned below occur:

1. Permanence in Uruguay for more than 183 days in the calendar year. For purposes of these 183 days, the sporadic absences of up to 30 continuous days will not be calculated, except for those cases where the interested party can certify that he/she is a tax resident of another State.
2. When the center of his/her economic activities are located in Uruguay. The general criteria used to determine this item is the fact that the income generated in Uruguay is greater than income generated in other countries.
3. Establishment of main vital interests in Uruguay. Residence of the spouse and underage dependent children in Uruguay are deemed indicators of residence, provided there is no legal separation with the spouse and the children are under parental rights.

At least one of the above mentioned conditions has to be satisfied for the person to be deemed a tax resident in Uruguay. At this point the person may request from the General Tax Office, Dirección General Impositiva (DGI, for its initials in Spanish), the corresponding tax certificate per each calendar year. This certificate will be sufficient proof of his/her Uruguayan tax residency to third parties.

Finally, it is important to point out that persons who become tax residents in Uruguay may opt to continue paying the Non Residents Income Tax (and not to automatically pay the Personal Income Tax), for the fiscal year during which the change of residency is verified and for 5 more years. This offers a tax advantage as one is not bound to pay taxes in Uruguay for passive income  derived from real estate obtained abroad for said period.

Given the above, the Uruguayan tax residency may turn out to be an attractive alternative when considering holistic estate planning.

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