Uruguay Reinstates Personal Income Tax
Uruguay Reinstates Personal Income Tax
by James A. Whitelaw
Uruguay has reinstated the personal income tax, effective July 1, with varying tax rates based on the type of income.
Date: Jul. 12, 2007
After more than three decades, Uruguay has reinstated the personal income tax, effective July 1. (For prior coverage, see Doc 2007-15906 [PDF] or 2007 WTD 130-1 .) Income is grouped into two categories, and the tax rates vary depending on the type of income.
Until June 30, the wages of workers on payrolls and the allowances of retired workers and their surviving relatives were subject to the so-called tax on personal remuneration. Income from work performed outside an employment relationship, such as professional fees, was not taxed, and no tax was levied on income from capital owned by individuals.
The new tax is payable on:
· income from capital;
· any growth in an individual's net worth;
· any allocation of income; and
· income from all kinds of work, whether or not within an employment relationship, that is earned by taxpayers having their residence in Uruguay, provided that the income comes from a Uruguayan source.
A taxpayer is considered to have a residence in Uruguay if the taxpayer remains in the country for more than 183 days in a calendar year or if the main core or base of the taxpayer's activities or economic or vital interests is located in Uruguay.
Income is considered to come from a Uruguayan source if it is derived from an activity developed, an asset located, or a right used economically in the country.
Nonresident individuals obtaining Uruguayan-source income will be subject to the tax on nonresidents income, which covers income from corporate activities and similar income, such as income from frequent real estate sales, from work or the use of capital, and income associated with growth in the taxpayer's net worth.
The law establishes a dual system for purposes of establishing the tax payable, with income grouped into two categories, which are subject to different tax rates. Category I includes income from capital investments, increases in the taxpayer's net worth, and similar types of income. Category II includes income from work.
Category I
Income from capital includes the yield, in money or in kind, directly or indirectly derived from capital elements, assets, or claims owned by the taxpayer.It is further classified into income from real estate and income from chattels.
Income from real estate includes income from the lease or sublease of real estate and from the creation or assignment of rights or powers to use and enjoy real estate, if that assignment does not involve a change in ownership.
Income from chattels includes income, in money or in kind, earned on deposits, loans, and, in general, any placement of capital or claims. This category also includes:
· income from the lease or sublease of chattels and from the creation or assignment of rights to use and enjoy tangible assets and intangible assets such as goodwill, trademarks, patents, industrial models, copyrights, royalties, and similar assets;
· lifelong or term-bound income from the investment of capital, unless acquired through the succession of an estate, income from capital derived from modal gifts, and income from insurance contracts, unless they are taxable as income from work; and
· income from the assignment of the right to economically use an image.
Net worth gains are also subject to the tax. Income from net worth gains includes income from transactions involving tangible and intangible assets (that is, a sale, assignment of a promise to sell, assignment of heir's rights, assignment of possession rights, or a judgment involving a declaration under which an acquisition is required).
Income from the sale or a promise to sell real estate is the excess price of the sale or the promise to sell over the sum of the updated cost of the real estate for tax purposes plus the tax on capital dispositions.
The allocation of income involves the income corresponding to an estate, a co-owned asset, a partnership, or another body having or lacking a legal personality that is attributed to the individual heirs, co-owners, or partners.
Category I income must pay tax at the following rates:
· interest on local currency and index-linked units for longer than one year at a financial entity -- 3 percent;
· interest on listed bonds and securities issued to the public for a three-year or longer horizon: 3 percent;
· interest on deposits of one year or less in local currency and subject to no adjustment clause: 5 percent
· dividends or distributions paid or credited by corporate income tax payers: 7 percent; and
· other income: 12 percent.
There is a long list of Category I items that benefit from an exemption, including:
· interest on public debt securities;
· dividends and distributions from the holding of capital shares;
· income from the disposition of equity stock;
· gifts to government-owned entities;
· gifts received;
· net worth growth derived from a change in ownership if the profit does not exceed a specific ceiling;
· income from research and development in the areas of biotechnology and bioinformation; and
· income earned through the production of logical support and related services, as determined by the executive branch, if the goods and services originating from those activities are economically used abroad.
Category II
Work-originated income is income from the provision of personal services, within or outside an employment relationship, allowances received by retired workers and their surviving relatives, and other, similar allowances.
The income of workers on a payroll includes all their income, whether ordinary or extraordinary, whether in money or in kind.
Income earned from work outside an employment relationship is income earned from personal services rendered by an individual as an independent third party.
For purposes of determining the taxable income from work within an employment relationship, the taxpayers is allowed deductions for retirement and social security contributions.
Conversely, in computing the taxable income from work done outside an employment relationship, the taxpayer is allowed to deduct an estimated 30 percent corresponding to expenditures, in addition to bad0debt items.
The tax payable on work-related (Category II) income is determined based on a gradual rate scale depending on certain income layers. Those income layers and tax rates are as follows:
· from zero to the general nontaxable minimum (60 remuneration and contribution bases, or BPC) (zero to US $4,090): exemption;
· from 61 BPC to 120 BPC (US $4,090 to US $8,180):10 percent;
· from 121 BPC to 180 BPC (US $8,180 to US $12,270):15 percent;
· from 181 BPC to 600 BPC (US $12,270 to US $40,900): 20 percent;
· from 601 BPC to 1,200 BPC (US $40,000 to $81,800): 22 percent; and
· more than 1,200 BPC (more than US $81,800): 25 percent.
James A. Whitelaw, Whitelaw Attorneys, Montevideo
Uruguay has reinstated the personal income tax, effective July 1, with varying tax rates based on the type of income.
Date: Jul. 12, 2007
After more than three decades, Uruguay has reinstated the personal income tax, effective July 1. (For prior coverage, see Doc 2007-15906 [PDF] or 2007 WTD 130-1 .) Income is grouped into two categories, and the tax rates vary depending on the type of income.
Until June 30, the wages of workers on payrolls and the allowances of retired workers and their surviving relatives were subject to the so-called tax on personal remuneration. Income from work performed outside an employment relationship, such as professional fees, was not taxed, and no tax was levied on income from capital owned by individuals.
The new tax is payable on:
· income from capital;
· any growth in an individual's net worth;
· any allocation of income; and
· income from all kinds of work, whether or not within an employment relationship, that is earned by taxpayers having their residence in Uruguay, provided that the income comes from a Uruguayan source.
A taxpayer is considered to have a residence in Uruguay if the taxpayer remains in the country for more than 183 days in a calendar year or if the main core or base of the taxpayer's activities or economic or vital interests is located in Uruguay.
Income is considered to come from a Uruguayan source if it is derived from an activity developed, an asset located, or a right used economically in the country.
Nonresident individuals obtaining Uruguayan-source income will be subject to the tax on nonresidents income, which covers income from corporate activities and similar income, such as income from frequent real estate sales, from work or the use of capital, and income associated with growth in the taxpayer's net worth.
The law establishes a dual system for purposes of establishing the tax payable, with income grouped into two categories, which are subject to different tax rates. Category I includes income from capital investments, increases in the taxpayer's net worth, and similar types of income. Category II includes income from work.
Category I
Income from capital includes the yield, in money or in kind, directly or indirectly derived from capital elements, assets, or claims owned by the taxpayer.It is further classified into income from real estate and income from chattels.
Income from real estate includes income from the lease or sublease of real estate and from the creation or assignment of rights or powers to use and enjoy real estate, if that assignment does not involve a change in ownership.
Income from chattels includes income, in money or in kind, earned on deposits, loans, and, in general, any placement of capital or claims. This category also includes:
· income from the lease or sublease of chattels and from the creation or assignment of rights to use and enjoy tangible assets and intangible assets such as goodwill, trademarks, patents, industrial models, copyrights, royalties, and similar assets;
· lifelong or term-bound income from the investment of capital, unless acquired through the succession of an estate, income from capital derived from modal gifts, and income from insurance contracts, unless they are taxable as income from work; and
· income from the assignment of the right to economically use an image.
Net worth gains are also subject to the tax. Income from net worth gains includes income from transactions involving tangible and intangible assets (that is, a sale, assignment of a promise to sell, assignment of heir's rights, assignment of possession rights, or a judgment involving a declaration under which an acquisition is required).
Income from the sale or a promise to sell real estate is the excess price of the sale or the promise to sell over the sum of the updated cost of the real estate for tax purposes plus the tax on capital dispositions.
The allocation of income involves the income corresponding to an estate, a co-owned asset, a partnership, or another body having or lacking a legal personality that is attributed to the individual heirs, co-owners, or partners.
Category I income must pay tax at the following rates:
· interest on local currency and index-linked units for longer than one year at a financial entity -- 3 percent;
· interest on listed bonds and securities issued to the public for a three-year or longer horizon: 3 percent;
· interest on deposits of one year or less in local currency and subject to no adjustment clause: 5 percent
· dividends or distributions paid or credited by corporate income tax payers: 7 percent; and
· other income: 12 percent.
There is a long list of Category I items that benefit from an exemption, including:
· interest on public debt securities;
· dividends and distributions from the holding of capital shares;
· income from the disposition of equity stock;
· gifts to government-owned entities;
· gifts received;
· net worth growth derived from a change in ownership if the profit does not exceed a specific ceiling;
· income from research and development in the areas of biotechnology and bioinformation; and
· income earned through the production of logical support and related services, as determined by the executive branch, if the goods and services originating from those activities are economically used abroad.
Category II
Work-originated income is income from the provision of personal services, within or outside an employment relationship, allowances received by retired workers and their surviving relatives, and other, similar allowances.
The income of workers on a payroll includes all their income, whether ordinary or extraordinary, whether in money or in kind.
Income earned from work outside an employment relationship is income earned from personal services rendered by an individual as an independent third party.
For purposes of determining the taxable income from work within an employment relationship, the taxpayers is allowed deductions for retirement and social security contributions.
Conversely, in computing the taxable income from work done outside an employment relationship, the taxpayer is allowed to deduct an estimated 30 percent corresponding to expenditures, in addition to bad0debt items.
The tax payable on work-related (Category II) income is determined based on a gradual rate scale depending on certain income layers. Those income layers and tax rates are as follows:
· from zero to the general nontaxable minimum (60 remuneration and contribution bases, or BPC) (zero to US $4,090): exemption;
· from 61 BPC to 120 BPC (US $4,090 to US $8,180):10 percent;
· from 121 BPC to 180 BPC (US $8,180 to US $12,270):15 percent;
· from 181 BPC to 600 BPC (US $12,270 to US $40,900): 20 percent;
· from 601 BPC to 1,200 BPC (US $40,000 to $81,800): 22 percent; and
· more than 1,200 BPC (more than US $81,800): 25 percent.
James A. Whitelaw, Whitelaw Attorneys, Montevideo
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