Tax Holiday for Tax Residents

Public Accountant Gabriela Coelho

We share a brief summary of recently approved norms that modifies the current Tax Holiday regime for those individuals who acquire their Tax Residence in Uruguay and for those who already possessed said benefit and can extend it under certain conditions. On the 24th of December 2020, Law N° 19.937 that regulates this new regime was approved and we will also mention changes coming from regulations under Decree N° 342/020 and DGI (Tax Administration) Resolution N° 2481/020.

What does “Tax Holiday” mean for fiscal purposes?

The Tax Holiday or fiscal vacation consist of non-taxation by income tax in Uruguay the revenue from foreign movable capital (interests and dividends) obtained by a natural person (Persona física) resident in Uruguay for a total term of 6 years; starting from the acquisition of the Uruguayan tax residence (the year in which they become tax residents and the following 5 years) having to be effective before the 1st of January 2020, or, 11 years (the year in which they become tax resident and the following 10 years), If the residence was acquired after the 1st of January 2020. In this last case, there is also the possibility of not taking advantage of the Tax Holiday exemption and paying a reduced annual rate of 7% without a temporary term; in short, from the year in which the tax residence is configured, income will be taxed on interest and dividends from abroad, but at a lower rate. Otherwise, as of year 12, you will only pay foreign interest and dividends at a personal income tax rate of 12%.

What significant changes are there for those who were already tax residents before 01/01/2020?

With this new Law N° 19.937, tax residents who were already in use or have finished using their Tax holiday period may now extent it to 11 years (the initial term was 6 years) equalizing the regime for new residents from the 1st of January 2020, and taking legal advantage in the exemption of income from interest and dividends coming from abroad in exchange of meeting certain requirements.

What requirements must be met for these purposes?

In order to benefit they must verify:

• An investment in real estate in Uruguay for a value greater than UI 3.500.000 (approx. USD 400.000) that must be done starting from the effectiveness or validity of this law

• A real presence in Uruguay of at least 60 calendar days during the calendar year.

How is the Tax holiday requested to the DGI and what changes does this process have?

Previously, to request it you would use the tax return form of the DGI N° 3106, which was presented to local withholding agents or directly to the DGI. Nowadays, the published regulatory norms modify such procedure since It has been replaced by the DGI form N° 0306, that must be submitted by all those individuals in use of the Tax Holiday. The submission period expires on the 30th of June 2021 and the DGI established that after the option is exercised, it cannot be modified. This form is directly presented to the DGI in all cases. The individual must present a proof to the local withholding agent that accredits the presentation of the form to the DGI.

By: Bakertilly