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August 4, 2022

Uruguay intends to change its traditional source criteria for corporate income tax purposes to comply with EU requirements

  • The changes would subject certain income obtained abroad by companies that are part of a multinational group to the corporate income tax in Uruguay.

  • The tax office would have the authority to determine whether a transaction was undertaken with the principal purpose of obtaining a tax benefit.

  • Taxpayers should continue to monitor the progress of the draft bill.

Uruguay’s Ministry of Economy has published a draft bill for public comment that would change the traditional source criteria applicable for corporate income tax purposes to comply with European Union (EU) requirements.

Currently, corporate income tax applies to income obtained from activities developed, assets located and rights used in Uruguay. Therefore, all income obtained from activities developed, assets located or rights used outside of Uruguay is not subject to corporate income tax. This source criteria has been challenged by the EU because passive income could be obtained abroad and not subject to corporate income tax.

Uruguay decided to make the necessary changes to come into compliance with the EU requirements.

Under the draft bill, the following income obtained from assets located or rights used outside of Uruguay by an entity that is part of a multinational group considered as “non-qualified” for these purposes would be considered Uruguayan sourced:

  • Income derived from immovable property
  • Dividends
  • Interest
  • Royalties
  • Other income from movable property

Net wealth increases also would be considered Uruguayan sourced if they are derived from the transfer of assets that generate any of the previously mentioned types of income.

“Qualified” entities, for these purposes, would be those that have real substance. An entity would have real substance if it meets the following requirements:

  • The entity employs the proper number of qualified workers needed for dealing with the entity’s assets and activities and has adequate premises for developing its activities in Uruguay.
  • The entity makes strategic decisions and its risks (e.g., foreign exchange rate risk, financial risk) are located in Uruguay.
  • The entity incurs adequate expenses and costs related to the assets involved in the operations.

Holding companies and companies that only own immovable property would only have to meet the first requirement to have real substance.

The draft bill also would change the provisions for income derived from patents or software registered, transferred or used outside of Uruguay by multinationals operating in Uruguay. Under the changes, that income would be considered as Uruguayan-sourced income under certain conditions.

Additionally, the bill would add an anti-abuse clause under which the tax office could disregard the form, mechanism or series of mechanisms with respect to a transaction that are improper considering relevant facts and circumstances. The tax office also could determine whether the transaction was conducted with the principal purpose of obtaining a tax advantage under this bill.

If approved, the draft bill would be effective 1 January 2023.


For additional information with respect to this Alert, please contact the following:

EY Uruguay, Montevideo

Ernst & Young LLP (United States), Latin American Business Center, New York

Ernst & Young Abogados, Latin America Business Center, Madrid

Ernst & Young LLP (United Kingdom), Latin American Business Center, London

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific


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