1. Introduction

In December 2003, Law 17,703 was enacted, regulating the trust (fideicomiso) in Uruguay. This legislation established in Uruguayan law a type of legal transaction that has developed significantly in various countries and can be highly useful for estate management, investment channeling, the provision of security interests, the resolution of corporate crises, and asset securitization.

The use of this structure in combination with Uruguayan corporations — which may issue bearer shares and be exempt from taxes to the extent they conduct their activities or hold their assets outside the country — can make the combination of a trust with a Uruguayan corporation an instrument of great versatility and innumerable advantages.

2. Parties Involved

2.1 Settlor (Fideicomitente)

The settlor is the owner of the assets transferred to the trust as property, to be applied to the purposes set out in the trust instrument. The assets may be present or future.

The settlor may be a natural person or a legal entity, such as a corporation with bearer shares and a director provided by our firm.

2.2 Trustee (Fiduciario)

The trustee is the person responsible for administering the assets that comprise the trust in order to achieve the purposes for which the trust was created. To that end, the trustee must comply with the instructions set out in the trust instrument and will be the party authorized to dispose of the assets and rights forming part of the trust estate. Any natural or legal person may act as trustee, such as a Uruguayan corporation with bearer shares and a director provided by our firm. The trustee and the settlor may be the same person.

If the trustee acts in that capacity in more than five trusts in a calendar year, it will be deemed a professional trustee and will be subject to a series of registration and reporting requirements.

The trustee is obligated — and this obligation cannot be waived — to render accounts at least annually. The trustee must also maintain separate accounting records and preserve the confidentiality of transactions, acts, contracts, and information relating to the trust.

The trustee is held to the standard of care and diligence of a prudent businessman and cannot be exonerated from liability for damages caused by fraud or gross negligence.

The trustee is liable for the tax obligations of the trust.

2.3 Beneficiary (Beneficiario)

The beneficiary is the person who will receive the benefits generated by the trust. The beneficiary may be the settlor themselves or a third party, whether a natural or legal person, such as a Uruguayan corporation with bearer shares and a director provided by our firm. The beneficiary may be a future person who does not exist at the time the trust is established, and there may be joint or successive beneficiaries.

The trustee may not be a beneficiary, except in the case of security trusts established in favor of a financial intermediary.

3. Trust Property

The assets and rights that form the trust constitute a segregated estate, separate and independent from the estates of the settlor, the trustee, and the beneficiary. This means that:

• Neither the creditors of the trustee nor those of the settlor may attach the assets administered by the trustee.
• The beneficiary’s creditors may not attach the assets while they form part of the trust, but may attach the income generated by the trust.
• The trustee is not personally liable with their own assets for obligations incurred in the performance of the trust.

4. Tax Considerations

Based on the territoriality principle that governs our legal system in tax matters, to the extent that the activities or assets of the settlor, the trust, and the beneficiary are located abroad, no taxes will be imposed on the settlor, the beneficiary, or the trust itself.

If the trustee is a Uruguayan free-trade zone corporation, no tax will be applicable on the trustee’s income either.

To the extent that the settlor, beneficiary, trustee, or the trust itself earns income or holds assets in Uruguay, they may be subject to taxes, unless they are free-trade zone corporations.

5. Formalities for Establishment

A trust may be established by an inter vivos act or by will, by private instrument with certified signatures, or by public deed when real property forms part of the trust.

A trust may be established abroad, in which case it must be legalized, protocolized, and registered in Uruguay.

The trust must be registered in the Personal Acts Registry (Registro de Actos Personales), and the following information must be provided: first and last name of the settlor and trustee, domicile, nationality, and identity document.

If the parties are domestic or foreign legal entities, the following must be provided: type of entity, domicile, and registration number with the Tax Authority (DGI). In addition, the assets comprising the trust and their intended use must be identified. Foreign entities acting as settlors are not required to establish a branch in Uruguay.

6. Examples of Possible Uses

6.1 Estate Management

The purpose of using a trust for estate management may relate to succession, matrimonial, or illegitimate children matters; tax planning or anonymity with respect to certain investments; or the straightforward management of an estate, including the payment of generated income.

6.2 Security Interests

The use of a trust to provide security interests can be useful to avoid costly and time-consuming enforcement proceedings. Through a security trust, a creditor can accelerate the recovery of their credit by obtaining ownership of the asset provided as security.

6.3 Multi-Party Investments

In the case of complex transactions such as road construction or real estate developments, the trust allows for the management of cash flows and the protection of the rights of the various parties involved, with administration entrusted to a third party.

6.4 Investment Projects or Corporate Financing

A cash flow can be isolated and securities issued as a counterpart, thereby improving credit quality.

6.5 Corporate Restructuring and Liquidation

Through a trust, a refinancing and security structure can be created, with administration entrusted to a third party. The trust also allows for orderly liquidation processes, providing an alternative procedure to bankruptcy.

6.6 Institutional Management

A trust can be used to entrust the management of institutions — such as parks, sports clubs, or scientific organizations — to specially qualified third parties.

6.7 Real Estate Developments

We have participated in the use of trusts for real estate developments — for example, in the construction of residential buildings with the participation of multiple investors, or in the creation of private residential communities.