Uruguayan companies can be used for tax planning and asset protection purposes by individuals and businesses based abroad. Widely recognized for their legal and tax stability, they are an extremely useful and versatile instrument for tax and estate planning. They can be used as holding companies, regional treasury centers, for asset protection, as intermediaries in international trade transactions, and more.

1. Acquiring a Uruguayan Company

Among the types of Uruguayan companies available for acquisition, two main options exist: the sociedad anónima (SA, or corporation) and the sociedad por acciones simplificada (SAS, or simplified stock company). To determine which type of company is most suitable for a given operation, the following aspects must be taken into account.

1.1 Acquisition Methods

1.1.1 Purchasing Shares of an SA

There are already-incorporated corporations with no prior activity, of which 100% of the share package can be purchased and the company’s board of directors changed, thereby taking control of the company.

These shelf companies have an extremely broad corporate purpose that allows virtually any type of activity. The articles of association can be amended at any time to accommodate the shareholders’ needs.

The board of directors may consist of a single person or up to seven members, who may be residents or non-residents of Uruguay and of any nationality. Directorship does not require shareholder status.

To assume the position of director, the following documents must be signed: letters of acceptance of the appointment, registration with the Dirección General Impositiva (tax authority), and registration with the Registro Nacional de Comercio (National Commerce Registry).

The board of directors may hold meetings at the company’s registered address in Uruguay or abroad.

Under the corporate bylaws, the company shall be represented by the Chairman or Vice Chairman, acting individually, or by any two directors acting jointly.

To facilitate the company’s operations, a director may grant a general power of attorney to other individuals.

1.1.2 Incorporating or Purchasing an SAS

An SAS is incorporated at the time requested by the client. In this case, the founder must sign the corporate bylaws in Uruguay. The SAS may carry out any lawful civil or commercial activity.

The board of directors may be designated at the time of incorporation. If there is only one founder, that founder cannot be a corporation.

It is also possible to purchase an already-incorporated SAS, in a manner similar to that described for the SA above.

1.2 Shareholders

Both the SA and the SAS must have at least one shareholder, who may be a natural person or a legal entity, a resident or non-resident of Uruguay, and of any nationality.

Shares in an SA may be bearer shares or registered shares; in the case of an SAS, shares must be registered only.

In both cases, shareholders must be declared to the Banco Central del Uruguay (Central Bank), and ultimate beneficial owners (any person holding more than 15% of shares) must also be disclosed.

Shareholder meetings must be held in Uruguay when held in person; if held by videoconference, they may take place from any location. Shareholders may attend in person or through a representative via a simple scanned power of attorney, without additional formalities.

1.3 Opening a Bank Account

If the company intends to open a bank account in Uruguay, the director must personally attend the bank to sign certain documents.

Banks analyze the company’s intended operations and provided documentation, and verify compliance with all anti-money laundering regulations. As a result, they generally do not accept account openings where the source of funds cannot be justified or where a high volume of successive or large transfers will be made. The ideal scenario for opening a bank account is to have a reference from a bank abroad, to open an account at the same bank’s Montevideo branch.

2. Company Operations

2.1 Operational Formalities

Corporate matters include the preparation of shareholder and board meeting minutes and compliance with statutory requirements, particularly the annual approval of financial statements. Accounting matters include the preparation of accounting records and financial statements. Tax matters include the preparation of sworn declarations and tax payments. Other matters include the company’s registered address, handling of correspondence, and so on.

2.2 Tax Considerations

2.2.1 Taxes

Corporations (SAs) must pay an annual tax on the control of anonymous companies (ICOSA), which amounts to approximately USD 600 per year.

SAS entities must pay special social security contributions of at least USD 200 per month. If the company has employees, this amount may be higher. The SAS does not pay ICOSA.

2.2.2 Tax Regime

Provided the company has no assets in Uruguay and no income generated in Uruguay, it will not pay any other taxes, but must file annual sworn declarations.

If at the balance sheet closing date the company holds assets in Uruguay, it must pay Net Worth Tax (Impuesto al Patrimonio) at a rate of 1.5% on those assets. For example, if the company holds funds in a Uruguayan bank account at the balance sheet closing date, it will owe net worth tax at the stated rate. For SAs, ICOSA payments are offset against any net worth tax that may be due.

If the company earns no Uruguayan-source income, it will not pay Income Tax, as such income is considered foreign-source.

Passive income — such as interest, dividends, rent, and loans — is taxable for companies that are holding entities, members of a multinational group, or owners of real estate abroad, unless they qualify as “qualified entities.” A qualified entity is one that has adequate economic substance during the fiscal year. The law provides that an entity will be deemed to have sufficient economic substance if it simultaneously meets requirements regarding (i) human resources employed, (ii) strategic decision-making and risk management, and (iii) costs and expenses appropriate to the acquisition, holding, or disposal of the income. Additionally, income from the exploitation of intellectual property rights related to patents or registered software sold or used abroad by the non-qualified portion is also taxable.

In other words, all income derived from what is known as “passive income” or investments is taxable, with the aim of capturing the activities of pure holding companies that have no “real activity” in Uruguay.

Therefore, with the extension of the source principle to include such income, it is taxed at the general rate (25%, plus 7% on distribution).

The “typical holding company” is thus required to pay tax on its income generated outside Uruguay.

This modification applies to all companies, except those that have “economic substance in Uruguay,” which, among other conditions, is considered met if any of the following applies:

• The company has its own office with employees who serve and manage the company’s activities, within Uruguay.
• The company has a “resident director.” It has been established that a director resident in Uruguay can carry out the company’s activities from Uruguay, and this alone is sufficient to determine that the company has “economic substance.”
• The company outsources to a lawyer, accountant, or administrator in Uruguay the tasks related to the administration and control of investments. In this case, the annual tax return must detail who performed the activity and the number of hours devoted to it.

In other words, if it can be demonstrated that “economic substance within Uruguay” exists, passive income obtained abroad remains exempt.

It is also important to note that Uruguay has several double taxation agreements with many countries, which in some cases results in lower tax rates, or allows income tax withheld at source in another country upon distribution of dividends from a subsidiary to the parent company (Uruguayan company) to be credited against Uruguayan tax, avoiding double taxation on the same income.

If the company is used to intermediate in the purchase and sale of goods or services abroad (triangulation activity), it must pay income tax (on a presumptive basis) of approximately 1% of the difference between the purchase and sale price of the goods or services. In this case, since the company becomes subject to income tax, it must make minimum monthly advance payments of approximately USD 100, which may reach up to USD 300 per month depending on the company’s billing volumes.

If the company carries out commercial or service activities in Uruguay and is not covered by any exemption, it must pay Income Tax at a rate of 25% on net income (plus or minus applicable tax adjustments). In such cases, subsequent dividend distributions will be subject to a 7% withholding.

For the SAS, it is possible to opt for a presumptive income tax regime of 12% if annual billing does not exceed approximately USD 200,000; of 15% if billing is between approximately USD 200,000 and USD 300,000; and of 18% if billing is between approximately USD 300,000 and USD 400,000. Under this regime, the 7% dividend tax is not applicable. If billing exceeds USD 400,000 in any fiscal year, the company transitions to the standard income tax regime at 25%, plus 7% on dividend distributions.

The transfer of shares in an SA or SAS whose holders are non-resident natural persons or legal entities is subject to income tax at a rate of 2.4% on the sale price of the shares. If the company is the sole owner of real estate in Uruguay, it is generally more cost-effective to transfer the shares rather than the property directly, given the costs and taxes involved in a direct real estate transfer.

The purpose of this publication is to provide general information and not specific legal advice to be used without first conducting a consultation to evaluate your particular situation. We are at your disposal should you wish to seek our assistance.