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Uruguay Clarifies Certain Aspects of the New Rules on Taxable Uruguay-Source Passive Income — Orbitax Tax News & Alerts

Uruguay has published DGI Resolution No. 488/023 in the Official Gazette, which clarifies certain aspects of the new rules on taxable Uruguay-source passive income introduced by Law 20.095 (previous coverage). The key points are summarized as follows:

  • Income derived from trademarks that are sold or used outside of Uruguay by taxpayers that are part of a multinational group is always considered Uruguayan source income, regardless of whether the taxpayer is a qualified entity with adequate economic substance;
  • The following are not considered Uruguay-source income when obtained by a taxpayer that is part of an MNE group and not considered a qualified entity with adequate economic substance:
    • notional (fictitious) interest, determined by the Executive Branch, for loans or placements; and
    • income generated from exchange differences, as long as these do not come from trademarks, or foreign assets capable of producing:
      • returns on real estate capital;
      • dividend income;
      • interest income; or
      • royalty income, other than income derived from IP rights that would be considered Uruguay-source income to the extent that the income does not correspond to qualified income according to the nexus approach;
  • With respect to the economic substance requirements, the condition of making necessary strategic decisions means making decisions related to the acquisition, holding (possession), or disposal, of assets that generate in-scope income;
  • With respect to the non-application of certain economic substance conditions for holding and real estate companies, it is considered that a company's main activity is the holding of equity interests in other companies or acquiring and maintaining real estate, when the average of the assets directly associated with said activities, considered at the end of each month, represent at least 75% of the entity's total assets during the entire holding period;
  • Annual affidavits regarding qualified income and compliance with the substance requirements (qualified entities) must be filed by the tax return deadline, within four months from the end of the fiscal year, including detailed information as specified in the resolution;
  • Where the activities for certain economic substance requirements are outsourced, the entities providing the outsourced services must provide details in the respective invoice on the human resources affected, the hours applied for the provision of the services in Uruguay, and the facilities where they were provided; and
  • Taxpayers must keep documentation that irrefutably supports the information provided in the annual affidavits referred to in the Resolution for at least the statute of limitations period for tax purposes, which is generally 5 years or 10 years in cases of tax fraud or non-filing of returns.

The new rules generally apply from 1 January 2023, although the invoice requirements for outsourced services apply from 1 April 2023.