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6.5. Deduction of Cross-Border Payments and Non-Deductible Expenses

In general, expenses incurred for earning income in Uruguay are deductible to the extent they are documented.

The following expense types are not deductible or have limited deductibility for Uruguayan tax purposes:

  • Personal expenses and expenses not related to the business are not deductible;
  • All payments made to non-residents (including payments made to related parties) are subject to compulsory proportional deduction if the effective tax rate of the country of the recipient is lower than 25%. Payments made to non-residents are fully deductible if the tax rate of the country of the recipient is at least 25%;
  • Interest expenses are generally deductible subject to the compulsory proportional deduction methodology and based on the ratio of assets that generate taxable income to total assets;
  • Donations are generally deductible based on the organization to whom the donation is made. In certain cases, donations are deductible up to 25% and a tax credit can be claimed for the balance 75%;
  • Corporate income tax is not deductible;
  • Penalties for tax infringements are not deductible;
  • Certain expenses incurred in relation to exemption incentive for software development (see Sec. 10.1.) are not deductible;
  • Payments made to exempt small companies are not deductible, if they are not made through electronic transfer or are not documented with electronic invoices (effective 1 January 2021); and
  • Losses from illegal acts are not deductible.