Uruguay follows a territorial tax system whereby only income arising from or deemed derived from sources in Uruguay is subject to tax therein. The concept of permanent establishment under domestic tax laws generally follows the OECD Model Tax Convention, with certain specific provisions provided as per the UN Model Tax Convention. The main exception to the OECD Model Tax Convention, is that a permanent establishment is deemed to exist if a non-resident provides services, including consulting services, and the provision of such services in relation to one project or connected projects, lasts for more than 6 months in any 12-month period.

Effective 1 January 2023, Uruguay introduced new income source rules for passive income from foreign sources received by permanent establishments of entities that are part of an MNE group. The new rules are an exception to the territorial tax system as, under the new rules, passive income from foreign sources is considered Uruguay-sourced and subject to corporate tax unless the economic substance requirements are met (see Sec. 12.5.).