Uruguay Takes A Step Forward: Officially Passes Favorable Tax Laws To Attract Foreign Residents!
Nearly two years after enacting tax laws that made certain foreign-source income taxable to all residents of Uruguay, the Uruguayan Government finally followed through on promises to provide tax relief for foreign residents in order to encourage their continued immigration into the country.
The new exemption, enacted in May of this year, provides foreign tax residents (non-Uruguayan citizens who spend more than 183 days per year inside Uruguay) a five-year tax-free window during which they will not be liable for income tax on any foreign source income. The mechanics of the exemption function by giving foreign tax residents the option of retaining their non-resident tax status for five-years. After the five years expire, foreign tax residents must pay a 12% income tax on foreign interest and dividend income like all other Uruguayan residents; however, all other types of foreign income will still be tax-free, including capital gains, pensions, rents, etc.
In order to ensure that foreign tax residents are not taxed twice on their foreign income, Uruguay has also agreed to forgo taxes on foreign interest or dividends if that income is already taxed by another country. Meaning, Uruguay will provide a full tax credit for any foreign taxes paid. This added incentive is significant because many foreign residents moving to Uruguay are already paying significant taxes in their home country. This is particularly true for citizens of the United States, who pay taxes on their world-wide income.
The news was well-received among the existing expat community in Uruguay, many of whom were still upset by the government's abrupt decision at the end of 2010 to enact a world-wide tax on interest and dividend income. Immediately after the tax was enacted in January 2011, many foreign tax residents left Uruguay and opted for friendlier tax jurisdictions like Panama, Paraguay, or one of several islands in the Caribbean.
Hopefully this new exemption will serve to entice some of those foreign residents to return to Uruguay. One thing is certain: the new tax exemption will certainly encourage prospective foreign residents to put Uruguay back on their radar. With beautiful beaches, a moderate climate, modern buildings, and unparalleled safety in South America, more and more foreigners are looking at Uruguay as a viable option. The government's latest tax exemption sends a strong signal to prospective foreign residents that Uruguay is serious about attracting them to the country and is willing to compete for their residency!