Tax Incentives for Investment in Uruguay

Tax Incentives for Investment in Uruguay

3 min.

The Uruguayan tax regime grants various fiscal benefits to promote investment growth in the country.

This article provides a brief picture of the most important benefits of that regime regarding Corporate Income Tax (CIT). There are two main benefits: one is given in article 53 of Title 4, TO 1996, and the other is established under law 16.906 (“Investment Law”).

Investment benefits under article 53, Title 4, TO 1996
This benefit considers as exempt income up to 40% of the amount invested in certain goods mentioned below, and up to 20% of the investment in the construction or expansion of buildings used for industrial and agricultural activities, subject to the condition that the exempted amount does not exceed 40% of net fiscal profits for the fiscal year. These goods could be, for example, machines and installations intended for industrial, commercial and service activities*, agricultural machinery, vehicles used for productive activities, etc. Regarding the construction or expansion of buildings, the exemption applies to the increase of the built-up area.

The benefit does not apply to the purchase of real estate, companies or capital participation in companies. To get the exemption, the taxpayer must create a special corporate reserve with the accounting profits of the fiscal year or, if these are insufficient, with accumulated profits. This reserve has to be created in an amount equivalent to the income considered exempt under this regime. The goods acquired should not be sold within 3 years after the year of acquisition; otherwise the income considered exempt will be included as taxable income in the fiscal year the sale took place.

Investment benefits under Law 16.906
This law grants tax incentives for investment projects promoted by the Executive Power. Companies interested in applying for the benefits granted under this law have to present an investment project to the authorities that complies with certain requirements. The project is evaluated by the responsible state office (“Comisión de Aplicación”), which advises the Executive Power whether to declare it as promoted. It also determines the benefits to be granted if the project is deemed recommendable as promoted. It is important to note that the project is evaluated on the basis of objective criteria, and it is quite easy to obtain the promotional declaration.

Details of the tax incentives granted
Once the project is declared promoted, the fiscal benefit consists of an exemption of CIT, a deduction from the actual CIT tax liability, in an amount equivalent to a percentage of the effective investment included in the project. The percentage is determined using an evaluation matrix that considers not only the amount of the investment but also other aspects such as the use of clean technologies, geographical decentralization, export growth and diversification, Afro descendants employment, etc. The term during which the benefit can be applied depends on the exemption percentage granted and the amount of the investment included in the project. The tax exemption may vary from 20% to 100% of the amount actually invested in the assets included in the project, with a limit of 60% of the tax payable for the years covered by the promotional declaration. The benefits granted under this regime cannot be combined with the benefit granted under article 53 Title 4, TO 1996.

*Financial and real estate rental activities are excluded

Author
Montserrat González
montserrat.gonzalez@ecovis.com

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