Tax Guide for US Expats Living and Working in Uruguay
Who Is Liable For Income Taxes in Uruguay
Under the personal income tax law, effective from 1 July 2007, individuals are subject to income tax in Uruguay.
Resident individuals are subject to tax on their Uruguayan-source income. Effective from January 2011, they are also subject to tax on certain foreign source income, such as capital gains and work income, if certain conditions are met. Income subject to the tax is divided into the categories of capital gains (Category I) and labor income (Category II).
The basic rate of personal income tax on capital gains is 12%.
Tax on labor income applies to income derived from dependent or independent work. A specified amount of income is not subject to tax. The tax is imposed at progressive rates ranging from 10% to 25%.
Since July 2008, income from pension funds is subject to the Tax of Assistance to Social Security. This tax is similar to the personal income tax. From July 2007 through June 2008, income from pension funds was subject to personal income tax.
Nonresident individuals are subject to income tax on their Uruguayan-source income at a rate of 12%. They are also subject to tax on their income from technical services performed abroad if certain conditions are met.
In addition, a 4% transfer tax is imposed on sales of real estate.
B. Other taxes
Net worth tax. Individuals owning assets in Uruguay must pay tax on their net worth at year-end at progressive rates ranging from 0.7% to 2%. They are entitled to deduct a tax-free allowance (approximately US$100,000).
Inheritance and gift taxes. Transfers of real estate by gift or inheritance are subject to the 4% transfer tax.
C. Social security
Contributions. Self-employed individuals pay social security taxes on notional amounts of income rather than on actual earnings. The amounts are established by law.
Totalization agreements. To provide relief from double social security taxes and to assure benefit coverage, Uruguay has entered into totalization agreements, which usually apply for a maximum period of one year, with Argentina, Brazil and Paraguay.
E. Tax treaties
Uruguay has entered into double tax treaties with Germany, Hungary, Mexico (entered into force in December 2010) and Spain (entered into force in April 2011).
To learn more about the history, culture, economy and other information about Uruguay
We have been preparing US income tax returns for US Citizens and permanent residents living in Uruguay for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Uruguay and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Uruguay.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a consultation by phone, skype or email