In response to the decline in economic activity caused by the health emergency in Uruguay, and in order to boost activities that are labour-intensive and generate positive spillovers for other sectors of the economy, Decree No. 138/020 establishes a new investment promotion regime for large-scale construction. This Decree eases and broadens the regime under Decree 329/016.
The most relevant aspects are set out below:
Which activity is promoted?
The promoted activity is construction for the sale or lease of office or residential property, and private urban developments, in both cases for large-scale projects.
Private urban developments are actions by private parties to develop land that was previously rural or suburban, providing it with the necessary infrastructure and subdividing it into plots suitable for housing and complementary uses.
A private urban development may end at the subdivision stage, or may include the full or partial construction of housing on the resulting plots.
Large-scale projects are constructions that:
a) Have a value in civil works and movable property for common areas exceeding 60,000,000 Indexed Units (UI), with works registered with the BPS after this Decree comes into force.
b) Are registered with the BPS, with or without activity, when this Decree comes into force, and still have investments to be made in civil works and movable property for common areas exceeding 60,000,000 UI at the date the project is submitted to COMAP.
In all cases, at least 10% of the project's total area must be for common use.
Which investments are covered?
For projects under (a) above, the promotional declaration covers investments made within 60 months from the date the relevant Departmental Government grants the building permit.
For projects under (b), investments made within 48 months from the date the project is submitted to COMAP are covered.
In all cases, projects must be submitted before 31/12/2021, and the investment period may not extend beyond 30/4/2025.
What tax benefits are available?
Exemption from import taxes:
Equipment, machinery and materials for the civil works, and movable property for common areas, imported directly by the entity whose project has been declared promoted under this decree, are exempt from all surcharges, including the minimum, from the Single Customs Import Duty, the Package Handling Fee, the Consular Fee and, in general, from all import taxes or taxes applicable on import, including import VAT, provided they have been declared non-competitive with domestic industry.
VAT credit:
A credit is granted for the VAT included in purchases of equipment, machinery, materials and services for the civil works, and of movable property used exclusively in common areas. This credit is issued as credit certificates under the regime for exporters.
Wealth tax exemption:
Real estate included in the promoted activity is exempt for 8 years if the project is in Montevideo and for 10 years if it is elsewhere in the country. The exemption also covers the land on which the investments are made. Movable property for common areas is exempt for its useful life. Assets covered by this exemption are treated as taxable for the purpose of computing liabilities.
Corporate income tax (IRAE) exemption:
Companies whose investment projects have been declared promoted under this Decree will be exempt from IRAE up to an amount equivalent to:
- 15% of the eligible promoted investment, when it is between 60,000,000 UI and 90,000,000 UI.
- 20% of the eligible promoted investment, when it is between 90,000,001 UI and 205,000,000 UI.
- 25% of the eligible promoted investment, when it is between 205,000,001 UI and 287,000,000 UI.
- 30% of the eligible promoted investment, when it is between 287,000,001 UI and 574,000,000 UI.
- 40% of the eligible promoted investment, when it exceeds 574,000,000 UI.
The maximum period to use this exemption is 10 years, counted from the first year in which taxable income is obtained, provided no more than 4 years have passed since the promotional declaration.
In each financial year within that period, the company may exempt part of its IRAE liability under this benefit, subject to the following:
- investments actually made up to the deadline for filing the IRAE return are taken into account;
- the amount of investments made is converted into UI at the UI value on the last day of the month before the investment is made;
- the exempt tax may not exceed 100% of the amount actually invested;
- in each year covered by the promotional declaration, the exempt IRAE may not exceed 90% of the tax payable.
If the full investment is not completed within the maximum periods granted (60 or 48 months, and no later than 30/4/2025), provided more than 50% of the works have been completed, the exemption percentage that would have applied according to the size of the investment will be reduced in proportion to the progress made by that date.
Monitoring information
Beneficiaries must submit to the Implementation Commission, within four months of the end of each tax year, their tax return and financial statements with the corresponding accountant's report, together with details of the investments made and any other information the commission requires.
Loss of benefits
If beneficiaries fail to meet their obligations, whether in providing information or in the substantive aspects of carrying out and operating the project, the taxes improperly exempted will be recalculated and the corresponding fines and surcharges must be paid.
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