On 31 August, the Executive Branch sent the 2025–2029 National Budget Bill to Parliament. Below we comment on the main tax changes proposed in the bill regarding the taxation of foreign capital income. These changes may be of particular interest to individuals currently enjoying a “tax holiday” in Uruguay or planning to become tax resident in the country.
Extended source rule for the sale of shares in foreign companies
It is proposed that income from the transfer of shares or interests in non-resident companies be treated as Uruguayan-source income if any of the following conditions is met (at any time within the 365 days before the transfer):
- More than 50% of the company's assets consist, directly or indirectly, of property located in Uruguay.
- The value of the property located in Uruguay exceeds 31,500,000 Indexed Units (approx. USD 5,000,000).
Extension of “worldwide income” to other foreign-source capital income
At present, personal income tax (IRPF) is levied at 12% on income from movable capital arising from deposits, loans and, in general, any placement of capital or credit of any kind, provided that income comes from non-resident entities (e.g. interest, dividends). The bill proposes to broaden this definition to include:
- Income from real estate abroad (e.g. rent).
- Capital gains from the sale of investments or real estate abroad.
Capital losses related to this income may be deducted, provided they are reliably proven. For real estate, losses are only deductible if the property is recorded in public registries.
No deferral of IRPF on foreign capital income
The possibility of deferring taxation by interposing entities (local or foreign) is restricted. Income must be attributed as if it had been obtained directly by the individual at the time it is received by the entity.
Changes to the “tax holiday” regime
The “tax holiday” regime is maintained for tax residents who opted in up to and including the 2025 tax year, and is extended to cover the newly taxed foreign capital income.
For those who become tax resident from 2026, a new regime is created under which no foreign capital income is taxed in the year residency is established and the following 10 years. After that period, IRPF is paid at a reduced rate (50% of the general rate) for a further 5 years. To access this benefit, certain investments must be made, to be defined by the Executive Branch in the regulations.
The option to pay IRPF at 7% indefinitely will no longer be available.
Those already on a tax holiday will, once it ends, be able to pay tax at a reduced rate for 5 years if they make the investments referred to above from 1 January 2026.
Changes to the taxation of dividends paid to non-resident shareholders
Dividends paid by local companies to foreign shareholders that do not correspond to income taxed under IRAE in the hands of the local company (that income was already taxed) will be subject to non-resident income tax (IRNR) if:
- The beneficiary's jurisdiction of residence taxes those dividends.
- A tax credit is granted for the tax withheld in Uruguay.
Entry into force
Unless expressly stated otherwise, the measures in the bill would come into force on 1 January 2026. Parliamentary debate is expected to continue over the coming months, with the Law likely to be enacted towards the end of the year. Since changes may be made to the original bill during the legislative debate, a detailed analysis will be essential once the Law has been passed.
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