With 31 December approaching, it is worth remembering that entities subject to Corporate Income Tax (IRAE) that owe amounts to foreign individuals or legal entities not operating in the country through a permanent establishment may be required to withhold Wealth Tax (IP) on certain balances outstanding at 31 December.
Taxable amount and rate
The taxable amount is the taxable balances owed by the IRAE taxpayer to the non-resident at 31 December, regardless of the IRAE taxpayer's financial year-end.
These balances exclude, as they are exempt, outstanding amounts arising from imports of goods, and loans and deposits from foreign individuals or legal entities domiciled abroad.
Therefore, any other unpaid balance for any other concept would be subject to the tax via withholding. Examples include amounts owed for services, unpaid dividends, royalties, advances from foreign customers and sales commissions owed.
However, if the balances are with a resident of a country with which Uruguay has signed a double taxation treaty, Uruguay may not have the right to tax them.
The rate used to calculate the withholding depends on the legal nature of the non-resident and, for legal entities, on its jurisdiction:
- If the taxpayer is a non-resident individual, the tax-free allowance is deducted, and the withholding on the excess is calculated using the progressive rates for individuals.
- If the taxpayer is a non-resident legal entity, the withholding is 1.5% of the taxable amount, or 3% if it is located in a low or no-tax jurisdiction (BONT).
Do free trade zone users have this obligation?
Free trade zone user companies, although they enjoy broad exemptions as taxpayers, are IP withholding agents to the extent that they owe taxable balances to foreign individuals or legal entities.
As regards the balances subject to withholding, in addition to the general exemption for amounts arising from imports of goods and loans, Decree No. 311/005 exempts them from withholding IP on balances corresponding to:
- royalties, know-how and equipment leases,
- fees for technical services, and
- copyright, except software.
Tax return and payment
The deadline for the responsible party to file the information return (Form 2183) and pay the tax withheld on balances at 31/12/2024 falls in May 2025, according to the general tax calendar.
Special case: taxable balances between a permanent establishment (PE) and its foreign head office (HO)
Under the last paragraph of article 3 of Decree 30/015, PEs must include all of the foreign entity's taxable wealth in their Wealth Tax calculation. Therefore, the local PE does not withhold IP on taxable balances with its foreign HO, but must include them as taxable assets in its own IP calculation.
If you need further information, please do not hesitate to contact our team or email info@inglobal.com
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