Uruguay is widely known for its exceptionally frugal former president, José ‘Pepe’ Mujica, a farmer and former revolutionary who was in office from 2010 to 2015. What the country is not known for, however, is its tax incentives. Let’s get into the details below…
Caveat Emptor: We are not professional tax advisors and do not provide personal advice. We did, however, consult tax professionals in producing this content.
For personal advice, consult your tax advisor familiar with your situation. This includes talking to a legal advisor in both Uruguay and your home country.
Sovereign Confidential members, let us know if you need a reference for our vetted legal advisors in Uruguay.
Why Uruguay should be on your radar as a tax-friendly destination in 2024…
Bordered by Brazil and Argentina, Uruguay doesn’t enjoy much prominence on the global stage. And that isn’t really surprising; it’s small – only about 1/16th of the size of Argentina – and unlike its larger neighbors, its politics are generally stable.
And whilst the country tends to be fairly bucolic, overall, cities like the capital of Montevideo and Punta del Este are both vibrant metropolitan centers with ample tourism and lifestyle appeal.
Uruguay is also exceptionally stable economically, and its tax policies have seen scores of well-heeled Argentines flocking there in recent years as the wheels came off at home.
But it’s not only the Argentines who can benefit from Uruguay’s attractive tax incentives – you can, too.
Tax residency and legal residency are NOT the same thing
At the outset, it’s important to note that in this article we will be discussing tax residency in Uruguay… Legal residency, on the other hand, gives you the right to live in a country (think Portugal’s D7 retirement visa, Spain’s Golden Visa, etc.)…
Whereas holding a tax residency makes you subject to local taxation rules.
In most countries, you become a tax resident after spending 183 days, but there are also usually other, quicker ways to become a tax resident. You can also be a legal resident in a country but not its tax resident, and vice versa.
However, if you live in a country full-time, you are usually both.
So let’s take a look at what advantages Uruguay offers on the tax residency front…
How can you benefit from becoming a tax resident in Uruguay?
You may want to become an Uruguayan tax resident for two main reasons:
First, Uruguay is a great country to live in tax efficiently (we’ll get into their tax incentive programs in a moment).
Plus, it is one of the most livable countries on the American continent.
Just keep in mind that Uruguay is not “dirt-cheap.” The history of political and economic stability means the country is not on fire sale. It’s more expensive than Panama, Costa Rica, and Chile, for example… but it’s still cheaper than Puerto Rico.
And second, it can help you disconnect from your home country’s tax system.
Unlike the United States, most countries allow their taxpayers to disconnect from their respective tax systems after fulfilling certain conditions.
For example, it is possible for Canadians, Britons or Australians to leave their countries, travel the world while working remotely, and pay taxes nowhere.
In contrast, Americans can only disconnect from their tax system after renouncing their US citizenship.
Usually, most countries (including Uruguay) require you to spend at least six months per year within their borders before you can become a local tax resident.
But Uruguay offers one distinct benefit – you can gain tax residency there quickly – after spending only 60 days on the ground – by investing at least $524,000 per person in the country.
(You can also gain tax residency there immediately, but that would require an investment of at least $2.2 million. We’ll cover all six of your options for obtaining Uruguayan tax residency by investment in a future installment.)
And then you only need to spend 60 days per year inside Uruguay to keep your tax residency active…
So is Uruguay a tax haven?
While Uruguay is not a zero-tax jurisdiction (such as Dubai or the Bahamas), living there can still be tax-efficient. More often than not, expats living in Uruguay have to pay nothing to the local tax authorities.
This is possible due to the following essential benefits of the Uruguayan tax system:
Benefit 1: Uruguay is home to a mostly territorial tax regime
Territorial taxation means that only income earned within the country is subject to local taxes.
Hence, in Uruguay, income generated abroad is not subject to local taxation. But there are two notable exceptions — Uruguay taxes foreign dividends and interest income at a flat 12%.
Suppose that you have a stock portfolio paying you dividends, or that you’ve purchased US bonds for interest income. That income will generally be taxed in Uruguay. (But, thanks to Benefit 3 below, you are still not likely to owe any tax to Uruguay.)
Any other income from outside Uruguay — including rental income, royalties, or capital gains from the sale of stock, business or real estate — is 100% tax-free by default.
Benefit 2: Enjoy a 10-year tax holiday OR a permanent 7% flat tax on foreign income
Starting in 2020, Uruguay sweetened the deal even further:
New tax residents can request a 10-year tax holiday on their foreign income — including dividends and interest. And again, other types of foreign income are tax-free by default.
Technically, the tax holiday lasts 11 years — the year you request the benefit, plus the ten years after that.
Alternatively, Uruguayan tax residents can choose for their foreign income to be taxed at a flat rate of 7% during their entire tax residency.
Here’s a summary of the key differences between these two tax regimes:
|Option 1: Non-Dom Regime for 11 Years
|Option 2: Reduced Taxation Permanently
First 11 years: Exempt from taxation
Year 12 onward: 12% on interest
and dividends only. The rest is tax-free.
(If you already paid tax on that income overseas, you can get credit in Uruguay.)
Permanently, 7% on interest and dividends only. The rest is tax-free.
(If you already paid tax on that income overseas, you can get credit in Uruguay.)
Which option should you choose?
If you’re planning on becoming a long-term (or permanent) tax resident in Uruguay, you will need to do the math to see which option saves you the most.
But remember, while Uruguay is politically stable and has a history of being friendly to foreign investors, their tax rules could change in the future…
Benefit 3: Get credit for taxes already paid
Finally, you can deduct any taxes you’ve already paid on your foreign income. And this benefit applies regardless of whether a double taxation treaty is signed between the countries (which is similar to how the US tax credit system works).
So do we consider this to be a good tax incentive..?
These incentives certainly won’t be a slam dunk for everyone. The fast-track way of qualifying for Uruguayan tax is not cheap – requiring a $524,000+ investment per person – and it also doesn’t come paired with a legal residency (i.e. the right to settle there).
Nonetheless, for the right person, the tax incentives program could work well.
Always remember that tax regulations tend to have complicated nuances. Hence working with a tax expert when structuring your affairs – both in Uruguay and at home – before making any decisions is essential.
If you’re looking to optimize your international tax obligations, investigating Uruguay’s tax incentives with the help of your tax advisor could certainly be worthwhile.
Just remember that if you’re American, Uncle Sam keeps taxing his serfs no matter where they live – even if the generated income has nothing to do with the US.
The only definitive way for Americans to eliminate this burden is to renounce their US citizenship. However, if you are not ready for that, moving to Puerto Rico or moving abroad to take advantage of Foreign Earned Income Exclusion (FEIE) can help too.
Today, we covered WHY you should consider obtaining Uruguayan tax residency. In a future installment, we’ll unpack the six ways of gaining Uruguayan tax residency by investment – so stay tuned…
Yours in Freedom.
Team Sovereign Man