Israel – Uruguay Tax Treaty

Business Activity in Uruguay

Uruguay is a reliable business partner in the Latin America region, in addition to hosting attractive economy sectors. The country offers a sustainable environment for a variety of investment opportunities across various sectors, such as a greenfield project, a merger, or an acquisition opportunity. Important to note that the positive business climate is supported by the country’s democratic governance and stability.

Uruguay is one of the leading recipients of Foreign Direct Investment (FDI) in South America, consistently ranking as a top destination for FDI inflows in the region over many years. Investments are mainly focused on sectors such as agribusiness, manufacturing, retail, and real estate.

The capital city Montevideo is increasingly becoming a regional hub for headquarters, trading and procurement centers, and shared services centers (especially in free trade zones). Uruguay’s skilled workforce, growing IT sector, R&D projects, and modern tech infrastructure are making it a top choice for businesses.

World-renowned management companies such as Abbott, BASF, and Globant have already established offices in Uruguay attracted by the competitive, highly skilled, and multilingual workforce available. Similarly, mega traders such as Louis Dreyfus Commodities or COFCO AGRI decided to have their regional headquarters in Uruguay.

Uruguay’s strategic position at the heart of MERCOSUR combined with its stable business environment and excellent infrastructure makes it a modern platform for distribution in the region. Uruguay’s projected real GDP growth is 3,7% for 2024, maintaining its economic strength and attractiveness.

The tourism industry, as well, is one of the most rapidly growing and profitable sectors. Uruguay is a popular tourist destination, with 500,000 cruise passengers disembarking annually, as Montevideo and Punta del Este are common stops on the Rio-Buenos Aires cruise route.

Bilateral Agreements Between Uruguay and Israel

1. International Investment Agreement
2. Free Trade Agreement

Reciprocal Promotion and Protection of Investments

The International Investments Agreement was signed by Israel and Uruguay on 29 March 1998, and it became effective on 7 October 2004. The Agreement shall create favorable conditions for investment by investors of one Party in the territory of the other Party, through investment protection and by stimulating business initiatives and expansion of economic relations between the Parties.

Free Trade Agreement

The agreement between the Governments of Israel and Mercosur Block regarding free trade was signed on December 18, 2007. Uruguay is a full member of the Mercosur, a South American trade bloc established by the Treaty of Asunción in 1991 and the Protocol of Ouro Preto in 1994 comprised of Brazil, Argentina, Uruguay, and Paraguay. The agreement entered into force on June 1, 2010.

To read the agreement in English click here.

Residency for Tax Purposes in Uruguay

Residence of an Individual

According to the Uruguayan tax legislation, an individual is considered resident if they meet one of the following criteria:

• Stays in the country for more than 183 days.
• Their main activities, economic interests, or vital interests are based in Uruguay, which includes having a spouse or dependent children living there.
• They make significant investments, such as over $1.62 million in real estate or businesses. From 2020, new conditions include investments of more than $378,000 in real estate with at least 60 days of presence or business investments creating at least 15 full-time jobs.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

A legal entity is considered a resident in Uruguay if it is established according to national laws and regulations. Foreign entities become residents upon completing the required legal procedures for setting up domicile in Uruguay, and they cease to be residents once they have transferred their domicile abroad and completed the relevant legal procedures.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Uruguay

Uruguay’s Tax Authority is called Dirección General Impositiva, or DGI.

Income Taxation:0% to 36%

Taxation of Companies and Branches:25%

VAT: 22%

Capital Gains Tax: 12%, 25%

Withholding Tax

Inheritance Tax and Estate Tax in Uruguay

Uruguay does not apply an inheritance or gift tax.

Relocation to Uruguay

Uruguay has modern infrastructure for logistics, telecommunications, and renewable energy. It is rated as having the best standard of living in Latin America by both the Legatum Prosperity Index and the Mercer Index. The country offers a high quality of life for its residents and makes it easy for foreigners to obtain legal residency.

Uruguay’s economy offers a competitive system with many opportunities for individuals and businesses who wish to relocate to the country. For instance, investors can offset foreign income taxes with corporate income tax (CIT) on the same income. Fixed assets like tourist assets, cars, computers, and machinery are exempt from CIT. Tax exemptions can’t exceed 90% of the total CIT, with the exemption lasting 5 to 7 years and ranging from 42% to 69%.

The Uruguayan government has introduced tax exemptions to attract investments, including the Free Zone Law from 1987. These free zones, either privately or publicly owned, let companies engage in manufacturing, commercial, and service activities while benefiting from tax exemptions and other incentives. Free zone users are exempt from all current and future national taxes, including those for which a specific legal exemption is required.

Uruguay’s Shared Service Centres (SSCs) provide tax benefits, including a 90% exemption of CIT income and a 10% exemption of NWT on assets, for services like data processing, logistics, and R&D.

Uruguay has the third largest Jewish community in South America, with around 16,500 Jews, who are well integrated into the society and contribute substantially to the economic and social development. Uruguay also has schools with curricula in Spanish and Hebrew, including ORT University. The Jewish community publishes a magazine and various institutions distribute information.

Real Estate Taxation in Uruguay

The Uruguayan income tax includes income derived from real estate. This income is subject to personal income tax at 7% and 12%, with lower rates applicable in specific cases. As well, Uruguayan law subjects real estate to a Value Added Tax (VAT) levied at 22%, which is added to the construction of buildings.

Besides income tax and VAT, real estate property transfers are subject to so-called ITP (“Impuesto a las Transmisiones Patrimoniales”) at the rate of 2% payable by the seller, and 2% payable by the buyer. The tax base is given by the tax value of the property.

The transfer of real estate property to direct heirs or legatees by virtue of death is subject to a 3% tax assessed over the tax value of the. When the property is transferred without payment, the beneficiary pays a tax of 4% on the tax value of the property.

Transfer of Funds from Israel to Uruguay

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met. Our firm handles withholding tax matters with the Israeli Tax Authority.

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more.

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Uruguay

The main types of business entities in Uruguay include:

Stock corporation (S.A)

A stock corporation (S. A. ) is a legal entity commonly used by large businesses for commercial or industrial activities. Shareholders have limited liability, meaning they only risk the amount they invest in the company. There are various types of special corporations, depending on how they are formed and operate. While there are no specific minimum or maximum capital requirements, corporate capital must be in the local currency.

Limited Liability Company (LLC)

An LLC is a popular choice for small and medium businesses because it has few operational restrictions. In a limited partnership, partners have limited liability, only up to their investment, except for company debts. There are no fixed capital requirements, and personal obligations can be negotiated. Capital shares are listed in the incorporation documents. Profits and stock transfers follow these documents and can be freely exchanged among partners. LLCs don’t need to file Beneficial Ownership forms and allow partners of any nationality, with 2 to 50 members.

Simplified Joint Stock Corporation (SAS)

A Simplified Joint Stock Corporation (SAS) is created to carry out economic activities. It is a commercial company with capital in the form of nominative, endorsable, or book-entry shares. The SAS can engage in any legal activity, except those restricted to stock corporations (S.A.). Shareholders’ liability is limited to their investment, with no further responsibility for social duties like employment or taxes. At least 10% of the capital must be paid in cash at incorporation. SAS cannot have publicly traded shares but can raise capital through public savings.

Branch of a Foreign Company

A branch is an extension of a foreign company operating in another country. To conduct business locally, the foreign company must register its branch and appoint officers to manage it. The branch follows the parent company’s business activities, shares its debts, and has no separate capital. Its organization and profits are tied to the parent firm, and the incorporation laws of the main company govern how it handles transfers and operations.

Sole Proprietorship

A sole trader is a business where the owner is fully responsible for all risks and debts. While it has no operational limits, it may exclude certain legal activities. The owner is personally liable for all obligations. There’s no capital investment, and products are sold to established customers. The business itself can’t be transferred, but its assets and liabilities can be. No formal incorporation is required, but registration with certain authorities is necessary.

Incentive Laws in Uruguay

Uruguay has a comprehensive incentive framework for local and foreign investors, providing incentives for a variety of activities in industrial, commercial, and service sectors. There are no specific restrictions for foreign investment, and foreign investors are awarded the same benefits as local investors. In fact, the legislation does not differ between national and foreign capital, there are no tax distinctions, and profits can be freely transmitted abroad.

Key incentives include tariff exemptions for machinery and equipment used in production, along with exemptions from Corporate Income Tax (IRAE), Industrial and Livestock Goods Sales Tax (IMEBA), Value Added Tax (VAT), and Impuestos Específicos Internos (IMESI) for goods used in production activities.

Uruguay promotes investment through free zones, free ports, and public-private partnerships. Companies in free zones, such as call centers and electronics firms, benefit from significant VAT refunds.

Additionally, the investment legal framework allows for tax exemptions ranging from 20% to 100% based on specific criteria, such as job creation and exports. Various free zones across the country are exempt from national taxes like Income Tax, VAT, and Wealth Tax, primarily stimulating export-oriented activities with limited domestic market access.

There are free zones in Uruguay in different cities that offer interesting benefits. For example, the free zones are exempt from national taxes such as Income Tax, VAT, and Wealth Tax. The free zones stimulate industrial, commercial, and service activities, designed for export primarily with a few permitted to the domestic market.

Double Tax Treaties in Uruguay