Wealth tax

Given that we are close to December 31, the date on which a large number of taxpayers close the year, it seems appropriate to review the most relevant aspects to take into account in relation to the settlement of the Wealth Tax (IP).

.The tax applies to the taxed tax assets (determined according to tax regulations) of IRAE taxpayers at the year-end date, at a fixed rate of 1.5% (except in the case of Banks, Financial Houses or similar, in in which case a rate of 2.8% applies).

.For the purposes of determining the taxable tax assets, only the assets that the taxpayer owns in Uruguay at closing should be considered, excluding those local assets that are specifically exempt by the regulations (for example, Treasury Bonds and Bills, shares in other companies, etc.). From these local assets, which are not exempt, the admitted liabilities must be deducted, which are exhaustively established in the regulations [1]. (for example, average financial debts contracted in Uruguay, commercial debts (except, loans, placements, guarantees and import price balances), etc.).

In the event that the taxpayer has assets abroad and/or exempt assets that are not considered taxable for the purposes of calculating liabilities, only admitted liabilities that exceed the amount of said assets may be deducted. The aforementioned provision implies that many times, the exemption or non-taxability of certain assets cannot be taken advantage of 100%, since it depends on the amount of admitted liabilities that the company has at closing (it would be a fully effective exemption if the company did not have admitted liabilities, for example, since exempt or foreign assets would not be taxed and, in turn, would not reduce the admitted liabilities).

Another relevant aspect of the IP that must be considered by taxpayers is the withholding that applies to the foreign liability balances they have as of December 31. All IRAE contributing companies must act as withholding agents for the Wealth Tax on the passive balances that they maintain on December 31 of each year with non-resident individuals or legal entities that do not operate in the country through a permanent establishment. (regardless of what your tax closing date is). It should be noted that the balances of import prices, loans and deposits of foreign natural or legal persons domiciled abroad are not subject to the Wealth Tax, and this concept includes the balances payable resulting from operations with derivatives. . In other words, no withholding tax applies to the debts that the company has for these concepts. The rate to be applied will depend on who the counterparty is: In the event that the creditors are legal entities, the withholding rate amounts to 1.5% of the amount owed, unless they are located in a country or jurisdiction with low or no taxation, in which case the withholding rate will be 3%. In the case of natural persons from abroad, lower progressive rates apply. Said withholding must be paid in the month of May along with the monthly taxes due that month. In any case, beyond the provisions of domestic regulations, it must be taken into account that in the event that there is an Agreement to avoid double taxation in force with the country or countries with which balances subject to withholding are maintained as of December 31, December, IP retention may not apply. For these purposes, it would be necessary to analyze in detail whether all the requirements are met in order to apply the Convention and what it provides in this regard.

Finally, taking into account the way tax assets are determined, what are the admitted liabilities, the particularity that foreign assets, as well as many exempt assets absorb liabilities, and the withholding that applies to certain foreign liabilities , there are certain measures that companies can take in order to achieve greater tax efficiency. The best option for the purpose of lowering the tax burden of the tax is to cancel before closing the greatest amount of liabilities not admitted with taxed assets, since, in this way, the assets affected by the tax and in relation to the liabilities, those that, even if they remained at closing, could not be deducted, decrease. Some examples would be; i) use local availability to pay debts with shareholders or non-deductible liabilities abroad, whether financial or commercial (loans or import balances, for example); ii) as a second measure, an attempt should be made to cancel all foreign liabilities that, although deductible, are subject to IP withholding, especially taking into account that, in practice, in most cases, the cost of The retention is assumed by the local company, since it is commercially difficult to transfer it to the foreign company; iii) for those companies that do not have admitted liabilities, a good option could be to invest surplus available funds in the acquisition of exempt financial instruments or assets abroad, since as we mentioned previously, in these cases, the exemption would be fully usable. .

[1] This exhaustive list does not apply to Banks, Financial Houses or similar