Uruguay is well worth considering for those who want an affordable, relaxed lifestyle in a low-tax environment within the Americas.
Uruguay is a politically stable country with strong democratic governance and a well-developed financial sector. These factors have led to it being called the “Switzerland of South America.”
This article explores the low tax and lifestyle benefits of living in Uruguay. You might be surprised by how easy they are to achieve.
While this article will help you decide if tax-friendly Uruguay is a good option, it is not professional tax advice. If you need a detailed tax planning strategy based on your individual needs, you can find out more here.
Why move to Uruguay?
Uruguay is a relatively small country in Latin America, with around 3.5 million inhabitants. One of South America’s southernmost and tax-friendly countries, Argentina borders Uruguay in the west and Brazil in the north.
The country is known for unspoiled beaches on its Atlantic coast, rolling countryside, quality wines, and beef production. Spanish is the primary language, though a hybrid of Portuguese and Spanish is used in some areas. English is also fairly widely spoken. While not cheap, the country is relatively affordable in terms of food, accommodation, and shopping.
One main advantage for foreigners looking to settle there is that Uruguay has a multi-year tax exemption that allows you to pay either very little or no tax in the country.
It has been a haven for wealth for many people in South America for years, a continent that doesn’t have a defined culture of private banking and investment, leading to its favorable international reputation.
This isn’t a country where you can expect a lively pace of life. Quite the opposite, it’s very sedate. Like other Spanish-speaking countries, many businesses close for Siesta and shut entirely on certain days. It isn’t generally driven by consumer culture, and few convenience stores exist.
If you want to live there, the capital, Montevideo, and beach town Punta Del Este are some of the livelier places. Compared to other sites in South America, Uruguay has an extensive middle class, there are no significant disparities in wealth you find elsewhere, and you have a more functional, stable government.
It has one of the best passports in South America, next to Chile, with Uruguay passport holders able to enter 149 destinations without a visa, through a visa on arrival, or via electronic travel authorization.
In summary, if you want a laid-back lifestyle, tax incentives, and an affordable, stable place to live, you have that in Uruguay.
So how do you go there, get the tax savings, and work towards residence and possible citizenship?
Residence In Uruguay And How to Get It
The Uruguayan residency permit can be temporary or permanent; you must have an income of at least US$1,500 per month. While Uruguay has a stated policy of welcoming foreign nationals who want to live in the country, during the time it takes to obtain permanent residency (up to 12 months), you must show “intent to reside” and spend most of that period there.
So, unlike other places, the “paper residency” concept does not apply; you have to prove you spent time in the country instead of filling out a form.
To obtain permanent residency, the required documents are a birth Certificate or Marriage certificate, a clean police record from your country of birth, proof of a steady income stream to support yourself (and your family, if applicable), and a brief medical checkup from an authorized private clinic in Uruguay.
Uruguay’s Digital Nomad Visa
Uruguay has just approved a digital nomad law; for the first time, remote workers and digital nomads can get a residency permit to work from Uruguay for up to 12 months.
The permit is for people who work for themselves, run businesses, or work for companies abroad. You can apply for a six-month permit from abroad and a further six months once you’ve landed in Uruguay. You have to prove you can support yourself financially. There is currently no salary requirement.
Becoming Tax-Resident in Uruguay
The three main ways to gain tax residency are:
183 days presence.
Economic interest (Real Estate or Business Investment)
Vital interests.
Short-term absences are considered for the 183-day presence test, and you can meet the requirement by spending 140 to 150 days in the country. Regarding economic interest, you must show that your income in Uruguay is higher than in any other country.
Vital interests are recognized through marriage, family, or other solid social ties, such as the enrollment of a child in an educational institution, proof of medical insurance coverage, or membership in a sports club, for example.
You can also purchase a property worth US$455,000 and spend 60 days in a year in Uruguay to be considered a tax resident. There is no physical presence requirement if you buy a property worth $1.95 million. You can also achieve tax residence by investing $1.95 million in business activities or projects declared of national interest.
If you live there full-time and you, learn the language and have connections with the country, you also have a chance of getting citizenship. Residents can apply for citizenship in three years if married and five years if single.
So, suppose you’re just looking for an easy second citizenship. In that case, Uruguay isn’t the best option because you need to be based there full-time or become naturalized over several years.
Pay Zero or Low Taxes in Uruguay
Moving your tax residence to Uruguay makes you eligible for special tax advantages. Chief among them is a tax holiday on your foreign-sourced income for ten years.
Those who have recently been granted tax residence are taxed under non-resident rules. This results in a tax holiday starting in the fiscal year after residency, in practice, eleven years.
This means no tax on all the income you generate outside Uruguay and no tax on interest and dividends derived from non-resident entities – a company in any jurisdiction other than Uruguay.
After that period, foreign-source interest and dividends are taxed at 12%. Foreign income received from owning or renting property is not taxed at all.
If you already pay income tax elsewhere (on interest or dividends generated abroad), Uruguay does not tax you again. And if you pay 12% or more in any country abroad, you will not pay in Uruguay. This is called the non-double taxation rule; if you settle somewhere else, Uruguay does not tax you again. This is a fantastic opportunity for Nomads, who don’t want to be tied in one place and enjoy the freedom to move around.
You could still be taxed on the income received from investments abroad, considered “movable assets.” This includes dividends and interests from securities, loans, and bank deposits paid to you from abroad by firms and individuals.
However, a taxpayer can elect to be taxed on their income from movable assets abroad at the rate of 7% (instead of the standard 12% for this type of income) without a time limit.
Therefore, a new tax resident in Uruguay has two choices:
Not being taxed on income from abroad on dividends and interests for a maximum of ten years after the year they became resident.
Or paying income tax for dividends and interests paid from abroad at the rate of 7% for as long as you maintain the status of fiscal resident – which may be beyond the ten-year tax holiday.
Uruguay’s Property Market
Uruguay’s housing market remains strong if you want to get tax residence through Real Estate Investment. It has been buoyed by robust demand and a healthy GDP growth forecast of around 2% for 2023, mirroring the rest of the developed world.
In Q1 2023, the average price of newly built houses in Uruguay rose by 18% (10% inflation-adjusted) to US$2,199 per square meter from a year earlier. This is mainly the result of improving economic conditions and increasing the purchasing power of Uruguayans.
Demand from foreign buyers is also gradually increasing. Uruguay’s real estate market, particularly its beach resorts, relies heavily on foreign buyers, around 75% of whom have traditionally been Argentines, followed by Brazilians. In comparison, the remaining 5% were buyers from other countries. Some European retirees are also drawn to Montevideo, especially writers and artists.
In addition, the country offers decent rental yields to potential property investors. The typical gross rental profit in Montevideo ranges from around 3 to 9%, and buying prices range from $2,000-4,000 per square meter, which is extremely reasonable compared to other Capital cities.
Low Taxes for Business in Uruguay
Uruguay has a robust agricultural sector, sizable foreign trade, a well-developed financial system, and a growing tourism industry.
Companies operating in Uruguay have two tax reduction systems available. Tax exemptions are available for new investments of any size and can be set up in Free Trade Zones without taxation.
Uruguay also offers tax exemptions on investments in infrastructure that benefit the tourism industry. The tax exemptions apply to qualifying hotels, resorts, and related ventures.
The exemptions include:
No VAT on the purchase of equipment and materials imported to build or equip the establishment.
Credit of VAT on equipment and materials bought locally for that exact purpose.
Special depreciation treatment for corporate tax purposes
Net worth tax will not be levied for ten years.
However, you will pay some taxes on your locally-sourced income under Uruguay’s territorial tax system.
Why Move To A Territorial Tax Country?
As tax rules in the West continually change and governments look to increase their share of your wealth, more people than ever are looking to escape their country’s tax system.
One option is to move to a territorial tax country where only the income you make there is taxed. Everything else isn’t taxed. Sometimes, there are exceptions, like the remittance basis, where you are taxed on money you bring in. If you’re running a business or working for your own business in a territorial tax country, that could be taxable.
There are different rules on what is domestic and overseas income. If you stay in a country 365 days a year and actively work in a business, that may not be deemed foreign income. Still, if you live in a country like Uruguay and have investments or a company overseas, they will generally leave those alone.
Your company can often be based somewhere else, and you can live in a different place. So, the best place to live may not be the best place to incorporate.
Suppose you want to live in a territorial tax country. In that case, other ways exist to get a residence permit to locate your business elsewhere and coordinate appropriately. You can get a Uruguayan company, but there may be better approaches if you’re going to live there.
There are different definitions of overseas income; it could be clearer-cut. If you properly analyze what income is offshore, they will leave that alone, and you will pay zero, even though that country has a tax rate for domestic income – people who have a job or rental income locally will pay tax, but anything offshore is not. That doesn’t just apply to foreigners; domestic citizens won’t pay taxes on foreign source income either.
However, some countries have schemes specifically designed for foreigners. They can be lump sum regimes, exemptions, or Non-dom programs, where you can go there and pay some flat tax, pay on remittance, or, in the case of Uruguay, get a tax exemption for 11 years.
Places like Uraguay can allow you to get out from under your country’s tax regime and get taxed on a significantly reduced amount of income.
You also have zero-tax countries, like the UAE, Vanuatu, and The Cayman Islands, but these are only for some. Then you open up the idea that there are countries in Europe, Asia, and Latin America, for example, where you can pay little or no tax if you structure things properly.
So, it is all about getting out of one country and into another, but having a proper tax plan ensures you are correctly out of the tax net and your income sources match up in the new country.
Conclusion
Living in Uruguay is an appealing option, particularly for people who still want to be able to move around and are willing to put time or money into becoming a tax resident.
It’s a tax-friendly business location for those with online businesses that are not location-dependent, like consulting, IT, and telecommunications. In other words, a company that is not deemed to be producing locally-sourced income.
A progressive, European-style country with friendly people, warm weather, a relatively low cost of living, and a favorable location, Uruguay is not a zero-tax country. Still, it is a low tax with a low physical presence for partial nomads.
This is all about choosing your own tax rate and legally reducing your taxes while living your desired lifestyle by getting out from under your own country’s tax system.
At Nomad Capitalist, we call it our tax-friendly quadrant – to legally reduce your tax bills, diversify and protect your assets, become a global citizen, and maximize your freedom.
With proper planning, all of that can be achieved, and Uruguay is a place where you can make it happen as part of a bespoke strategy.
Nomad Capitalist is a turnkey solution for offshore tax planning, dual citizenship, asset protection, and global diversification. We have helped 1,500+ HNWI clients, and we can help you, too. Find out how here.
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Publish date : 2023-11-29 09:16:46
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