Uruguay´s President announces tax reductions that would alleviate some tax burdens for individual taxpayers and small to medium-sized companies

On 2 March 2023, Uruguayan President Lacalle Pou proposed tax reductions to Personal Income Tax (PIT) and Social Security Assistant Tax (IASS) through a Bill to Congress and benefits for micro and small companies through ministerial Decrees.

Bill highlights

The tax measures introduced by the Bill for PIT include:

• A dependent-minor-child deduction that would increase from 13 Base Benefit and Contributions (BPCs) (US$1,900) to 20 BPC (US$2,900) per year, per child

• A tax credit increase from 6% to 8% for rental payments made for permanent housing (applies to PIT and IASS)

• A higher cap on the cost of permanent housing for purposes of the mortgage credit deduction, increased from US$109,000 to US$137,500, but maintaining the maximum annual deduction limit at 36 BPC (US$5,200)

The deductible amount is calculated by applying a proportional rate to the deductions allowed, depending on the employee’s nominal annual income. If the nominal annual income is less than or equal to 180 BPC (US$26,000), the rate would now increase from 10% to 14%.

The Bill also proposes to increase the annual minimum nontaxable IASS amount from 96 BPC (US$14,000) to 108 BPC (US$15,600).

Decree highlights

The tax measures introduced by Decree include:

• Modifying percentages applicable to the corporate income tax (CIT) notional regime and how to apply them, for income obtained from a combination of capital and labor, according to the following scale (applicable to sales, services and other gross income obtained in the fiscal year):

• Adding an income-band range for calculating minimum monthly advanced CIT payments; now, companies with gross income that did not exceed 305.000 IU by more than one and a half times (US$66,450) in the previous fiscal year, will be required to pay monthly advanced payments of US$ 150 approximately instead of US$170

• Modifications to the “Small Business” regime for companies with gross income that does not exceed 305,000 IU (US$44,300); previously, a company that exceeded this limit would be taxed under the general regime (CIT and VAT) for at least two years; the bill eliminates the two-year condition

• Increasing the annual income limit for small companies in the agricultural sector that choose to pay tax on the Disposal of Agricultural Goods (IMEBA) instead of on CIT; currently, annual income limit for opting into IMEBA is any amount less than 2 million UI (US$ 290,000); the new limit will be 2.5 million UI (US$360,000)

Effect of Decrees and Bill

The Decrees’ measures will become effective for fiscal years starting as of 1 January 2023. They were published in the Official Gazette on 3 March 2023 and 14 March 2023 respectively and can be accessed here: Decree No 66/023, Decree No 67/023 and Decree No 71/023 (in Spanish only).

The Bill was submitted to Parliament for discussion on 2 March 2023 and must be approved by both Chambers to move forward. If the Bill is approved, the Executive Branch would sign-off and proceed to publication. It can be accessed here (in Spanish only).

For additional information with respect to this Alert, please contact the following:

EY Uruguay, Montevideo

• Martha Roca 
• María Inés Eibe 
• Piero de los Santos
• Lucia Giagnacovo
• Catalina Fernández 

Ernst & Young LLP (United States), Latin American Business Center, New York

• Lucas Moreno 
• Ana Mingramm 
• Pablo Wejcman
• Enrique Perez Grovas 

Ernst & Young LLP (United Kingdom), Latin American Business Center, London

• Lourdes Libreros 

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific

• Raul Moreno, Tokyo 
• Luis Coronado, Singapore

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.