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International tax planning with Uruguayan Corporations

In an increasingly globalized and competitive world, it is key for companies to seek ways to optimize the tax issues according to their needs.

Uruguay has a internationally recognized legal security and a solid financial system, which makes it an excellent option to structure Offshore companies such as Holdings or Traders.

There are three types of Public Limited Corporation that allow the operations described above to be carried out: traditional Public Limited Corporations, Free Trade Zone Corporations and Simplified Public Limited Corporations.

This time we will focus on traditional Public Limited Corporations. We discard the Free Trade Zone Corporations due to their high operating cost and high requirements, as well as the Simplified Public Limited Corporations for having a mandatory social security contribution which makes it costly in the long term.

The traditional Simplified Public Limited Corporation is the most popular in Uruguay, and it can be used to carry out activities both locally and abroad due to the principle of territoriality applicable in the country. To the extent that the company does not obtain income or have assets in the national territory, it will not pay taxes except for the Tax on the Incorporation of Corporations (ICOSA).

Fiscal Aspects

The Stock Company must pay an annual tax to the control of Stock Companies (ICOSA), which amounts to approximately USD 500 per year.

As we commented previously, as long as the company does not have income or assets in Uruguay, it will not pay taxes, but it must file annual sworn statements before the General Tax Directorate (DGI) and have an accounting in accordance with International Financial Standards.

In case of carrying out International Trading of goods or services, whose origin and destination are not Uruguay, you may opt for a fictitious tax regime (Resolution 51/97) where the income tax rate to be paid will be 0.75 %.

The sale of the shares of the Corporation are subject to Non-Resident Income Tax (IRNR) at the rate of 2.4% on the amount of the share purchase agreement.

Practical Operation

Despite the fact that it is possible to acquire a Public Limited Corporation from the moment of its formation, what usually happens in practice is the acquisition of already constituted Corporation without previous activity. This is because the entire setting up process can take more than 90 days to complete. The acquisition of an S.A. already constituted allows to start its activities practically immediately.

The capital of the company can belong in its entirely to one or more shareholders, who can be both natural or legal persons resident or non-resident of Uruguay.

Whether the shares are Registered or Bearer, the final beneficiaries (physical persons) must be notified to the Central Bank of Uruguay in each modification of the ownership of the shares. Said communication is not public in nature, so no person may request information unless a duly justified court order.

The representation of the Company will be in charge of the Board of Directors, which may be made up of one or more natural or legal persons resident or non-resident in Uruguay. The Board of Directors may meet in the country or abroad, with the frequency that is deemed convenient and obligatory when imposed by the statute.

Companies must hold at least one Annual Ordinary Shareholders' Meeting that approves the balance sheet, decides on the destination of the profits and appoints directors, unless in the latter case the statute provides for longer periods for the exercise of the position of director. Shareholders' Assemblies must be held in Uruguay, and shareholders may be represented by proxy.

Scope of application

Uruguayan Public Limited Corporations are an excellent tool for multinational companies to carry out international trading or intermediation operations between countries. The great advantage is the low level of income tax it has and the high degree of recognition before other tax authorities to justify its operations.

It is also useful for activities such as making collections and payments abroad originated for different reasons, such as provision of services, counseling, commissions, etc., in order to concentrate the profits in the Corporation and reduce the taxes to be paid.

With regard to intellectual property, Public Limited Corporations are an excellent way to maintain ownership of a trademark or patent that is licensed to different companies, concentrating royalties on the Public Limited Corporation in order to reduce the tax that is paid on them.

In the case of investments in assets, either in real estate abroad or in financial investment portfolios, Public Limited Corporations are a great tool to reduce or defer taxes in the country of origin in a legal way.

In order to avoid inheritance rules, the bearer shares of the Stock Company allow it to be the owner of a property, for example, and transfer it freely. Also, since there is no hereditary transmission, inheritance tax is avoided. A similar effect can be achieved in the event of dissolution of the conjugal partnership.

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