Unfortunately, much of what the press articles and blogs have been saying is more alarming than the reality. It has been said that Uruguay will tax:

• its corporate vehicles’ offshore assets
• foreign residents’ assets
• foreign residents’ income

That is incorrect.

The problem was originated because a draft of a proposed change to a tax law was leaked.  A different, adjusted draft, was finally prepared.  And that draft is still a work in progress, and is being adjusted in the Senate´s committee.  And the proposed change only aims to tax the money that Uruguayans have abroad, not foreigners who come to Uruguay.

Here’s the exact situation of where the issue stands on the three supposed taxes:

Taxes on corporate vehicles’ offshore assets: On May 28^th, the Ministry of Finance, where the bill proposal is being discussed, issued an official statement clarifying one issue of the proposed bill: that there will be no new taxes on Uruguayan companies, and that their offshore assets will not be taxed.  Explicitly: that nothing will change for Uruguayan corporate vehicles.  So, Uruguay remains an offshore tax free jurisdiction.

Taxes on foreign residents’ assets: It has been made clear from the start that assets owned abroad by foreign residents in Uruguay will not be taxed at all.  This was never in doubt.  This is only for citizens (at a very small scale; and remember that this asset tax is gradually being phased out since 2007, and will disappear by 2017).

Taxes on foreign residents’ income:

• Some types of income (not all) generated abroad could be taxed.  But the aim of the law is to tax the money that Uruguayans have abroad, not foreigners who come to Uruguay.
• The Ministry of Finance issued a second statement on June 1^st, clarifying that the law will in no way jeopardize the country’s policy of attracting foreigners to relocate in Uruguay.  And that their income will not be taxed or double taxed.
• The likelihood is that on income tax the tax will be circumscribed to Uruguayan citizens, and the government is considering adjusting the text of the bill, possibly to grant tax credits, so no one is taxed twice.
• And remember, it would only be on some types of income: interest on deposits and dividends.  So, any other type: salary, capital gains on sale of shares or property, pensions, lease, income, etc. are all excluded.

Even if he is correct, I still think the proposed law is a bad idea and another step down the slippery slope…

But there is a catch:  directors of corporations cannot participate in the BPS connected health insurance plans, even though they pay into BPS.  So much for socialist fairness.  Directors have to pay for private insurance–what a great way to encourage new business in Uruguay.

So, even though the owner/director pays into BPS for himself and his employees, he is barred from benefiting.  I wonder who thought this idea up:  Larry, Curly or Moe (or maybe Shemp or Curly Joe)…

However, there is a way out.  You can set up an Uruguay domestic company and then hire nominee corporate directors from outside the country.  Those directors can then give you a total power of attorney to operate the company, bank accounts etc, as an EMPLOYEE, and thus eligible for health insurance.

Another way is to set up an unipersonal, a sole proprietorship, but that has other issues.

This is one more example of why I say I love living in Uruguay but hate doing business here.  Sometimes I think the government is trying to intentionally keep Uruguay poor…

As a normal part of our  business we open financial accounts with various institutions around the world.  Mostl of them require a notarized account opening document or signature card.  In most places, even including the two islands on which I lived in the Caribbean, this is a piece of cake–here it is an indigestible lump of something I prefer not to describe in a family blog.

One cannot simply get one’s signature notarized here.  The Government won’t allow.  Instead, one must jump through a series of ever more expensive and difficult hoops in order to accomplish this erstwhile simple task.

We have been trying to open an account at a Bank in Poland to more easily load a new Visa card product we are getting ready to offer.  ALL we need to complete it is to have two signatures notarized.  But it CAN’T be done here.  Escibranos, the local name for civil law notaries (although the law isn’t very civil at all) can’t just notarize a signature, they have to notarize the whole document.

And God-forbid that the document is in any language other than Spanish (like Polish and English maybe), the document has to be translated into Spanish.  This means that I have the privilege of paying a public translator to translate an English-Polish bank account opening form into Spanish.  I don’t yet know if they translate BOTH the English and the Polish–(probably they do so they can charge twice for the same translation).

Then the document can be notarized.

End of story; right?  Wrong!  Because Uruguay is one of a handfull of countries that to not subscribe the the International Convention on the Legalisation of Documents, Uruguay does not issue Apostilles, which are basically an internationally recognized super-notarization.  Some other countries that do not have the Apostille include some important business centers as North Korea, Cuba, and Libya.

This means that the document has to be legalized before it can be sent to Poland.

So, after it is translated, and notarized, it must be sent to a court for review.

But we’re still not finished!  Then it goes to the Ministry of Foreign Affairs to finally be legalized.

But we’re not done yet.  Now, it has to be taken to the Polish Embassy in Buenos Aires (because the Polish Embassy here is now closed), after which it can finally be sent to the Polish Bank.

Easy:  US$500 and a month later, we have the document….

EXCEPT that the Court didn’t like two or three words in the notarization, so we had to start the process all over again.

NB:  For those of you who might think that I missed the obvious solution of going to the US Embassy to get the signatures notarized, I didn’t.  The Yankee Embassy will ONLY notarize documents intended for the US.  And espite the grandiose ambitions of King Georeg II, Poland is not yet considered a part of the US (except in some parts of Chicago–or maybe it is the other way around? Chicago is considered a part of Poland…).

For those who want to know more about the Apostille, see:  http://www.hcch.net/index_en.php?act=conventions.status&cid=41#nonmem

Attorney Mark Teuten graciously volunteered to do the legal research for us and provide us with a definitive answer:

… article 2 of Decree No. 119/004, which regulates Law No. 16.340 states that household goods, in reasonable quantities according to the opinion of the Custom’s authorities, can be brought in free of tax within 6 months of the grant of permanent residence.

Please note, a vehicle is NOT INCLUDED in the definition of “household goods” and cannot be imported duty-free!

If the law changes, or when the application of the law changes, I will write about it here as quickly as possible.

Mark is the first lawyer to be simultaneously qualified in the UK and in Uruguay. This background means he is uniquely placed to advise clients coming from countries with different legal systems.  He is a British-born attorney and moved to Uruguay in 1990.  His law firm is small, but that means you get hands-on personal service (with which I have been perfectly satisfied).  Mark concentrates on residency, real estate, intellectual property and general business matters.  I highly recommend him. Mark is also the secretary of the British Society, and can sometimes be seen at our Thursday night open house meetings.  http://www.teutenabogados.com

Panama was incredible! It was the most dynamic city I have visited in years. It is clearly replacing Miami as Latin America’s primary financial center. There are more banks in one small barrio in Panama City than there are in Uruguay. More business is done every day in Panama than is done all year in Montevideo. Everywhere I looked new buildings were going up: not little buildings–20 to 40 story concrete and steel towers. Real estate values are soaring. One of my business associates bought office space on Avenida Balboa (Panama’s version of Rambla) a few years ago for US$73 per square meter. Offices in his building are now selling for US$3000 per square meter.

And the Internet was incredible… I think we have more bandwidth in the hotel than in all of Uruguay: a blazingly fast 11 MB in our hotel room.

For me, the best features of Panama were its restaurants. I had fantastic Chinese food, which is impossible to get here, and a surfeit of American junk food including Wendy’s, Kentucky Fried Chicken, Pizza Hut, Bennigan’s, TGI Friday’s, Popeye’s and Hard Rock Cafe.

Panama City is very much like Miami, except that they speak more English in Panama!

Would I like to live there? Am I sorry I moved here?

You’ve got to be kidding! Panama is like one big amusement park/shopping mall: a lot of fun to visit, but I surely would not want to live there!

Panama is hot. Panama is humid. Panama is crowded. Panama is expensive. Panama’s traffic is insane. Panama is increasingly dangerous.

For me Panama is a mirror image of Uruguay. Uruguay is a wonderful place to live, a good place from which to do business, but a terrible place in which to do business. Conversely, Panama is a wonderful place in which to do business, a good place from which to do business, but a challenging place in which to live (especially if you are a gringo).

One of the things I love about living in Uruguay is that I do not stand out in a crowd (except for the fact that I am a fat cripple in a wheelchair)as a gringo. Here, I look like everyone else. Panama caused me to have flashbacks of Costa Rica–Santiago and I were both clearly identifiable as foreigners. That could be that between the two of us we were bigger than any six Panamanians, but I think it is more subtle than that. Panamanians are certainly more friendly than Costa Ricans, but then so are North Koreans. Panamanians are certainly smarter than Costa Ricans, but then so is the average mule. Panamanians show more business savvy than anyone I have met this side of Hong Kong or Taiwan. But, Panama has an edge to it which is hard to define, but indicates to me that it could never be home–that I could never really belong there.

Panama is good for business and I will go back there often. If it was next door to Uruguay I might even work there and live here. But it is 7 hours away by plane and Uruguay is my home Regardless of whether you speak English or Spanish the sentiment is the same: home Sweet home – hogar dulce hogar!

Nevertheless, it is my responsibility to report both the good and the bad, so that you don’t make some of the same mistakes that I have or that I have seen others make.

One of those mistakes is being caught in the language bait-and-switch. This happens when you visit a company or professional firm to discuss doing business with them. The person with whom you meet speaks good English and you have no trouble communicating with him. You leave with the impression that this person will be the one with whom you are working.

The next time you contact them you speak to someone or receive an e-mail from someone who speaks English as badly as I speak Spanish. You get frustrated; especially because you are paying more than local rates in order to deal with English speakers. (This is especially common in larger firms or companies that claim to specialize in dealing with foreigners.) Ultimately the situation deteriorates and then collapses, and you are worse off than when you started, and certainly poorer.

While this has happened to me, it has not had the impact it might on others because I have an office full of bilingual people. But this could be disastrous for you.

My suggestion is that when you consider doing business with a company or firm with an English-speaking “front man”, you find out EXACTLY who will be doing the work for you, and that you insist on meeting that person and speaking with that person, BEFORE you agree to hire them or buy from them. Then, make sure that this is confirmed in writing.

I guarantee you, this piece of advice will save you hours of frustration, and, for those of us who do such things, hundreds less curse words to tell our confessor about… (My confessions usually start out, “Bless me Father, for I have sinned. I have taken the Lord’s name in vain, 250 times, this morning…)

I made so much money from these websites that I am retiring.

After a year-and-a-half of hard labor, they have become so profitable that International Living is buying the entire group from me.  They simply made me an offer I cannot refuse and I took it and I am history.

The trick was to get everyone to pay me for everything we did.  A peso from every taxi driver, a ten spot from every hotel or restaurant listing, a kickback from every realtor or consultant, and of course, huge revenue from Google Ads.  (Not to mention selling mailing lists made from people attending the Thursday night Open House—we had to pay for that food and booze somehow!)  Costa Rica even hired me when I agreed not to trash them as much as I wanted to.  Pure capitalism, and you’ve gotta love it.That was the story I was told by two people yesterday.

At first, I thought they were talking about someone else—then, I realized they were talking about me.

The truth is slightly different.  These websites were started almost by accident—and then they simply grew.  As people asked for more, we tried to give it to them.  Several times we did indeed consider ways to try to make these websites into a business—at least so that they might break even.

But we decided against that.  We decided that the only way to keep what we are doing pure and clean is to continue our practice of foregoing any income from these websites.  To this end, we have even decide to pull the Google Ads and forego the US$57 we have averaged each month in income from them. (I gave the order yesterday.)

Instead, and as you may have noticed, these websites are now being publicly sponsored by our Private Banking company—our real business—which has privately sponsored them all along, and is footing the US$2000 per month we spend promoting Uruguay though them.

Some companies support the Olympics, we choose to support Uruguay—it is as simple as that.

To the best of my knowledge, no one has made any money from these websites or any UruguayLiving sponsored activity or website, except for the Google Ads money and the income from the sale of my book—all of which has been used to support this blog on Living in Uruguay, our Uruguay Information website, our Uruguay News service, and our Uruguay Forum.  This is not, and will not be a commercial operation.  This is a labor of love for my new home, totally supported by the Capital Conservator Group.

If there is anything about our policy that remains unclear, or about which anyone has any question, I urge them to ask me, or the Copperhead or Santiago.  This will undoubtedly be more helpful than asking someone on the bar stool next to you…

The big question is how do we keep our US$80,000 exclusion on earned income without running afoul of Uruguay’s new personal income tax. I wrote about that previously in Avoiding the US/UY tax trap…

As you may know, my “real business” is international finance. Because of this, I have been asked to put together a small seminar for US taxpayers resident in Uruguay to go through the nuts and bolts of dealing with this potential problem. I also plan to talk about the easiest ways to do business in Uruguay without getting bogged down in the bureaucracy.

If you are interested, please send me a PM on the Forum at SociedadSouthron.net, or email me at southron@UruguayLiving.com and let me know what days and times are best for you.

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Uruguay’s new tax rules: understanding what really changes for foreign nationals

On July 1, 2007, Uruguay overhauled its tax legislation. The main change was the creation of personal income tax – for income generated in Uruguay. The purpose of this article is to point out how it affects foreign nationals who live, own property or simply do business in or with the country.

What the new tax rules don’t change

The key thing to keep in mind is that nothing has changed regarding what kind of income or assets Uruguay taxes, from a territorial or geographical point of view. Uruguay will continue taxing only income generated inside Uruguay and assets located inside the country. Thus, for citizens and foreign nationals alike, any type of income obtained from a foreign source, or assets abroad, will remain untouched by the Uruguayan tax collector. A U.S. pension, dividends or capital gains on stock in a Japanese company, interest from a CD in a European bank or real estate in Australia: they all remain untaxed.

What the new tax rules change

The new legislation basically reintroduces personal income tax in Uruguay, which had been eliminated in 1974. The way the new income tax rules apply (remember: only on income generated by an activity in Uruguay) is split into work-related income and capital-related income.

Work-related income comprises any salary, fees and commissions generated by an activity (a job) inside Uruguay. This type of income is taxed at progressive rates between 10 and 25%.

Capital-related income is taxed at a flat 12% rate (with some exceptions, in which the rate is lower). What is capital-related income?

a. Rental income: Anyone (locals and foreign nationals alike) who owns property in Uruguay and rents it out will have that rental income taxed at 12% (after allowed deductions, such as municipality taxes on real estate, the rate can effectively be lowered by a few percentage points).

b. Interest on bank deposits in a Uruguayan bank in foreign currency is taxed at the 12% rate, and deposits in local currency are taxed at 3% or 5%, depending on the period of time they are deposited for.

c. Yields on Uruguayan government bonds are not taxed. Corporate bond yields issued by Uruguayan companies are –in general terms- taxed at 3%.

d. Capital gains on the sale of an asset located in Uruguay (such as a property in the country): 12% is paid on the spread between the sale price and the original purchase price (which is adjusted for inflation and improvements on the property). For those assets bought before the new tax laws went into effect (July 1, 2007), one can choose to pay a flat 1.8% tax on the sale price, instead of the 12% on the purchase-sale spread.

e. Dividends paid out by a Uruguayan company are taxed at 7% (on top of the company’s own 25% corporate income tax, a topic that exceeds the purpose of this article).

The special case of income generated by a foreign company or individual from doing business with Uruguayan companies from abroad

When providing a service to a Uruguayan company from abroad, such as technical services, the source of the income is deemed Uruguayan for tax purposes, and is taxed at a rate of 12%.

The other taxes

The main change in Uruguay tax law, again, is on income tax. But there are also minor changes in the other two main taxes that the country has: value added tax (Impuesto al Valor Agregado or IVA) and the tax on assets inside Uruguay (Impuesto al Patrimonio or IP).

Value added tax, the sales tax that one pays when paying for a meal at a restaurant or buying an item in a supermarket, is lowered from 23% to 22% (and, for some basic goods and medicines, is lowered from 14% to 10%).

Assets inside Uruguay are taxed, once a year, at progressive rates that start at 0.7% and reach 2.75% of the “fiscal” (official) value of the asset. For all practical purposes, after allowing for the minimum non-taxable portion of assets in Uruguay, and considering that the “fiscal” value of a property is usually substantially lower than its market value, this tax is not as harmful as it sounds (and on assets related to some activities, such as farming, the tax does not even apply). And the good news is that the new law establishes that this tax will be gradually phased out, and virtually eliminated, by 2017.

© Juan Federico Fischer, LVM Abogados & Consultores. jfischer@lvm.com.uy, www.lvm.com.uy & www.uruguayinvest.com

This is a full-sized, 8½ x 11 inch paper back, with color covers and black-and-white inside. Because of its large size is much easier to read than the pocket-sized edition produced locally.  The price for the full-size paperback is the same as the retail price for the e-book, US$30. For payment, lulu.com accepts Visa, MasterCard, Discover, American Express and PayPal.

One other note: there was a Yankee Naval vessel holding station a few kilometers offshore for my house–obviously they were here in connection with that politicians visit.  I didn’t mind the ship that much, until I noticed that as I went from room to room its weapons readjusted accordingly…