One of the topics that was expected with the greatest expectation in the speech of the president of Uruguay, Luis Lacalle Pou, in Parliament this year, was the announcement of the “tax relief” that he promised to implement in his government. This plan’s main objective is a reduction in the tax burden of citizens and small businesses, and focuses on three main aspects: changes in the Personal Income Tax (IRPF), in the Income Tax Social Security (IASS) and the fictitious Income Tax on Economic Activities (IRAE) paid by micro and small businesses.
Regarding the changes in the IRPF, the objective is that people can deduct a greater amount of their income to reduce the amount to pay in this tax. Personal income tax is a tax that It is applied on the income of each personand is charged based on your income and of his personal situation.
The changes in personal income tax include an increase in the amount that people can deduct from your income. Until now, those with net income of up to 60,500 pesos could deduct up to 10% of what they had to pay. With the change, this strip will be able to deduct up to 14% of your total payment.
In addition, the deductions that can be made for having dependent minor children. Before, for each child, a person could deduct up to 73,580 pesos per year (13 BPC), and with the change they will be able to deduct up to 113,200 pesos per year (20 BPC).
Another important change in the IRPF has to do with the deductions for the payment of a mortgage loan. Until now, the purchased home had to have a value of less than $109,000, but with the change it could have gone up to $137,500. However, the deduction ceiling continues to be 203,760 pesos per year.
The last announcement about the IRPF is related to the rental of housing, which people can deduct from the tax payment. This deduction percentage will increase from 6% to 8%.
In summary, the changes announced in the IRPF have as their main objective to alleviate the tax burden of citizens and allow them a greater deduction from their income to reduce the amount to be paid in this tax. However, experts believe that these changes will not have a big impact on the country’s fiscal deficit.
The changes in the IASS
The operation of the IASS is similar to that of the Personal Income Tax (IRPF), since income bands are established that determine the amount to be paid. In this way, the more you earn, the more you contribute. Currently, those who receive income of 45,280 pesos or less do not have to pay this tax. However, the rate increases as income is higher, reaching 30% for those who earn more than 283,001 pesos.
The modification announced by the president implies an increase in the minimum non-taxable amount of the IASS, going from 8 to 9 BPC. This means that the income threshold below which this tax must not be paid will rise from 45,280 to 50,940 pesos.
Likewise, as in the case of personal income tax, taxpayers who pay rent may deduct up to 8% of this tax. This measure seeks to alleviate the tax burden for those who rent a home and who, in many cases, spend a significant part of their income for this purpose.
IRAE discounts for micro and small businesses
The President of Uruguay, Luis Lacalle Pou, has presented a proposal to modify the Income Tax on Economic Activities (IRAE) paid by micro and small businesses in the country. Currently, this tax is charged on a fixed basis, but the president’s initiative aims to implement a scheme of progressive bands.
Until now, small businesses with pure labor or capital income pay a flat rate of 12% when their annual revenue is less than two million indexed units, which is equivalent to about $285,000. If your revenue is between two and three million indexed units, the rate increases to 15%; between three and four million UI, at 18%, and if they exceed that amount, they pay 25%.
With the change proposed by the president, the rates will stop being fixed and will be established as progressive. The difference is that, in the case of fixed rates, no matter how much the range is exceeded, the corresponding percentage of the total is automatically taxed. On the other hand, with the progressive band scheme, the percentage of fictitious IRAE must be taxed from each band: up to two million UI, 12%; between two and three million IU, 15%; and from three million IU, 18%.
For example, if a company invoices 2.5 million UI, with the change proposed by Lacalle Pou it will pay a rate of 12% up to two million and a rate of 15% for the remaining half a million.
The president’s proposal also contemplates two other changes that affect small and medium-sized companies. Currently, when a small company obtains an annual income of more than 305,000 UI, it automatically leaves its category and enters the general tax regime for at least two years. However, the change presented by Lacalle Pou implies that these companies that are exceeded will return to their category in the following year.
On the other hand, the agricultural sector will also be affected by the change proposed by the government. Currently, producers in this sector who have less than two million UI of profit can choose between paying the Tax on the Alienation of Agricultural Goods or the IRAE. With the initiative presented, this amount will rise to two and a half million UI.
