With the advent of the end of the calendar year, it may be of interest to remember that, if as of December 31, 2021, the entities included in the IRAE had certain categories of liabilities with foreign individuals or legal entities that do not act in the country through a permanent establishment, they must practice the withholding of the Wealth Tax – hereinafter, “IPAT” – on said balances. Below are some of the most frequent questions that these “withholdings” – in quotation marks, given that in this hypothesis there is no circulation of money from which to deduct the tax, a fundamental aspect for appointing withholding agents – they raise, with their corresponding responses.
1. On what concepts should it be retained?
The items subject to withholding are defined in negative form: They include all those other than balances of derivative financial instruments, balances of prices of imports of goods, loans and deposits of foreign individuals or legal entities domiciled abroad. A way enunciative, it can be said that the most common items on which the IPAT is withheld are the following liabilities:
- For services – for example, for fees or commissions-;
- Dividends payable; Y
- Customer advances; among others.
The definition of “import price balance” includes debts for the acquisition of goods located:
to) Outside the Republic.
b) In customs areas, customs warehouses, port customs areas and free zones.
2. Why is the withholding carried out as of December 31, regardless of the closing date of the entity included in the IRAE?
The reason for this lies in the fact that Uruguayan tax regulations are based on the assumption that foreign individuals and entities (IPAT taxpayers) lack sufficient accounting, which is why they must necessarily determine their taxes in Uruguay at the end of each year. civil. Therefore, the closing date of the withholding agent is irrelevant.
In fact, the foregoing implies that, when the withholding agent has a closing date other than December 31, he must incur an additional effort in preparing a balance at the end of the calendar year with the duly quantified liabilities in order to carry out the withholdings. that correspond.
3. Are free zone users withholding agents for this tax?
Yes, because they qualify as entities included in the IRAE. However, it should be borne in mind that Decree 311/005 stipulates that debts derived from the following activities will be exempt from IPAT withholding:
- Royalties or leases of industrial, commercial or scientific equipment;
- Technical services; Y
- Copyright.
4. At what rate should it be withheld?
We must distinguish who is the retained:
to) If it is a person other than a natural person, the proportional rate of 1.5% must be applied. If said person is in a low or no tax jurisdiction (BONT), a 3% rate applies.
b) In the case of a natural person, progressive aliquots are applied, but less onerous than those applicable to legal persons. Take into consideration that for individuals, the non-taxable minimum to carry out the withholding should be considered, which in 2020 amounted to UYU 4,937,000 (as of the date of publication of this article, the updated value for 2021 is not yet available).
5. If the foreign person is a tax resident in a jurisdiction with which Uruguay signed an agreement to avoid double taxation (CDI), should withholding still apply?
Although the text of each CDI signed by Uruguay must be taken into account to determine whether or not the tax should be withheld, the article that regulates the taxation of equity of the OECD model for the preparation of CDIs (document that has served as the basis for the vast majority of these treaties) grants, with some exceptions, the exclusive power to the State of residence to encumber the patrimony. This would imply that Uruguay (the source State) should not withhold the tax if exclusive power is granted to the State of residence to subject the assets to tax.
Final comment
These withholdings can be avoided by canceling the liabilities subject to withholding before December 31st. For this reason, it is especially important that IRAE taxpayers review their liability structure in order to reduce the fiscal costs that these withholdings entail, since in most cases they cannot be transferred to taxpayers located abroad. .
