Government plans taxing overseas assets of residents in Uruguay
Uruguay is planning to tax deposits and other assets held overseas by residents in the country. The bill which has been drafted and promises to be controversial is expected to be sent for legislative consideration in coming days announced Economy minister Fernando Lorenzo.
According to the draft all income generated overseas from deposits held by residents in Uruguay as well as those originated in assets or investments from non resident companies or participations in non resident companies by residents in Uruguay will be liable to Uruguayan income and wealth taxes.
“This means that once the bill is approved residents in Uruguay will have to pay income and wealth taxes on overseas income and from their share of assets in financial or other investments overseas”, said Lorenzo.
According to information from the Bank for International Settlements Uruguayan residents have 8.18 billion US dollars deposited overseas.
But the bill goes even further and also proposes changes to the banking secret accounts system in Uruguay.
Lorenzo said that information on bank accounts and deposits in Uruguay will remain protected by law: only under a formal request approved by a Judge can the information be revealed.
However the reasons or conditions to request lifting such confidential information will be extended in such a way that “the tax revenue office working with reasonably founded information or claims can have access to the taxpayers’ accounts once a Judge decides affirmatively to such a request”.
The introduction of reforms to tax rules and current banking legislation protecting depositors’ confidentiality, which should facilitate combating tax evasion or elusion and levying income from deposits overseas held by residents in Uruguay has been linked to the international agreement on tax standards sponsored by the Organization for Economic Cooperation and Development, OECD.
OECD is involved in a world campaign to promote transparency and exchange of information for tax purposes and publishes black and grey list of countries considered tax havens or financial centres, according to the degree of collaboration with these proposals.
However the Uruguayan government initiative promises to be controversial since not all parties believe Uruguay should abide by the new rules.
“Uruguay is accepting pressure from rich countries and the government is not defending the interests of Uruguayans”, said Conservative leader Pedro Bordaberry who added that rich countries such as the United States and Argentina “are interested in having information on our holdings and on our wealth”.
“This is crucial for Uruguay since as a small country it is a net importer of capital. Very few Uruguayans have holdings overseas but many foreigners have their earnings here in Uruguay, and we have always stated that what ever is here, is taxed here”.
Bordaberry added that “we are admitting that they have won us, we are accepting pressure from rich countries which has increased significantly lately because of the international crisis”.
He said Uruguay should have stood strongly and fight for at least “tax credits” which means foreign residents in Uruguay are not double taxed.
“This government has handed over fiscal sovereignty to the pressure of rich countries”, said Bordaberry. “OK, I’m turning in has been the attitude of the last five years of the allegedly ‘Socialist government’ that promised to defend sovereignty and the poor from the rich”.
A less political and more technical criticism came from a tax expert and former Deputy Cabinet Chief Leonardo Costa who points out the bill is not clear as to whether it will be criminal or civil courts that will decide on lifting bank deposits’ information.
“Furthermore Uruguay lacks specific courts for tax issues and will be at the mercy of the officials from the Revenue Office and their interpretation of regulations, putting an unbearable pressure on the magistrates who don’t have the necessary technical support”, underlined Costa.
“According to the draft I have read tax payers are left quite exposed and with limited rights. This is a very delicate terrain, since the country has a long tradition of protecting people’s rights (human, civil, fiscal) and the only purpose should not be to have us out of the OECD grey list”, said Leonardo Costa.
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Our family just arrived 2 months ago, ready to make UY home....unless.................
We will wait now to see if this new law in fact is passed and exactly what it says before coming down to Uruguay. Sad to see this happen to Uruguay and its people.
Why is it that politiicians and governments seem incapable of learning from history and the mistakes made by other governments?
Unfortunately, much of what the press articles and blogs have been saying is much 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 ten days ago. That draft is still a work in progress. 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: Last Friday, May 28th, 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 1st, 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. The likelihood is that on income tax (on
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