Regarding the National Budget Law 2025–2029, which was recently approved by the Uruguayan Parliament, the following are the main proposed changes to the Personal Income Tax (IRPF) tax regime concerning foreign-sourced income and the tax holiday.

A few weeks ago, we circulated a preliminary report following the approval of the Bill in the House of Representatives. Subsequently, the Bill underwent some modifications in the Senate and was finally approved. Regarding this matter, the following modifications were basically introduced (which we detail in the general report below):

1. The option to pay IRPF on a deemed basis for capital gains (capital increments) will be applied annually; that is, it is not on a transaction-by-transaction basis.

 2. The option to make a fixed annual IRPF payment of UI 1,875,000 (approximately USD 300,000) for individuals who have not benefited from the Tax Holiday, is subject to regulation by the Executive Branch.

3. Spouses of individuals who have enjoyed the Tax Holiday may apply for the fixed annual IRPF payment regime, paying 15% of the corresponding fixed amount.

The full report, based on the finally approved articles, is provided below.

 

1. FOREIGN INCOME TAX TREATMENT

i. Extension of the source

From 1/1/2026 there will be a significant change in the tax treatment of income obtained abroad by Uruguayan tax residents, since the following income will be considered from Uruguayan sources and therefore under the scope of IRPF:

a) Returns on movable and real estate capital from non-resident entities. This excludes, without limitation, such income derived from the exploitation of royalties, trademarks, patents, goodwill and image rights.

b) Capital increases (capital gains) linked to the assets referred to in the previous paragraph.

Consequently, both capital returns (movable and real estate) and capital increases (e.g.: sale of shares or real estate) generated abroad will be taxed by IRPF at the rate of 12%, except for specific exceptions.

Please note that income derived from derivative financial instruments is also taxed by IRPF.

ii. Determination of income for capital increases

Gains on equity increases (capital gains) will be determined in the original currency, converted to Uruguayan pesos at the exchange rate of the day preceding the sale, and calculated as the difference between the sale price and the acquisition cost, depending on the documentation that the regulation may set forth as valid to demonstrate the cost.

Particular cases:

- Financial assets listed on prestigious exchanges: tax cost to be counted in a future sale will be its trading value as of 31/12/2025 (for those acquired prior to 1/1/2026).

- Unlisted financial assets: regulations may provide criteria similar to the one mentioned above, provided that their value may be reliably determined.

- General fixed amount (non-real estate): option of fixed determination of tax income at an effective rate of 2.4% of the sale price (20% of fixed gain on the sale value, at the rate of 12%).

- Real estate fixed amount: option of fixed determination of income at an effective rate of 1.8% of the sale price (15% of fixed gain on the sale value, at the rate of 12%).

It is stipulated that the option to apply deemed income regimes will be on an annual basis. This means that the convenience of determining income on an actual or deemed basis must be analyzed year by year, considering all transactions for the entire year. It is not on a transaction-by-transaction basis.

iii. Tax credit for taxes paid abroad

Taxpayers of IRPF who have been subject to tax abroad for capital income, may evidence such tax paid abroad against any IRPF generated. The credit to be charged may not exceed the amount of IRPF that corresponds to such income.

Although it is not yet expressly set forth, the regulatory decree is likely to enable as evidence against IRPF any taxes paid abroad in the event of intermediary companies.

iv. Compensation of negative and positive results

From 2026 onwards, negative results from capital increases (e.g., sale of shares) may be compensated with other gains from capital increases or gains from income on movable capital (e.g. dividends and interest) obtained abroad.

v. Rate reduction to 8%

It is provided that the regulation may reduce IRPF rate from 12% to 8% in cases of withholding tax carried out by certain responsible taxpayers residing in Uruguay on capital income obtained abroad.

This withholding will be definitive, releasing the taxpayer from the obligation to submit an affidavit, so that 8% remains as final payment of the tax.

  

2. TAX TRANSPARENCY REGIME

 

From 1/1/2026, a tax transparency regime (income allocation) will be applicable for non-resident companies and Uruguayan companies that are taxpayers of the IRAE due to their legal status.

Therefore, income mentioned in item I) (income of movable and real estate capital, as well as capital increases from abroad), obtained by the aforementioned entities, will be allocated directly to the taxpayers of IRPF, as long as these people are the ultimate beneficial owners of the entities that obtain the aforementioned income.

For this purpose, anyone holding a direct or indirect interest in the company of at least 5% shall be deemed to be the ultimate beneficial owner.

Income to be allocated by the taxpayer shall be deemed accrued at the time they are received by the first entity against which the allocation obligation is verified.

Additionally, the Executive Branch is empowered to demand payments to IRAE taxpayers and non-resident entities whose holders of equity interest are resident individuals, for any tax obligations subject to allocation.

 

3. SIMPLIFIED TAX SYSTEM (FIXED PAYMENT)

 

For those tax residents who obtain capital income from abroad subject to IRPF, and who have not benefited from the Tax Holiday (which will be explained below), the Executive Branch may establish a simplified tax regime. Under this regime, they may opt to pay IRPF only once per year for a fixed amount of UI 1,875,000 (approximately USD 300,000) annually for all their income.

 

4. IMPATRIATE REGIME (TAX HOLIDAY)

 

As a general rule, currently non-resident individuals who acquire the status of tax resident in Uruguay may choose not to tax IRPF for the income of movable capital from abroad for the financial year where change of residence to Uruguayan territory was verified and during the following 10 years, which were originally 5 (Tax Holiday regime)

i. Residents who have already benefited from Tax Holiday

For people who have acquired their status as tax resident in Uruguay before the financial year 2026 and have made use of the Tax Holiday option, it is expressly stated that all the income mentioned in item I), that is, income of movable and real estate capital, as well as capital increases, will be included in this option.

Please note that this option does not apply to income from derivative financial instruments (nor was it under the previous regime).

ii. Tax Holiday from 1/1/2026

People who acquire their status as tax resident in Uruguay from the financial year 2026, may choose to exercise the Tax Holiday option only once, provided that they meet any of the following conditions:

a) Presence in Uruguay: staying in Uruguay for more than 183 days during the calendar year in each financial year.

b) Investment options:

- Investment in real estate with a value greater than UI 12,500,000 (approx. USD 2,000,000), as provided by the regulations, or

- Investment in venture capital funds aimed to finance productive projects, research or innovation applied to production as determined by the Executive Branch, for at least UI 625,000 (approx. USD 100,000) per year.

Likewise, a necessary condition to apply for the regime will be that the individual has not been a tax resident during the two immediately preceding fiscal years and has not previously applied for the Tax Holiday regime.

iii. Extension and Fixed Payment Option

Once the 10-year term of Tax Holiday has been completed, IRPF must be taxed under the general regime. Otherwise, taxpayers may choose between the following alternatives:

a) Extension for 5 years at reduced rate:

An additional benefit for 5 years, with a reduction of 50% of the rate in force at the time of the option (which would currently imply a reduction from a rate of 12% to 6%) for the income mentioned in item I). In order to access this regime, the following are required:

- Investment in real estate as determined by the regulation, for a minimum amount of UI 6,250,000 (approximately USD 1,000,000), or

- Investment in venture capital funds mentioned in the previous item for at least UI 625,000 (approximately USD 100,000) per year.

b) Fixed payment:

This implies paying a fixed amount of IRPF equivalent to UI 1,875,000 (approximately USD 300,000) per year for all the income indicated in item I). This option will be on an annual basis for a period of up to 20 fiscal years after the expiration of the Tax Holiday.

The fixed amount may be reduced to UI 1,250,000 (approximately USD 200,000) in the following scenarios:

- Staying in Uruguay for more than 183 days during the financial year, or

- Investing in a company, aimed at increasing its productive capacity, for a value greater than UI 45,000,000 (approximately USD 7,200,000), according to the conditions determined by the regulations.

Please note that these options (reduced rate and fixed payment) may be exercised only by those individuals who have made use of the Tax Holiday, even by those for whom the term of the original benefit has already expired.

This fixed payment option may also be exercised by the spouses of individuals who have opted for it. They will pay 15% of the aforementioned fixed amounts, as applicable, as their tax.

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