Although the Ministry of Economy has not formally proposed the tax increases to Uruguay's Parliament, taxpayers should follow the progress of these potential tax increases and determine how they might be affected if the proposals are enacted.

The Uruguayan Ministry of Economy has announced potential tax increases that would be effective in 2017. The Ministry of Economy has not proposed the tax increases to Uruguay's Parliament.

Corporate income tax measures

The measures would remove the notional employer salary deduction and would only allow a deduction for the real employer's salary (i.e., salaries on which personal income tax is paid). This provision would apply to companies with formal accountancy (i.e., companies that register their transactions in a logbook and calculate their taxes based on what is registered in the logbook).

The measures also would change the rules for deducting accumulated net operating losses (NOLs). Currently, accumulated NOLs are fully deductible for five fiscal years from the date they were generated. The proposal would only allow a deduction for up to 50% of the positive net fiscal result of accumulated NOLS (which means that 50% of the tax generated in the fiscal year would always be paid).

The measures would require personal income tax or non-resident income tax of 7% to be withheld on retained gains (i.e., gains from previous years that were not distributed) obtained more than three years ago as they will be considered distributed earnings, unless they are reinvested.

Companies with formal accountancy that render personal and professional services and currently have profit distributions exempted from tax would be taxed at a 7% rate.

VAT reduction

The measures would reduce the value added tax (VAT) by two percentage points for acquisitions performed through debit card or electronic money instruments. Currently, the general VAT rate is 22% and the reduced rate for certain goods and services is 10%.

Personal income tax

The measures would increase the progressive rates applicable to work income as follows:

Additionally, progressive rates would not apply any more to the deductions allowed for the personal income tax calculation; instead, a fixed rate would apply as follows:

With respect to capital gains for personal income tax purposes, the measures would increase the tax from 3% to 7% in the following cases:

— Interest on long-term deposits (i.e., more than one-year) in Uruguayan pesos and indexed units in local banks and financial institutions
— Interest on corporate bonds or other debt instruments with terms in excess of three years issued by resident entities
— Incomes derived from certificates of participation in financial trusts with periods that exceed three years

The measures would increase from 5% to 7% the tax applicable to interest on short-term deposits (i.e., one-year or less) in local banks and financial institutions in Uruguayan pesos or indexed units without a readjustment clause. If a readjustment clause is included in the agreement with a bank or financial institution, the 7% tax rate would not apply.

Social Security Assistance Tax

The measures would increase the progressive rates applicable to the Social Security Assistance Tax as follows:

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