September 14, 2018 Uruguay's Executive Power issues regulations on the taxation of foreign entities' income from services rendered by electronic means The Decree offers much needed guidance on the taxation of foreign entities' income and the provision of digital services. Taxpayers should ensure that they are in compliance with the Decree. Uruguay's Executive Power has issued regulations (Decree No. 144/018) on the taxation of foreign entities' income from services rendered directly through the internet, technological platforms and computer applications (e.g., streaming services) as set forth in Accountability Law No. 19,535. The Decree also contains regulations on the taxation of foreign entities' income from "mediation" and "intermediation" in the provision of services (e.g., ridesharing, short-term lodging). Services rendered directly through the internet The Decree's application is restricted to audiovisual services rendered directly through the internet. These services will be considered entirely Uruguayan-sourced, as long as the acquirer is located in Uruguayan territory. Additionally, the Decree will treat the service acquirer as located in Uruguayan territory when the IP (Internet Protocol) address of the device used to contract the service, or the billing address, is located in Uruguay. In the case of continuous services (e.g., subscriptions), the determination of the acquirer's location must be performed at the time the service is contracted. If the IP or billing address cannot be verified, the acquirer will be deemed as located in Uruguay whenever the service is paid for by electronic means that are administered from Uruguay (e.g., electronic currency, credit or debit cards, bank transfers). The Decree does not apply to income derived from publicity, propaganda and technical services (including distant learning), even if rendered through the internet. For nonresident income tax (NRIT) and value added tax (VAT), the Decree will treat certain legal entities as withholding agents (e.g., Uruguayan corporate income taxpayers, state and local governments and others) responsible for collecting the NRIT or VAT on payments or credits for electronic services starting July 1, 2018. Intermediation and mediation activities The Decree defines "intermediation and mediation" activities as transactions that imply a direct or indirect intervention between the demand and offering of services (i.e., acting as an intermediator or mediator between the service provider and the acquirer of the services). The Decree defines "intermediation" services as services that are automated, require minimum human intervention and are not available outside of an application or similar software. To determine whether the service provider is local, the Decree establishes that the provider will have to verify if the main business (i.e., house rental, passenger transport) is located in Uruguay. To determine whether the acquirer is local, the location of the IP address of the device used for contracting the main service will have to be considered. If the provider's address or acquirer's IP address cannot be verified, the Decree will treat the acquirer as located in Uruguay whenever the service is paid by electronic means administered from Uruguay. For mediation and intermediation activities, the Decree suspends the withholding obligations with respect to the NRIT and VAT. These provisions will be applicable exclusively when such activities are performed by nonresident entities that do not have a permanent establishment in Uruguay. Changes to the formal regime in force In addition to the Decree, the Executive Power issued DGI Resolution No. 6,409/2018, which eliminates the requirement for foreign entities to appoint a Uruguayan-resident representative if all of their Uruguayan-sourced income is derived from the above-mentioned activities. However, foreign entities are still required to register a Uruguayan domicile. The Resolution establishes exceptions to the general documentation issuance regime. Under the exceptions, documents issued by nonresident companies, which exclusively perform the above-described activities, will be considered as valid as long as they include the identification of the user and the amount generated. Foreign entities will have to report the VAT imposed on the bill amount to users of the digital services so the users can deduct the VAT on their VAT returns. For income that has not been subject to withholding, the Resolution requires the taxes generated from January 1, 2018, to June 30, 2018, to be paid before the deadline in May 2019. Taxes generated in July, August and September 2018 must be paid before the deadline determined by the tax office, which is October 23, 2018, or October 25, 2018 (depending on the type of taxpayer). ———————————————
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