Uruguay Aims To Attract Foreign Investors With Radical Tax Reform

by Leroy Baker, Tax-News.com, New York

10 November 2005

Uruguay is set to undertake a wholesale reform of its tax system in an effort to increase fiscal transparency and foreign investment, while also shutting the door to those using the country as a "tax haven".

According to proposals outlined by Economy Minister Danilo Astori on the Finance Ministry's website, the reforms are designed to bring about a tax system that is based upon "equality, efficiency, simplicity, sufficiency and that stimulates productive investment". The reform plans will be sent to Congress in March, and the new structure could be in place by 2007.

One of the major goals of the reforms is the elimination of an offshore vehicle known as a SAFI, which the government acknowledged has been the subject of much international criticism for promoting "unhealthy fiscal practices" and for its use by criminal elements as a means to evade taxes and launder money.

Under other important alterations, 15 taxes which generate low levels of revenue and which merely serve to distort economic activity will be abolished. Meanwhile, value added tax, which accounts for just over half of all revenues collected by the Uruguayan government, will be reduced. This will entail a cut in the basic rate of VAT to 21% from 25% and a reduction in the lower rate of VAT to 10% from 17%.

Corporate income taxes would also fall under the changes, to 25% from 30%, while a progressive income tax will be gradually introduced.

In a bid to attract foreign investment, the government has proposed that income taxes for non-residents will drop to 10% from 30%, while corporate and personal income will in future be taxed on a territorial basis.

The government has indicated that bank secrecy laws will remain in place, but it is considering incentives for those who are prepared to waive confidentiality during investigations.

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