SAS vs SA vs trust in Uruguay: which one is best for you

The Uruguayan Corporation (Sociedad Anónima) has a very formal and relatively long incorporation process, which takes between 3 and 5 months, and requires a minimum of 2 shareholders, either individuals or legal entities, domestic or foreign.

To speed up the process, it is common in Uruguay to acquire pre-incorporated companies that have no activity and have not yet held their first shareholders’ meeting nor appointed the first Board of Directors. In that case, the transfer of shares and the appointment of the First Board of Directors takes about two weeks, with the limitation regarding the company name. However, in Uruguay companies can register a “trade name”, which will be the one used commercially, including on invoices (as long as the legal name appears somewhere). It is also possible to amend the bylaws to change the legal name, although this is a process with significant cost and takes approximately 3 months.

The Corporation may have a single shareholder and a single Director, who may be the same person, either individual or legal entity, and does not require residence in Uruguay.

The S.A. is not an offshore company, but according to Uruguayan tax regulations, activities, income, and assets located outside Uruguay are, in principle, exempt from taxes in Uruguay.

Main taxes:

Corporate Control Tax (ICOSA). Every Uruguayan S.A. pays a fixed minimum annual tax of approximately USD 700 (ICOSA) from the moment of its incorporation, even if it has no activity. This tax is paid monthly (approx. USD 60/month).

Corporate Income Tax (IRAE). The income tax is called IRAE, with a rate of 25%, calculated on net income after deducting all operating and non-operating expenses.

Income from services provided abroad, including commissions, to non-Uruguayan residents, or investments made outside Uruguay, are in principle not taxed by IRAE in Uruguay. Likewise, for the calculation of taxable net income, only expenses incurred in Uruguay and those abroad directly linked to the generation of taxable income are deductible as costs.

In the case of international trading operations (purchase and sale outside Uruguay, without the physical entry of the product into the country), companies are taxed IRAE (25%) on a deemed base equivalent to 3% of the gross margin (sale price minus cost of goods). That is, if the S.A. buys a product at 80 and sells it at 100, it will pay 0.75% of the gross margin; in the example: (100 – 80) × 0.25 × 0.03 = 0.15 of tax.

Another relevant consideration is that once the company begins to generate taxable income (even if the effective rate is low, as in the case of offshore trading), it must make monthly advance payments of income tax of approximately USD 180. At year-end, once the final calculations are made, these advances are considered final payments, even if the determined tax is lower. In this sense, the advances operate as a minimum income tax.

In the case of a company that will not have operations in Uruguay, even if it receives profits from abroad (interest, dividends) or income from services provided entirely outside Uruguay and to non-Uruguayan residents, it will not pay either advance payments or income tax.

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Dividend Tax (ID). On the other hand, the distribution of dividends derived from taxed income is subject to Dividend Tax (ID), at a rate of 7% on distributed dividends. Profits from abroad that are not taxed by IRAE are also not subject to ID. If the recipient of the profits is a foreign resident, even if they have not been taxed by IRAE, they will still be subject to the 7% rate as long as it can be credited against taxes payable in their country of tax residence.

In the case of international trading, since the taxable income is equivalent to 3% of the gross margin, only that 3% is subject to ID. In the previous example, where the taxable income is 0.6 (3% of 20), 7% will be paid on 0.6, that is 0.042, equivalent to 0.21% of the gross margin.

The total between IRAE and Dividend Tax for international trading amounts to approximately 0.96% of the gross margin.

Net Worth Tax (IP). Another tax to consider is Net Worth Tax (IP), which taxes assets located in the country, minus liabilities in Uruguay, at a rate of 1.5%. The balance available in a Uruguayan bank account, for example, constitutes an asset subject to IP; however, it is easy to reduce the taxable base by lowering the bank balance at the fiscal year-end.

Assets located abroad (equity participations, real estate, bank accounts, etc.) are not subject to this tax.

Value Added Tax (VAT). Domestic sales of goods and services are subject to VAT, with companies acting as withholding agents. Companies invoice adding 22% VAT and, at the same time, pay VAT on local purchases. Monthly, they must remit to the tax authority the difference between VAT charged on sales and VAT paid on purchases.

Exports and operations carried out outside the country are not subject to VAT.

The Uruguayan company may have bank accounts anywhere in the world and participate in other companies in any country.

The Uruguayan S.A. must file annual financial statements within 4 months following the end of the fiscal year, which can be set at the end of any month (determined at the time of incorporation), and settle the corresponding taxes.

Iruleguy Asociados will be responsible for making monthly advance payments of ICOSA, IP, VAT, and IRAE (when applicable), as well as preparing financial statements and annual tax filings for these taxes.

Other legal obligations of Uruguayan companies: register all Directors with the Public Registry and tax authorities, and also register the names of shareholders and beneficial owners with the Central Bank of Uruguay. This information may only be disclosed by court order or upon a justified request from the DGI.

The Uruguayan company is also required to use electronic invoicing. We include the costs associated with registration and use of electronic invoicing.

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