Uruguay: How the New Tax Holiday for Tax Residents Works
In recent years, Uruguay has established itself as one of the leading options for high-net-worth individuals seeking to move their tax residence outside Brazil. Beyond its well-known political and economic stability, the country offers a particularly attractive tax regime for new residents, allowing, in certain cases, an exemption from taxation on foreign-source passive income and capital gains for a period of up to eleven years.
With the recent reform introduced by Law No. 20,446, the Uruguayan regime has become even more sophisticated. It introduces new ways to access the so-called Tax Holiday, as well as mechanisms that allow benefits to be partially extended after the original exemption period ends. Given these changes, understanding the criteria for acquiring tax residence and the conditions for benefiting from the special regime has become essential when designing an international tax plan.
How to Acquire Tax Residence in Uruguay
Broadly speaking, and separately from the Tax Holiday criteria, tax residence in Uruguay may be acquired under three main criteria:
Physical presence: an individual is considered a tax resident of Uruguay if they remain in Uruguayan territory for at least 183 days during the year. Sporadic absences of no more than 30 days are permitted.
Center of economic interests: an individual is considered a tax resident of Uruguay if most of their worldwide income comes from Uruguayan sources.
Center of vital and family interests: an individual is considered a tax resident of Uruguay if their center of vital and family interests is linked to Uruguayan territory. One example is an individual whose spouse and minor children reside in Uruguay.
The Tax Holiday in Uruguay: Features and Requirements
To increase the inflow of foreign capital and stimulate the local economy, Uruguay offers a special tax regime (the “Tax Holiday”) for new tax residents. The benefit consists of an exemption from Personal Income Tax (IRPF) on foreign passive income, particularly dividends, interest and royalties, and on foreign-source capital gains. The exemption lasts 11 years, counting the fiscal year in which residence is obtained and the ten following fiscal years. All income other than foreign passive income remains subject to ordinary taxation under the rules applicable to residents.
To apply for the benefit, the taxpayer must acquire tax residence in Uruguay from January 2026 onwards through one of the following routes:
1) Physical presence in Uruguayan territory for at least 183 days during the year. A taxpayer who acquires residence this way does not need to make any investment, whether in real estate or capital funds, to become eligible for the Tax Holiday.
2) Making one of the investments set out in the legislation:
a real estate investment of at least 12.5 million Indexed Units (UI), approximately USD 2,000,000;
or an investment in certain strategic capital funds that promote research and productive innovation, of at least 625,000 UI (approximately USD 100,000) per year.
In addition, the applicant must meet two further conditions: (i) not having qualified as a tax resident of Uruguay in the 2 years before exercising the option, and (ii) not having previously applied for the Tax Holiday regime.
Once the 11-year period expires, the taxpayer may still choose one of the following alternatives for the taxation of foreign-source passive income:
1) A 50% reduction in the income tax rate on foreign passive income for 5 years. The current rate is 12%, so a discounted rate of 6% applies for 5 years from the expiry of the original Tax Holiday. This option requires one of the following investments:
a real estate investment of at least 6,250,000 UI, approximately USD 1,000,000;
or an investment in certain strategic capital funds that promote research and productive innovation, of at least 625,000 UI (approximately USD 100,000) per year.
2) A fixed annual Personal Income Tax (IRPF) payment of 1,875,000 UI (approximately USD 300,000) for up to 20 years from the expiry of the Tax Holiday. This amount may be reduced to 1,250,000 UI (approximately USD 200,000) if the taxpayer:
remains in Uruguayan territory for at least 183 days per year;
or makes an investment exceeding 45,000,000 UI (approximately USD 7,200,000) aimed at increasing a company’s productive capacity, under the applicable regulations.
Although the Uruguayan regime remains among the most competitive in the world for individuals with significant wealth, the recent reform shows that the legislator sought to balance tax benefits against investments that have a concrete impact on the local economy. The reform created new ways to access and extend the regime, but it also set specific criteria that call for careful analysis before any decision-making.
In this context, a change of tax residence should not be seen as a purely tax-driven measure. The taxpayer’s wealth structure, the nature of the income earned, and their personal and succession goals still need to be assessed for the move to achieve its intended effects with cost-efficiency, legal certainty and effectiveness.
Lorusso & Partners remains at your disposal to assist you with transferring your tax residence to Uruguay, as well as with developing tailored tax, wealth and estate planning strategies.
