All about tax residency in Uruguay and Argentina – tax benefits and options

On the Tax-Free.today blog, we have already spoken about the ´183-day rule´ and how to transfer fiscal residency in a general sense.

In today’s article Maria Laura, our partner in Argentina, will explain the specific case of Argentina in more detail, and we will also see how to transfer residency to Uruguay and the advantages of becoming a Uruguayan resident.

Before we begin you may be asking yourself “but why should I stop being a resident in Argentina?”

In fact, Argentina can actually be an interesting option tax-wise, especially for foreigners and those who do not depend on the local economy.

You may not know that in Argentina, foreigners do not become tax residents until after the first 12 months. Furthermore, if your company has sent you abroad to work in Argentina for less than 5 years, you will not be considered a tax resident.

Of course, Argentina is a country with a lot to offer, both in terms of things to see and things to do.

However, for normal residents, there are many reasons for which they may have tired of continuing to maintain the Argentine state machinery.

The most common reason that our Argentine clients give for wanting to terminate their residency there is insecurity, followed by bureaucracy, then taxes.

In Argentina, the entrepreneur faces many taxes and a lot of bureaucracy. The tax burden is high (compared to the rest of Latin America), meaning that after taxation, many receive much less of their potential earnings than they require.

Furthermore, the economy is not stable enough, meaning that you have to be aware that the rules of the game do not change, and suddenly you could lose everything.

But rather than focus on the reasons why someone may want to leave Argentina or not, let’s move on to the main point of this article. We leave you with Maria Laura´s article on how to stop being a tax resident in Argentina…

Definition of tax residency in Argentina

According to the current Argentine tax regulations, Argentine tax residents are considered to be anyone of Argentine nationality; whether they be native or naturalized.

The exception to this is those (Argentine or not) who have lost their residential status, as well as foreigners who have remained in the country for 12 months or less, regardless of whether they have obtained permanent residence.

Situations which lead to a loss of Argentine residency

There are two ways to lose your Argentine residential status:

When those who have permanent Argentine residency obtain permanent residency in a foreign State, they lose their Argentine residency.

You may well be wondering what is recognised as evidence of having acquired ´permanent residency´ in another country.

Permanent residency can be verified with a valid document, depending on why you are a resident (whether you requested to become a resident, or if it’s based on how much time you have spent outside the country).

For this, AFIP requires you to present your Residency Certificate which is issued by the Foreign State authority (this is processed in each country). If it is a case of how much time you spent outside of the country, you will need to present either your passport, some form of consular certification, or another document which proves you left and remained outside of the country.

Please note that if the documents you are submitting are written in a foreign language, they need to be accompanied by a corresponding translation carried out by a public translator whose signature has been endorsed by the Public Association of Translators. If the documents are to be sent within the scope of countries which are signatory to the Hague Convention, the relevant Apostille should be attached to the translations.

It is also important to remember that the rules of taxation are not clear in Argentina. Often when you submit documents to the Argentinian Tax Office (AFIP), they will ask for things which are not listed in the laws. It’s impossible to measure the number of times that they have asked for documentation which is not actually required.

The consulate of the foreign country where the person is residing must notify the Argentine Tax Authorities that they are there. Or, in the event that the person goes to Argentina, they can submit any relevant documentation themselves, either directly to the authorities or online. A stamped passport is also recognised as proof.

To put it more concisely, a Residency Certificate from the consulate of the other country provides proof of a permanent residential status, and if a translation of this is required, it must be certified and, if needed, accompanied by an Apostille.

It’s worth pointing out that the process of ending tax residency can be done online, by requesting AFIP to step you down as a taxpayer of  income tax (IIGG) -it’s not necessary to step down the Unique Tax Identification Key (CUIT)-. Any documentation which proves either having obtained permanent residency in another country (or absence from the country) and, if applicable, tax residency, should be kept.

If applicable, tax affidavits (DDJJs) relating to income taxes for the period from the 1st of January, to the next month in which permanent residency was obtained abroad, must be filed (or the 12 months spent outside of the country must be verified).

Now onto the second way of losing tax residency in Argentina:

In the instance that residency in another country has not been obtained, the second way to lose Argentine tax residency is to remain outside of the country for a period of 12 months.

In this case, you can spend up to 90 days (in a row, or throughout the year) in the country for each 12 month period, and still lose your residency.

Those who spend prolonged periods of time out of the country for reasons which do not imply the intention to stay abroad on a regular basis, would have to justify this decision before the Federal Administration of Public Income (AFIP).

The loss of Argentine residency comes into effect from the first day of the month immediately following that in which permanent residency was obtained in a foreign state, or that following the completion of the 12 month period.

In any case, keep in mind that remaining abroad for more than 12 months does not automatically lead to a loss of residency. Until you complete the process, that is, until you inform the AFIP of your departure, you will continue to pay taxes in Argentina.

If you have been a taxpayer, the AFIP requires that all necessary documents have been submitted and all payments are up to date.

Until the AFIP have notified that your new residency has been accepted, you will have to continue to pay taxes in Argentina. In the case that you are also paying taxes in another country which has an agreement with Argentina, it will be necessary to assert a claim to your paid taxes in order to avoid double taxation.

In the instance that you face the Argentina Tax Authorities after losing your residency

It’s important to clarify that if you have lost your residential status, from the day that this change takes place, you will be a foreign beneficiary with respect to any profits made off of Argentine sources thereafter.

Income from Argentine sources covers anything which come from assets located or used to economic ends in the Republic, as well as any activity carried out in the national territory which is likely to produce profits, without taking into account the nationality, domicile, or residence of the owner or any parties involved in the operations, or the place in which any contracts are completed.

[There is little to be done in the event that you have immovable assets in Argentina. However, with regards to your company, the best thing you can do once you have ceased to be a tax resident in Argentina, is to start operating through a foreign company (in Tax-free.today’s Company Encyclopedia you can find the best location for your company).

If you need any help with moving your company, you can book a consultation with us.

Those who are no longer residents must continue to pay Personal Property Tax on assets based in the country, and their affidavits must be submitted by whoever manages, or has custody, over said assets (excluded from this are houses worth up to $18 million, any properties used as homes, securities and bonds issued by the State, as well as cash deposits paid in pesos or dollars, to both fixed-term and savings accounts).

At this point, an analysis on a case-by-case basis is required to choose the best, most cost-effective option, in case the tax is detrimental to the economy, as it is expected that new legislation may be implemented which would double tax from 2020.

What steps should be taken to prove one’s new residential status to the Tax Authorities?

When you submit a request to stop paying income tax, due to loss of residency in Argentina, there are certain things you must do before you stop residing there:

• Before submitting the request form, submit an affidavit and any other relevant documentation which proves the time you spent abroad (such as a certificate of permanent residence issued by the appropriate authority in the relevant foreign State).
• When you submit a request to stop paying Personal Property Tax due to a termination of tax residency, you must designate an authorised person as a responsible substitute.

In the instance that the person loses their Argentine residency while outside of the country, there are certain things they have to prove to the Argentine consulate of the country in which they now reside:

• Loss of residency.
• Reasons which caused this loss of residency (passport, consular certification or another certified document which proves that you left and remained outside of the country for the required amount of time).
• Compliance with any tax obligations related to profits made from Argentine and/or foreign sources (and, in turn, the consulate must report this to the AFIP).

Dual tax residency and agreements to avoid double taxation

In cases of dual residence (living in two different countries) the following guidelines should be considered:

First of all, if an agreement exists between the Republic of Argentina and another intervening State in order to avoid double international taxation, the rules set out in the respective agreement are applicable.

Argentina currently has agreements to avoid double taxation with Germany, Australia, Belgium, Bolivia, Brazil, Canada, Chile, Denmark, Spain, Finland, France, Holland, Italy, Mexico, Norway, the United Kingdom, Russia, Sweden, Switzerland, and Uruguay. You can read the signed agreements listed previously here.

However, if an agreement does not exist, the following considerations would establish that tax residency is held in Argentina:

• When permanent dwelling remains in Argentina (the AFIP classifies this as “the place where the individual has the property or is in possession of it. The aforementioned property should be set up with the main intention of using it as a permanent dwelling place, as well as it being possible to carry out subsidiary commercial activities there” and that “it is primarily concerned with/kept available for its main purpose as a dwelling place, even though it’s also got the secondary use to carry out productive activities, and with abstention of the legal title under which it’s concerned/owned)
• When permanent dwellings are owned in both countries, but the centre of your vital interests is located in the national territory
• If you cannot define/demarcate the ‘centre of your vital interests’ (the centre of your vital interests is the place in a national territory in which the person has their closest personal and economic relations; which should be considered together. If one’s personal and economic relationships are located in different states, priority should be given to the personal).

Reasons why the Tax Authorities may be unaware of loss of Argentine residency

You must take certain precautions when you decide to stop being a tax resident in Argentina:

It’s important to request the withdrawal from the AFIP at a date close to when you are modifying your residency.

Obviously, it is not recommended to spend more days in Argentina than in the new country of residence. So keep a record within one calendar year of any time you entered or left the country

It’s advisable to not have permanent housing in Argentina, so as to not have to have the discussion regarding your ‘centre of vital interests’. However, if you do have housing in both countries, you must be able to prove that your spouse and any young children also live abroad, ensuring that the nuclear family features in your ‘personal life interests’.

It’s also important to have proof of the change in establishment. One way of achieving this could be to move internationally, and supporting evidence could be selecting the ‘unaccompanied baggage’ route at customs, which provides for residents in the country who are leaving to live abroad.

Of course, you can also always sell or give away your belongings (in such a way that you can provide proof of this later).

Places to move your tax residency

Now that you’ve stopped being a tax resident in Argentina, you need to be very careful when choosing your next destination, so as to not end up in another Tax Hell.

So, what are the best options for people moving away from Argentina?

If you don’t want to stray too far from a familiar environment, you have two options which will allow you to improve your tax situation. On one hand, there’s Paraguay, a country where you can live tax-free, which we have spoken about a lot on the Tax Free Today blog. On the other, there’s Uruguay, where you would still have to pay some taxes, though to a much lesser extent than in Argentina. You can read more about this option below.

Beyond these two countries, there are of course many more options, such as Panama, Costa Rica, Chile (where you can live tax free for 3 years), Thailand, Malaysia, Georgia, Cyprus, England… and so the list goes on, with more than 66 countries, which you can find on the Tax Free Today Encylopedia of Migration.

But returning to the example of Uruguay…

How do you become tax resident in Uruguay?

A permanent residence permit allows foreigners to legally live and work in Uruguay.

There are various types of residency, therefore it’s important to evaluate them to see which one is most appropriate to your situation:

• The Provisional Identity Sheet/Card will allow you to work for a maximum of 180 days. You can only receive it once, and it cannot be extended.
• Temporary Legal Residence is more appropriate for those wishing to stay in Uruguay for longer than 180 days, but less than two years, depending on the activity you plan to carry out. If you are from Argentina, Brazil, Paraguay, Venezuela, Bolivia, Chile, Colombia, Ecuador, Guyana, or Suriname, you can apply for the MERCOSUR Temporary Residence, which has the advantage of not having to provide livelihood or domicile.
• Definitive Legal Residence is appropriate if you plan on staying in the country for longer than two years, or if your temporary residence has expired and you want to become a permanent legal resident.

Those who are from member states, or places associated with MERCOSUR (as is the case with those from Argentina), or those who have links to Uruguayans (be it parents, siblings, spouses, concubines), must apply for residency before the National Department of Migration

Requirements for tax residency in Uruguay

In order to apply for tax residency in Uruguay, you have to meet one of the following three requirements:

The first option relates to length of stay. If you spend more than 183 days in a calendar year in Uruguay, you become a tax resident there. Absences from the territory must not exceed 30 days.

Sporadic absences are still counted towards determining this period of stay, unless the taxpayer proves his tax residency in another country. This means that if you go on holiday abroad, that period of time would not count as a ‘real absence’.

In order to be certified, the DGI requires that you submit your ‘certificate of arrival’, which is issued by the National Department of Migration, and details your entries/exits from the country.

The second option is through establishing in Uruguay either strong personal and/or economic ties. Meaning you should have economic interests and activities in Uruguay.

Economic activities refer to the fact that you have to earn more income in Uruguay than in any other country, whether it be through work or business.

Economic interests refers to the fact that the individual must possess real estate worth more than US$ 1,850,000 (approx.); or they must invest more than US$ 5,600,000 – directly or indirectly – in a Uruguayan company, as long as said company is dedicated to activities and projects carried out in the national interest, in accordance with the so-called Law on Investment Promotion.

Let’s clarify this point by saying that the purchase amount of the financed real estate is also valid). This is proven through submitting a notarized or accounting certificate of the total income, which details the type of income, the country in which it was generated, and any corresponding amounts.

In turn, a declaration from the taxpayer with a signed notarized certificate must be attached as an appendix, indicating that there’s no other income apart from that mentioned in the certification. If you receive income generated abroad, you need to include the type, the country, and the amount.

Finally, it should be clarified that income generated in the country does not simply mean pure capital income. In the case that the income comes from work, the applicant must prove that this activity takes place within the national territory.

The third way of becoming a tax resident focuses on the ‘centre of vital interests’. This concerns whether your spouse or children, should you have any, live in Uruguay.

There are many ways of proving this, such as enrolling your child/children in an educational institution, evidence of health insurance, evidence of being a member of any sports clubs; etc.

If you hope to prove residency through your spouse or young children, submitting their residence certificate will suffice.

In all cases, the family relationship will have to be verified through testimonies given by all those involved.

Benefits of being a tax resident in Uruguay

There are many reasons why foreigners would want to become tax residents in Uruguay. Among them is the 5-year exemption from paying personal income tax (IRPF), which in Uruguay falls upon (performance) of moveable capital from foreign sources (interest, dividends, coupons).

This means that any foreign citizen (whether they be from Argentina or any other country) who obtains tax residency in Uruguay through meeting one of the aforementioned requirements, has the option to be exempt from paying IRPF on any income generated from foreign sources.

Another advantage for residents in Uruguay is that, regardless of how much time they have been living there, the capital gains from assets abroad, and foreign income, are partly excluded from taxes.

Furthermore, if you have a Uruguayan Limited Company, taxes are only paid on income generated from national sources, and not when the income is generated abroad.

Something similar occurs with those who are self employed. If you receive income from a foreign source, it is free from taxation, as long as it meets certain requirements.

To sum up, individuals who are tax residents in Uruguay have to pay taxes for the following:

• Income earned on capital in Uruguay, from assets located in the country
• Income earned in Uruguay, either through being self employed or standard employment
• Income earned from work abroad, as long as you work for a tax-paying company in Uruguay
• Income from interest and dividends which you gain from sources outside of Uruguay. The tax rate in this case is 12%, and an automatic tax credit is recognised for any taxes paid on them abroad

Foreign interest and dividends are not taxed in Uruguay for the first 5 years for anyone who has set up residency in the country, and asked for exoneration, as the law grants them the possibility to apply for this exemption on dividends abroad.

This 5 year exoneration is achieved by filing a form with the Tax Administration once the person meets the conditions of tax resident, and the procedure usually takes between one and a half to two months.

It’s not necessary to declare any assets held abroad. A tax resident only has to declare any assets in Uruguay (as long as they exceed a non-taxable minimum).

Regarding equity tax, it’s only necessary to file an affidavit on assets held in Uruguay (as long as they exceed a non-taxable minimum); the surplus is taxed at a rate between 0.4% and 0.7%.

To conclude…

In today’s article, Maria Laura, our partner in Argentina, has explained to us in detail how you can renounce your tax residency in Argentina. We have also seen in which countries you could become a tax resident after leaving Argentina, as well as being introduced to the opportunities that Uruguay provides in terms of tax residency.

As you can guess, although this is a fairly detailed guide, there are many different cases and situations which can lead to complications (for example still having family, real estate, assets in the country, etc.)

Therefore, if you need any help, you can book a consultation, whether it’s to change your residency correctly, or to decide which country to move to based on both personal matters, as well as your business and assets.

Because your life is yours!