Asset Tax

Posted on May 24, 2007
Filed Under Real Estate, Cost of Living, Taxes | 6 Comments

Many people that are now considering moving to Uruguay may not realize that they will be subject to a tax based on the total value of their Uruguayan assets. Since this type of tax exists in relatively few countries, most future expats will likely forget to take it into consideration. Even so the value of the tax is negligible for people with few assets, its steeply progressive scale penalizes ostentatious wealth as well as the ownership of non-producing assets. This tax is known as the Impuesto al Patrimonio (IP).

The IP is based on the total value of assets held in Uruguay: including real estate, cars, money and other items. This is true even if those assets are not generating any income. What follows is a synopsis of the key points that should be taken into consideration. Keep in mind that this subject is complex, especially when it involves companies. It would be prudent to consult a tax attorney before investing large sums in Uruguay.

Since one can legally move money in and out of Uruguay at will, in practice the asset tax primarily applies to real estate and cars you own. It is important to note that the asset tax rate for individuals and companies are different and the method for assessing the value of real estate properties is also different. Individuals have a deductible amount below which one pays nothing; companies do not have that benefit. Another key difference is that individuals pay IP based on the assessed value used for the computation of the property tax. In most Uruguayan towns, this value is less than half the market value. For companies the assessed value is the purchase price of the property, since it is treated as a company asset.

For most Uruguayan companies the IP rate is a flat 1.5% of the assets, and 2% percent for foreign companies or Uruguayan uni-personal companies. But the company is taxed on its net assets, so if the company takes a loan using the assets as collateral, the effective taxes would be lower. Please note that the IP usually does not apply to agricultural properties.

Individuals have a deductible of 1,663,000 pesos (around USD 65,000) for a single person and double for married couples. The rate is progressive and eventually reaches 3%. The rate table can be found here. Cars are valued according to this table. For example a married couple with a USD 150,000 home in Punta del Este, a USD 200,000 apartment in Montevideo (assessed value of 70 and 80K), and a newish BMW worth 70K would pay: (70+80+70-130)*0.007 or 630 dollars per year. However if the same couple placed their property in the name of a foreign company in order to allow for greater control over inheritance laws, it would cost them (200+150+70)*0.02 or 8400 dollars per year!

For individuals, after USD 930K, the rate increases to 3% of the value of the assets. This alone is powerful deterrent for the merely rich to owning million-dollar properties in Uruguay. Now that the Personal Income Tax is being instituted in Uruguay, the plan is to start reducing the IP rate slowly over the years to a flat 0.7%. I suspect that we will see more mansions then.

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6 Responses to “Asset Tax”

urufish on May 24th, 2007 2:12 pm

I never did fully comprehend the mechanics behind this tax. My accountant asked me for all of our assets and told us we’d have to pay $2K a year. He was offhand about it, so he figured that $2K was meaningless in the great scheme of things. That’s what you get when you deal with major firms :). Later this month, I’ll fly it by one of our relatives who is a new accountant and isn’t big firm mentality.

One thing I’m looking for clarification on is when when you (and others) state companies are assessed on the ‘purchase’ price of the asset. The two cases that come to mind are the case where the asset was purchased 10 or more years ago. The purchase price may very well be equal to or less than the assessed value. The 2nd is the transfer/sale of properties from an individual to a company at a reduced price. Not so sure if that raises flags here seeing how the system isn’t terribly tight.

The funny (or not so funny thing) is that we’ve had assets here for many years and not until we moved here did we find out about this tax. Probably because we uncovered it by accident one day drinking with friends.
In retrospect, you have to wonder how it’s enforced. If after 20 years the government hasn’t sent us a bill, when will they?
Or perhaps, now that the government says it’s modernizing, we’ll get a letter some day.

I wonder if it’s like other taxes. For instance, if you dont pay the Primaria tax for ‘n’ years, it’s forgiven automatically. If you dont pay real estate taxes (you’re a perfect example) for a long time, a goodly portion of that is forgiven.
Brazzie on May 24th, 2007 2:40 pm

You bring several good points. If an individual sells a property at a “discount” to a company (and gets away with it), the company will pay a lower IP every year, but it will have to pay a larger capital tax on the appreciation when the property is sold. If the property is kept for more than 5-6 years it would be a good deal.

I don’t know how (and whether) the IP tax collection is enforced.

As you alluded to, the person I bought the land from never paid his property taxes and most (more than 90%) of it was forgiven. This tax amnesty creates a “moral hazard” since it encourages people to risk not paying it.
Lisa on May 24th, 2007 2:44 pm

Hmmm… now that you’ve told the govt that you havent’ paid in 20 yrs, they’ll be knocking at your door!

Or maybe that $2000 was 20yrs worth of back tax?
urufish on May 25th, 2007 9:17 pm

You must be psychic amigo… tonight, they ran a 2 minute spot on the evening news that answers your question… how is the IP tax enforced…
But before we go there, it’s safe to say that it wasn’t enforced…
The DGI is officially unleashing 150 inspectors that will go knocking on every door of every apartment and house in Pocitos y Punta del Este asking for paid receipts for the IP.
Wonder if they’ll be forgiving those that haven’t paid in 20 years and if so, to what extent. Some of those inspectors will have the opportunity to become very rich, very quickly.
Mark Gomez on July 21st, 2007 11:28 pm

Assuming that I am single (which I am) and at the .007 rate, and have a car valued at USD $30K, then the tax for 2007 would be ~$200.

Is this correct?

Thanks!

Mark
Brazzie on July 22nd, 2007 5:57 am

Mark, if the car is your only asset in UY, you would not need to pay the Impuesto al Patrimonio since as a single person you have an exemption of UY$ 1,663,000 which is more tan the value of your car.

Asset Tax

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