Tax Guide for U.S. Expats in Uruguay

Uruguay is a small country, sometimes referred to as the Switzerland of South America. Uruguay enjoys a stable democracy and offers good social benefits (such as free education). It is also known for its beautiful coastline.

If you are planning to become a U.S. expat in Uruguay, or have been one for a while, it’s important to know the tax laws of the country and the potential impact on your U.S. tax return. Expat taxes can get complicated. Fortunately, we have outlined the key points below.

Photo by: Vince Alongi

Taxation in Uruguay

Let’s start by understanding who is required to pay taxes in Uruguay. Both residents and non-residents are generally taxed on Uruguay-source income only. Foreigners who have lived in the country for over 183 days during a calendar year, or have economic activities or personal interests in the country are considered residents for tax purposes.

Uruguay utilizes a progressive tax system whereby income tax rates for residents can range up to 30%. Non-residents are taxed at a flat tax rate of 12%.

Note that Uruguay and the U.S. do not have a social security tax agreement in-place. This means that certain U.S. expats will be required to pay into both social security programs.

How Living in Uruguay Impacts US Taxes

As a U.S. citizen or permanent resident (Greencard), you are required to file U.S. taxes even if you live in Uruguay. Plus, if you have assets in foreign financial accounts (e.g., foreign banks), there are informational reports you may be required to file. For example, U.S. Expats Living in Uruguay with $10,000 or more in foreign banks must file the FBAR (now known as FinCen 114).

Fortunately, the U.S. government provides various forms of tax relief that can lower or eliminate U.S. tax obligations

• The Foreign Earned Income Exclusion – It allows you to exclude a certain amount of income earned outside the U.S.
• The Foreign Housing Exclusion/Deduction – This one relates to additional income that can be excluded for household-related expenses tied to living abroad.
• The Foreign Tax Credit – It allows you to offset foreign taxes paid against U.S. tax obligations.

In most cases, the foreign earned income exclusion is preferable to the foreign tax credit if you live in a country with a lower tax rate than the U.S. (assuming your income is not above the applicable threshold). This is obviously the case with Uruguay. However, it’s a good idea to speak with an expat tax specialist to discuss the best application of these tax reliefs.

FATCA and Uruguay

The U.S. government is increasingly interested in knowing about the foreign assets held by its citizens and residents. As a result, it has been busy inking deals with other countries whereby foreign financial institutions (FFIs) will be required to:

• Identify accounts of U.S. persons;
• Report certain information to the IRS regarding those accounts;
• Withhold a 30% tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information

As of the publication of this article, roughly 80 countries have either signed intergovernmental agreements with the United States or are in discussions. Uruguay and the U.S. do not yet have a FATCA agreement in-place. However, you should be aware of the implications given that the IRS intends to expand FATCA’s reach in the upcoming years.

If you have any questions regarding your U.S. expat taxes, contact us today. We are here to help.