Law 19,637 – Opportunity or Obstacle?

By Gabriel Pittaluga Rossi, Attorney-at-Law, Pittaluga Abogados

Some weeks ago, the Uruguayan government issued Regulatory Decree 244/18 that regulates Law 19,637, which was passed earlier this year in July. The new regulation introduces some changes to the tax exemptions enjoyed by operators who provide logistical support development and related services.

Until the end of 2017, a 100% tax exemption was granted by law, with the provision that such exemption only applied when the asset was used entirely outside the country.
These conditions were later modified with the entry into force of Law 19,353, which expanded the exemption to assets used in the country.

However, said law established a limit on the exemptions applied to assets used abroad, calculated by applying the quotient between direct costs and expenses involved in developing the asset, increased by 30%, over the total costs and expenses, and, at the same time, it stipulated that in order for the exemption to apply to software, the software had to be registered as copyright.

With the entry into force of Law 19,637, the above limit to exemptions was extended to assets marketed in Uruguay.
Moreover, the above new law stipulates certain conditions that must be met in order to qualify for exemption from the IRAE (Corporate Income Tax):

1. The resulting assets must be covered by the laws that regulate the protection and registration of intellectual property rights.
2. A sworn statement must be filed with the General Taxation Office indicating the facts required under the new regulation.
3. The documentation supporting these operations must indicate the percentage of exemption applied, pursuant to the provisions of the new regulation.

For those cases in which the resulting asset is not covered by the laws that regulate the protection and registration of intellectual property rights, the law requires that the activity carried out by the taxpayer be conducted within national borders.

For such purposes, it will be understood that the taxpayer conducts activities within borders when the amount of direct costs and expenses incurred in the country to provide services exceeds 50% of the total direct costs and expenses incurred in the fiscal year to provide such services.

The new regulation has been met with more misgivings than certainties, since it would appear that it actually complicates and hinders exemptions that were already granted, and the end result will be the opposite of what is intended, as it will make Uruguay a less attractive country for investors.