INSIGHT: Uruguay—Taxation of E-commerce Companies

This article addresses the latest legal developments on taxation of foreign e-commerce companies in Uruguay. According to recent rules, such companies (among other obligations) shall be registered with the Uruguayan Tax Office, indicate a local domicile (or instead appoint a local representative), and submit annual tax returns. In addition, the Tax Office has established a timetable for companies catching up on their taxes accrued as from January 1, 2018.

Law No. 19.535

In September 2017, the Uruguayan Parliament passed a piece of legislation(the “Act”) which requires—as from January 1, 2018—the payment of taxes from online companies, whenever their customers are located within Uruguayan territory.

The same Act establishes certain differences between the tax treatment applied to companies which provide online services, and that applied to those companies which—through the internet—serve as services intermediaries (between suppliers and consumers).

Both kind of companies are subject to VAT (at the rate of 22 percent), and Non-Residents Income Tax (Impuesto a las Rentas de los No Residentes—IRNR). The difference would be that, in the case of online services providers (e.g., Netflix and Spotify), the Non-Residents Income Tax would be assessed (at the rate of 12 percent) over 100 percent of their sales, while in the case of online services intermediaries (e.g., Uber or Airbnb), the Non-Residents Income Tax may be assessed only over 50 percent of their sales, in which case the effective income tax rate would be reduced to 6 percent (this is the case when the supplier or the consumer of the service in respect of which the online company intermediates, is located abroad).

All this applies provided that such online companies have not established a permanent establishment in Uruguay. Otherwise, they would be subject to Corporate Income Tax (Impuesto a las Rentas de las Actividades Económicas—IRAE) at the rate of 25 percent. The Uruguayan Tax Office (Dirección General Impositiva—DGI) has stated that the presence of servers within Uruguayan territory will not necessarily trigger a permanent establishment, unless such servers are owned by the foreign online company.

Decree No. 144/2018

More recently (May 2018), the Executive Branch issued a new decree (the “Decree”) regulating the above tax obligations, with the intention of clarifying certain issues related to taxation of e-commerce companies in Uruguay. There follows below a brief description of the main matters included in such a Decree:

At first sight, the Decree would seem to narrow the scope of the tax obligations imposed by the Act. Not all companies providing online services would be subject to such obligations; only those which are engaged in the transmission of audiovisual contents (downloading movies, TV series and songs would—of course—be under the scope). However, audiovisual contents are broadly defined as any contents based on sounds, images or moving images (either combined or separate). Based on prior binding opinions issued by the Uruguayan Tax Office, the Tax Office may understand such expression broadly, as comprehensive of any non-printed contents (with the exception of e-learning services, which are expressly excluded).

The Decree also establishes the criteria to be used for concluding that the customers (of the online company) are located in Uruguay, and therefore the services provided to them are taxed in Uruguay. Any of the following requirements must be met: (i) the IP address of the computer, cell phone or any other device used to hire the service, is located in Uruguay; (ii) the billing address is located in Uruguayan territory; or (iii) the credit card to be used is administered by a Uruguayan financial institution.

With regard to the VAT on online intermediary companies, the Act only considered the situation where both the supplier and the consumer were located within Uruguayan territory, in which case the VAT would be assessed (at the rate of 22 percent) over 100 percent of the sales. However, the new Decree added that such online companies would also be subject to VAT in Uruguay even when one of them (the supplier or consumer) is located abroad, in which case the VAT would be assessed only over 50 percent of the sales (therefore, the effective VAT rate would be 11 percent).

In accordance with the Decree, the supplier is considered to be located in Uruguay when the service under intermediation is rendered within Uruguayan territory.

Planning points

A recent Tax Office Resolution (Tax Office Resolution No. 6,409/2018 (issued July 16, 2018) (the “Resolution”) has spelled out the following practical issues (in respect of which companies should take immediate action):

• Foreign online companies must be registered as taxpayers with the Uruguayan Tax Office, and thus obtain a tax identification number.
• In principle, such companies should also appoint a local representative (which may be an individual or a legal entity, always resident in Uruguay and jointly liable for all liabilities of the company before the Tax Office). However, the Resolution provides that the Tax Office waives such a requirement, provided the company registers a local domicile with the Tax Office. Such local domicile would be used to receive communications from the Tax Office. In principle, the Tax Office would not be authorized to conduct any audit at such domicile. In this scenario, foreign online companies would be solely responsible for their tax liabilities.
• Since customers are likely to be individual consumers, in principle the 12 percent tax (Non-Residents Income Tax) and the 22 percent tax (VAT) would not be withheld by customers, but would be paid by foreign online companies directly to the Tax Office. In the event the customer is a local company subject to Corporate Income Tax, such local company would be required to withhold both taxes.
• Foreign online companies must submit annual tax returns (for purposes of both VAT and Non-Residents Income Tax), regardless of the size of the company or its annual turnover.
• They may issue any kind of receipts/invoices as long as they are in full compliance with the formal requirements imposed in the respective jurisdictions where they reside.
• In addition to the receipts/invoices, they must provide their customers in Uruguay with a monthly report indicating the accrued VAT amount, whether the Uruguayan customers are individuals or corporations.

In addition, the Resolution has established the following timetable for online companies catching up (with no fines or surcharges) on the payment of their taxes accrued as from January 2018 (despite the lack of specific rules during this period):

Other Provisions Especially Relevant for Transportation Apps

In accordance with Decree No. 48/2017 (of February 20, 2017), companies operating apps which serve as intermediaries for transportation services (e.g., Uber and Cabify) must submit a monthly report to the Tax Office identifying all drivers and income. When drivers do not have the permits required to render passenger transport services, such online companies are liable for the drivers’ tax liabilities, including debts, fines and surcharges (Law No. 19,355 of December 19, 2015). This last provision also applies to companies operating apps which serve as intermediaries for obtaining accommodation, e.g., Airbnb and HomeAway; therefore, these digital companies are liable for the tax liabilities of the properties’ owners.

Furthermore, transportation services’ digital platforms are required to withhold a certain amount from the fees paid to the drivers on a monthly basis; such amount increases over time from $27 to $108. The online companies must pay the withheld amounts to the Tax Office a month after the transportation services are made. Drivers are able to deduct such amounts from the taxes paid to the Tax Office and/or the Social Security Office (Banco de Previsión Social—BPS).

In addition to their tax liabilities due to the Tax Office and Social Security Office, the drivers are subject to monthly payment of a levy by Montevideo City Hall (Municipal Decree No. 36,197 of December 22, 2016); such levy amounts to $0.06 for every kilometer driven.

The online companies are also required to:

• be registered with Montevideo City Hall; and
• withhold—from the fees to be paid to the drivers—the total amounts corresponding to the levy; and
• report to Montevideo City Hall the names of such drivers.

Freezing of Bank Accounts

Another bill is being debated by Parliament. Once enacted, the Tax Office, Social Security Office and/or Montevideo City Hall would be able to request, before the courts, the freezing or blocking of the bank accounts of any online companies (not only those engaged in the operation of transportation apps) should they fail to meet their tax liabilities.

Guzmán Ramírez is Senior Associate at Bergstein Abogados, Uruguay.
He may be contacted at: gramirez@bergsteinlaw.com