People get tax residency and legal residency mixed up all the time. Karen A Higgs, Guru’Guay founder, talks to Federico Fischer, managing partner at one of Uruguay’s top law firms, determined to iron out the difference once and for all. They discuss who is in the market for Uruguay tax residency, the benefits, and who the new government had their eye on when they passed a ‘middle-of-the-road’ option—with similarities to Portugal’s golden visa—in 2020.
This article is based on the interview and has been edited for brevity and clarity.
People get tax residency and legal residency mixed up all the time. And I just wanted us to come away from this interview, knowing exactly what the difference is.
I’m glad you started on that point because a lot of people confuse them. Tax residency and legal residency actually have no relationship. One can be a tax resident and not a legal resident and vice versa. But in a nutshell, tax residency is a tax status that gives the person who has that status certain advantages. Legal residency is just an immigration status and it has no tax or any other consequence other than allowing you to live in the country indefinitely, to be on track to get citizenship and the benefit of bringing your personal belongings duty free.
Tax residency, as far as I understand, is only really applicable to high net worth individuals
Well, in essence the people looking to change their tax residency status, that is to move to a country that has a friendly or an advantageous system, are people who have assets or income of a certain size. There’s no benchmark of what qualifies or not, but it’s usually people with income in portfolios or having a certain quantity of assets. It could be someone with $10 million in net worth, or it could be someone with a million.
So can you tell me about some of the requirements?
Uruguay passed a very generous law in 2020, making our system very attractive and from a tax perspective very much in line with Portugal’s golden visa program. Basically what this entails is you have different paths to obtain tax residency. There are actually seven different paths. The new program has added two new paths. Historically what we had—because Uruguay already had a good tax residency program—was that one could obtain a residency status by being in the country 183 days out of the year, or by purchasing real estate worth $1.8 million and no time in the country required. There were others like having Uruguay as your main place of residency or being able to invest in a certain type of business with a certain amount. But the first two were the primary alternatives one looked at. What the new legislation opened up as an option for people is, that now, if you can’t be here 183 days, or you can’t invest 1.8 million, there’s a middle of the road one: investing $400,000 in real estate and being here 60 days during the year.
So let’s talk about the benefits. Why are people looking for this tax residency?
The new law has extended the tax holiday from five years to ten. Let’s say, a person moves to Uruguay and she has a portfolio with a bank in the US or Europe and also lease income from properties in the Caribbean. The taxable income is only that of dividends and interest. Uruguay historically does not tax lease income and capital gains overseas. So for ten years, Uruguay is not going to tax the dividends and interest.
What happens once the 10-year tax break is up?
The tax break is actually for eleven years—ten plus the year that it took to become a tax resident. So what happens on year 12? Uruguay’s going to say: we’ll charge you tax on dividends and interest only, at a low rate of 12%. In the case you’re paying taxes elsewhere—for example, people from the US who pay taxes no matter where they move because the US government subjects them to global taxation—if you can prove you pay taxes overseas, Uruguay’s not going to double tax your dividends and interests. So, without the need for a treaty, Uruguay unilaterally commits to not taxing tax residents twice over.
I was going to ask you if a high net worth individual from the US can take advantage of this? You’ve already said that that is possible.
The tax residency program that Uruguay has is available to anybody in the world. The issue is whether you can give up your prior tax status. The US for example, is one of the few countries that doesn’t allow you unless you renounce your citizenship, which is a whole different thing and very complex. But most countries—Argentina, Brazil, European countries—don’t have this limitation. So it becomes very attractive to seek a new tax residency where you get the benefits and you give up your prior one.
Who did the government have in mind when they passed this legislation last year?
Uruguay wants to attract people to come live here. This is a manifested policy by the new government. There’s a strong emphasis on this and a lot of measures have been taken in that respect—one of them being the new tax residency law. Obviously the place where most people will come from naturally are the neighbouring countries—Argentina and Brazil. But the intention is not just to go after people from the region, but to go after people from the world by showing the benefits that Uruguay has and why Uruguay’s program is competitive with the most competitive programs in the world.
Is there anything more that you’d like to add regarding this comparison with Portugal’s golden visa?
No, basically the period of tax holiday is similar. The minimum amount to invest, 400,000 dollars, is similar. So it’s a very similar program. Having Portugal as a reference has been very successful because it helps people relate to what we’re looking at here.
Hi Karen I watched the video on becoming a tax resident and I wasn’t 100% clear on the additions that the government made to become a tax residency.
Federico mentioned $400 000 investment, and 60 days in the country. Do these exist as 2 separate things or do they go hand in hand?
Hi Megan, thanks for watching. They go hand in hand. The Andersen website actually lists the six “The Different Paths to Obtain Tax Resident Status” about three quarters of the way down the page linked. This path is: “Making a real estate investment of USD 390,000* or more, from July 1st, 2020 onwards, plus spending at least 60 days in the country during the calendar year.” Cheers — Karen