High tax pressure multiplies the number of Argentines who apply for tax residency in Uruguay

RIO DE JANEIRO, BRAZIL – An average taxpayer in Argentina works approximately half a year to pay taxes. The effective tax burden reaches up to 48% of the Gross Domestic Product (GDP) and will increase in 2022.

Meanwhile, the number of Argentines who took out tax residency in Uruguay tripled from 2019 to 2020, and that figure doubled again in 2021, according to official local government records.

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The numbers correspond to a new report by Ieral of the Fundación Mediterránea that compared the international tax pressure between Argentina, Chile, Brazil, Spain, Italy, the United States, and Australia.

“When measuring the legal tax burden on an average family in the seven countries, we included the inflationary tax, given that even when it is not a legislated tax, it affects family budgets”, the foundation pointed out.

“The highest legal tax pressure was found in Brazil, where taxes account for 50.6% of family income. Then come Italy and Argentina, which share second place, with taxes representing 48% of annual family income,” they specified.

The first cause of the increase in tax pressure in 2022 is the inflationary tax that will impact, for example, the mono-tax. The scales will increase by 26% in the face of inflation of 50%, which will force people with a lower income in real terms to pay more. Others will be directly expelled to the General Regime.

The second reason is the recent modification of Bienes Personales, by which people with higher assets or with assets abroad will have to pay higher rates.

“A common topic of discussion in Argentina is whether the tax pressure is high or low. A tax increase has just been approved at the national and provincial levels in these weeks. The truth is that, during the last two decades, the effective tax burden in Argentina has increased by around 12 points of the GDP, placing it among the highest in Latin America, together with Brazil”, pointed out Fundación Mediterránea.

BENEFITS IN URUGUAY

In this context, while in 2019, only 2043 Argentines applied for residency in Uruguay, in 2020, the figure tripled to 6816 people, and in 2021 to 11,834. According to the Uruguayan Ministry of Foreign Affairs, the number of families quintupled in two years.

To obtain the tax benefits granted by the country, it is not enough to go and settle in Uruguay. Still, it is necessary to lose the residence in Argentina to deregister.

In this way, one continues to pay Personal Assets and Income Tax, but only for the assets in Argentina. All assets and profits obtained abroad are no longer paid.

“Uruguay receives Argentines with ten years of tax vacations for everything they have outside that country. This means that if someone has profits in the United States, Switzerland, Spain or wherever Uruguay does not charge them anything for what they earn outside the country”, explained tax expert Cesar Litvin.

For example, a family in Argentina with an apartment abroad in 2021 had to pay Personal Assets at a rate of 2.25, Income Tax at 35% on profits earned outside the country, and, perhaps, the Solidarity Contribution that reached 5.25%. On the other hand, if he was in Uruguay, he paid nothing.

“The Uruguayan tax pressure is lower than in Argentina, and after the 10-year tax vacation, you pay 12.5% income tax on earnings abroad, compared to 35% in Argentina,” said Litvin.

STEPS TO APPLY FOR RESIDENCY

To “seriously” leave means to leave the house; the person cannot have employees in the country or have personal activity. You can have assets and be a shareholder, but not a director or manager.

They have to prove that the center of vital interests, the family and the economic activity, moved to Uruguay. It is not a problem in couples with grown children because the children can stay wherever they want if they are of legal age.

That means, first, obtaining permanent legal residency. Once this is obtained, the tax residency in Uruguay can only be applied for. From that moment on, there are restrictions to enter Argentina.

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