US Expat Taxes Explained: Filing Taxes as an American Living in Uruguay

You are going to be required to file US taxes no matter which country you live in, but how will they be affected if you’ve chosen to live in Uruguay?   It is important to understand how your US expat taxes are going to change with your move to Uruguay and to understand how you will be taxed by Uruguay while residing there.

US Expat Taxes in Uruguay

If you are a citizen or permanent resident of the United States then you are obligated to file US taxes with the IRS each year no matter what country you live in.

In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.

While the US is one of the few governments that tax the international income of their citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including:

• The foreign earned income exclusion allows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
• The foreign tax credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
• The foreign housing exclusion, which allows you to exclude certain household expenses that occur as a result of living abroad.

With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your US expat taxes. Please note that even if you do not believe you will owe any US income taxes, you will more than likely still be required to file a return.

Who is a Uruguay Resident?

In Uruguay, you are considered to be a resident of the country if you meet certain requirements.  These include the following:

• You have stayed more than 183 days in Uruguay in a calendar year.  Random absences will be taken into account unless you can prove a tax residence in another country.
• You have economic activities or personal interests in the country of Uruguay, regardless of whether they are direct or indirect.

It is presumed that if a person is defined as a resident of Uruguay, their spouse and dependents are also considered residents of Uruguay.

The 183 days is defined by all days in which the person had a presence in a Uruguayan territory; the time of arrival or departure does not apply.  Days spent going to or coming from another country are not computed into the 183 days.

If there is a fiscal residence in another country, it must be proven by a certificate issued by the fiscal authority of that country.  Even still, if that amount is lesser than the amount of fiscal interest in Uruguay, you will be considered a resident.

Note that as of July 2007, all Uruguayan-sourced income is taxed, regardless of resident status.

Uruguay Income Tax Rates

Uruguay requires employers to tell the public agencies about hiring foreign nationals in order to allow those individuals to enter the Uruguayan social security system.

The annual income rates from labor (IRPF) are calculated on a progressive rate capped at 25%.  The current rates are as follows:

If you are married and the annual earnings of each spouse exceed 12 National Minimum Salaries (72,000 Pesos), you have the following tax rates:

If you are married and one spouse does not exceed 12 National Minimum Salaries, you have these  tax rates:

US – Uruguay Tax Treaty

The US and Uruguay do not have a tax treaty in place but have agreed to share information regarding the expatriate citizens of each respective country.

Uruguay Tax Due Date

The tax year in Uruguay is defined as starting the minute you obtain taxable income and ending every December 31^st.   Typically, there are withholding systems in place on a monthly basis in order to pay as you earn (PAYE).

Social Security in Uruguay

Uruguay requires that all workers in the country, regardless of period of stay or residence status, pay into social security.  The US does not currently have a social security agreement with Uruguay.

All income earned must be included in calculating the social security owed. Items such as healthcare and insurance are exempt from social security tax if their sum less than 20% of total taxable income.

Your employer will be obligated to withhold social security taxes for you, and you are to match their contributions.  General contributions are set at 15% over the total amount received by the employee but is capped at USD $4,118. Sickness insurance also must be withheld, and the amount varies from 3% to 8% depending on salary, number of dependents, and marital status.

Is Foreign Income Taxed Within Uruguay?

Currently, no foreign income is taxed in Uruguay, including wages earned abroad or income from assets located overseas.

Other Taxes in Uruguay

In addition to income tax on salaries paid, there are other forms of income that are taxed in Uruguay.

Benefits and other non-cash compensation are considered taxable in Uruguay.

In Uruguay, there is a tax of 12% that is applied to your IRPF if any interest income is Uruguayan-sourced.   On dividends or profits paid or credited from a corporate income, the tax rate is 7%.  If you have capital losses, you can deduct them from your income and carry them forward for two years.

If you sell a principal residence, those gains will be taxed at the regular income tax rates.

There is no gift, wealth, estate, or inheritance taxes in Uruguay.

Note that the basic VAT (value-added tax) rate is 22%.

Saving on US Expat Taxes

With the various forms of taxation that are applied to foreign nationals working and residing in Uruguay, it is important that you apply all of the available exclusions, deductions, and credits to your US expat taxes.  Uruguay has been seen as a tax haven, but Uruguayan taxation does change frequently and can get quite complicated.