Setting up a company in Uruguay: holding regime vs. trader regime.

Uruguay is one of the most attractive jurisdictions in Latin America for establishing international corporate structures. Its institutional stability, predictable legal system, and territorially defined tax regime make it a solid option for setting up a regional corporate vehicle.

The principle of territoriality as a foundation

Uruguay applies the territoriality principle: Uruguayan companies are taxed only on income from Uruguayan sources. Income from foreign sources—generated by assets or activities outside the country—is, in principle, outside the scope of the IRAE (Income Tax on Economic Activities). This principle is the basis for the holding and trading company regimes.

Holding Regime

A holding company's main activity is holding shares in other companies and receiving dividends, interest, or royalties from foreign sources. This income is not subject to IRAE (Corporate Income Tax) under the general regime.

• Dividends from foreign sources received by the holding company are not subject to IRAE tax.

• Dividends distributed to non-resident shareholders would not be subject to IRNR a priori if they come from non-taxable income and the company is a qualified entity.

• The company must have real substance in Uruguay (effective management, decisions made in the country).

The Uruguayan holding regime is especially attractive for structures that consolidate holdings in subsidiaries in different countries, thanks to the combination of legal stability, a network of double taxation agreements and the principle of territoriality.

Trader Regime

A trading company engages in commercial activities (buying and selling goods or services) with foreign counterparties. If the activity is carried out entirely outside of Uruguay—with non-resident buyers and sellers, and goods that never enter the country—the income may be classified as foreign-source income and therefore excluded. However, since the company has a presence in Uruguay, it can apply the trader regime, which allows profits from trading operations to be taxed (25% tax rate) at a deemed 3% IRAE (Corporate Income Tax) on the difference between the purchase and sale price, resulting in an effective tax rate of 0.75% on the gross margin.

Key differences: Holding vs. Trader

Holding: assets = shares in companies · income = dividends/interest from abroad · ideal for consolidating regional subsidiaries.

Trader: asset = trade flow · income = profits from international sales · ideal for import/export operations without passing through Uruguay.