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Uruguay

Published on Tuesday 20th March 2018

    • Uruguay

      The most common forms of bank financing in Uruguay are loans, bank discount rate, factoring, line of credit, financial trust and leasing.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      A foreign lender can lend money to local borrowers without the need for either registration or approval by the government or central bank.

      However, if the lender operates in the form of a financial intermediator the matter would be handled differently. According to the Law of Financial Intermediation, the financial intermediator is defined as the entity that regularly and professionally performs intermediation and mediation among the supply and demand of securities, money or precious metals.    

      If that is the case the lender must be registered before the Uruguayan central bank and prior swift government authorisation is required. In this situation the Uruguayan central bank has limitless authority to monitor and control the entity’s activities. 

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      No. It is important to point out that in Uruguay there is no exchange control policy since 1973. In accordance with this there are no legal boundaries or limitation on contracting debt obligations in a foreign currency; parties may choose the currency freely. In addition, there are no Uruguayan restrictions on remitting funds or interests abroad, therefore providing a suitable scenario for contracting a loan with foreign entities, in the chosen currency. 

      Despite the above, take into consideration, that regarding Uruguayan anti money laundry regulations; banking institutions are required to perform certain due diligence procedures before moving forward with any transaction and may even reject those that could be understood as suspicious.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      No, there is no approval or registration required by the Uruguayan government nor central bank.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      No, there is no mandatory governmental or central bank deposit required to be made from loan proceeds.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      There is no specific provision authorising the government to declare a moratorium. 

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      A lender does not assume any environmental liability for activity performed by the borrower.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      Yes, by the IRNR tax, all Uruguayan source income obtained by non-residents is taxed by the non-residents income tax at a flat rate of up to 12 per cent on gross income. Additionally, the income obtained by non-resident entities domiciled, constituted or located in countries or jurisdictions with low or zero taxation or benefited by a special regime of low or zero taxation, income tax at a flat rate of up to 25 per cent on gross income. By countries or jurisdictions with low or zero taxation is understood those countries or jurisdictions that do not meet the requirements of the minimum effective tax rate – that is 12 per cent – or levels of collaboration and transparency determined by the Uruguayan authorities – that is an exchange information agreement with Uruguay. The IRNR is basically collected by way of withholding. 

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      It depends on what type of loan transaction is agreed among the parties. For instance, in case of a mortgage, pledge or trust fund, you should always take into account the notary costs. These basically consist of the notary’s fee, registration expenses (since they must be registered in the pertinent register office in order to set effect to third parties) and the montepio notarial (this is a notary tax). 

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      Yes, in the case where the lender is from a foreign jurisdiction the applicable tax to interests will be the IRNR at a rate of 12 per cent over the gross income, except in case when the offshore entity is considered to have permanent establishment in Uruguay. The legislation considers that this figure is constituted once a foreign entity performs all or part of its activity through a fixed place of business in Uruguay, these considered, for example, headquarters address, branch office, factories, etc. On the other hand, if the lender is a foreign entity domiciled, constituted or located in country or jurisdiction with low or zero taxation (defined in question 8) or benefited by a special regime of low or zero taxation, the tax will be 25 per cent.

      In case of local lenders the percentage may vary according to the entity whose lending. For instance, in case the entity is a company limited by shares the applicable tax will be the IRAE at a rate of 25 per cent over the net income. However, when it comes to a limited liability company, the tax may vary depending if it is in accordance with a presumptive interest. If the lender is a local individual the applicable tax will be the IRPF at a rate of 12 per cent over the gross income.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      Yes, currently Uruguay has several treaties in force in order to avoid double taxation. This agreements offer stability and predictability in tax matters among parties. This may be achieved either by conceding one of the parties the authority to tax over the other one, by setting maximum rates in case of double taxation, or by generating mechanisms in order to reduce or exonerate taxes.  

      However, the most frequent mechanism established under the treaties is that the country of residence recognises a tax credit equivalent to the tax paid in the contracting jurisdiction, for the same event.

      The following is a list of the countries that have a double taxation treaty signed with Uruguay, which might eventually reduce/eliminate the withholding tax:

      1. Argentina – 12% interest.  
      2. Spain – 10% interest.  
      3. Malta – 10% interest.  
      4. Mexico – 10% interest.  
      5. Portugal – 10% interest.  
      6. Romania – 10% interest.  
      7. Switzerland – 10% interest.  
      8. Germany – 10% interest.  
      9. Korea – 10% interest.  
      10. Ecuador – 12% interest.  
      11. United Arab Emirates – 10% interest.  
      12. Finland – 10% interest.  
      13. The Grand Duchy of Luxembourg – 10% interest.  
      14. Hungary – 12% interest.  
      15. India – 10% interest.  
      16. Liechtenstein – 10% interest.  
      17. United Kingdom of Great Britain and North Ireland – 10% interest.  
      18. Vietnam – 10% interest. 
      19. Belgium – 10% interest. 
      20. Singapore – 10% interest. 

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      Until 31 December 2014, a favourable tax treatment operated for exports through Uruguay, this was applicable to the acquisition or production of certain merchandise destined for export. In situations that appear to be of national interest, the government may grant favourable tax treatment. 

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      Usury Law No. 18.212 sets a limit on interest rates or the ability of lenders to charge default interest under loan agreements. This law must be respected since it determines that this regime shall be applicable to every credit operation or similar, structured by individuals or entities. 

      It is important to point out that this law regulates the moratorium interest as well as the compensatory interest, establishing a maximum limit for each type of interest.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      In Uruguay there is no freedom of choice in accordance with the choice of law, except otherwise expressly determined. Therefore, this will depend entirely on the international law applicable. If the international law derives the application to a foreign law, this law would be recognised and given effect by the courts of Uruguay.

      The only exception to this application of a foreign law by the Uruguayan courts would be to the extent that any term of the agreement or any provision of such law violates a public policy principle in Uruguay.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      A foreign judgment will be recognised by all competent Uruguayan courts and authorities and enforceable in Uruguay, without re-examination of the merits of the case, provided that such judgment:

      • complies with all formalities required for the enforceability thereof under the laws of the country where it was issued;
      • has been translated into Spanish together with related documents, and satisfies the authentication and legalisation requirements of Uruguayan law;
      • was issued by a competent court and depending on the country where the judgment was issued it has to be in accordance with the law of the state where it  was issued, exception made when there is exclusive jurisdiction of the courts of Uruguay or in accordance with the law of the state where the judgment produces its effects; in both cases issued after a valid service of process upon the parties to the action;
      • was issued in accordance with due process of law;
      • is final and not subject to further appeal; and
      • is not against Uruguayan public policy principles.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      In order for a loan agreement or related judgment to be enforceable by Uruguayan courts, the parties must verify that the translation is official. See question 17.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      For a loan agreement to be duly enforceable by a judge in Uruguay, the agreement, together with every related document of the transaction, must be translated into Spanish and legalised or apostilled, depending whether the country where the agreement was celebrated, is part of the apostille convention.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      No, there is no need for a foreign bank to be registered in Uruguay to enforce any rights under loan documentation. 

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      No, both local and foreign lenders are treated equally under the scope of the courts of Uruguay.

      Law No. 16.906, promotes and encourages foreign investors to come and invest in Uruguay. The investments shall be admitted without any need of prior authorisation or registration. Article 2 of the law expressly determines that the treatment of foreign and national investors shall be the same.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      Consideration is not required for the enforceability of a contractual obligation or guarantee.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      The enforceability of a loan in Uruguay does not depend on the availability given to the loan, therefore it is not necessary to be evidenced on a promissory note or other form of titulo ejecutivo, and it may be enforced evidenced in other type of document.

      Nevertheless, in case the loan is evidenced in a promissory note or other form of titulo ejecutivo, this would considerably speed up the process of enforcement. The most advantageous characteristic of the titulo ejecutivo is that the judge may allow assets to be frozen right from the beginning of the trial.   

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      No, there are no restrictions on loans to multiple borrowers or on a guarantee in respect of a loan to an affiliated entity. 

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      Our legislation determines that the company will be obliged only to the extent that the acts executed by its representatives are contemplated under the social object of the by-laws. This is commonly known as the ultra vires doctrine.

      Therefore, in accordance with this doctrine, in order to consider granting a secured or unsecured guarantee in respect of a loan to an unaffiliated third party, the first thing to look out for is what the by-laws of the company expressly establish and therefore, what the company may or may not do.

      If it expressly determines that the company may grant a loan to an unaffiliated third party no complication should arise.

      However, in case the by-laws do not mention this possibility, we strongly believe the best option is, for example, in case of a corporation, to summon the shareholders to decide. Therefore there would be no way they could revoke the loan.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      Yes, there is. The Uruguayan system usually provides a registration procedure for the perfection of a security interest; however, depending on the type of security interest the granting and perfection may vary.

      For a mortgage the following are certain aspects that must be considered in the case of the granting and perfection: the agreement must be executed in a public deed by a public notary. The mortgage is considered perfected when it is registered under the Real Estate Property Public Registry. Moreover, it is terminated when the debtor has fulfilled its obligations under the loan agreement (paid the debt) and when the term expires. Termination should also be registered with the Real Estate Property Public Registry.

      In case of a pledge, no formalities are required for its creation. The agreement is perfected when the debtor hands over the pledged assets to the creditor or to an escrow agent. It terminates when the debtor has fulfilled its obligations under the loan agreement (paid the debt), or when the pledged asset is destroyed.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      The most common form of granting and perfecting a security interest in moveable assets is through the constitution of a pledge. 

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      The most common form of granting and perfecting a security interest in real estate property is through the constitution of a mortgage. 

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      The most common form of granting and perfecting a security interest in receivables and accounts is by any of the following: pledge, assignment of credits or trust funds. 

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      Yes. It is commonly used in large transactions since it is simpler to collect if the borrower breaches the agreement. 

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      No, the legal figure described above does not exist in Uruguay. 

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      Yes, Uruguayan law determines that planes, ships and real state property cannot be pledged. In these cases it is necessary to establish a mortgage.  

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      In the case of mortgages, the creditor can request a court to sell the asset at public auction. The judicial proceeding may take up to two years.

      In the case of pledges, the parties can agree to an out-of-court sale. If such option was not agreed to in advance, the creditor can request the court to sell the asset at public auction.

      In the case of trusts, enforcement will depend on the terms of the agreement but is usually done through private sale of the assets.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

    • Uruguay

      It is important to note that in Uruguay the residence of the lender impacts directly on the taxes that the borrower must pay.

      For income tax purposes, deductibles include only expenses that for the other party (resident or non-resident) constitute income subject to income tax and in the proportion resulting from applying to the expense the ratio between the maximum rate applicable to the other party's income and the Uruguayan 25 per cent IRAE rate.

      Income tax in Uruguay (12% or 25) + income tax abroad

                                         IRAE (25%)

      As a consequence, the deduction varies depending on the residence of the lender. In the case of a foreign lender, the borrower could deduct the 48 per cent (12/25) of the income tax, except in case it could be proven any tax abroad. On the other hand, if the lender is a foreign entity form a country or jurisdiction with low or zero taxation, the borrower could deduct the 100 per cent (25/25) of the income tax. And if the lender is a Uruguayan bank, the borrower could deduct the 100 per cent (25/25) of the income tax.

      Consequently, this issue directly affects the cost of the loan.

      Answer contributed by Jean Jacques Bragard from Bragard

      Last verified on Thursday 1st March 2018

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