Learning Uruguay

Every day brings ????

Income tax reform…

Posted by urufish on June 18, 2007


I was going to start this with a snappy title, but I dont think that’s appropriate considering the mood of the content. 

 Yesterday was the first day I saw pain in the eyes of a Uruguayan–a friend of ours for many years.  About a week ago, she told us she found the taxes in the paper that she would have to pay on her property rentals.  She said it was a flat 12% on rental income.  She said she could deduct taxes (real estate, primaria, etc.)  She didn’t say anything about repairs.  She knew it was coming and she’d already resigned herself to it.  Keep in mind that many Uruguyans live right on the edge.  A lot of people will suffer under this new law.  I could never figure out why there wasn’t an outrcry months ago when it was announced.  From what I see going on this week, it looks like it’s a delayed reaction. 

Yesterday, she was totally depressed.  I guess she either didn’t know or didn’t put 2 and 2 together, but the tax on profits on the sale of real estate and cars, kicks in.  I had never much concerned myself with those because the few properties we own, we either use or get income from.  We have no intention of selling them.  But this lady has had her apartment up for sale since December.  Because she didn’t sell it before, she says she’s now subject to tax on the difference between what she bought it for 10 years ago and what she’ll sell it for.   The apartment appreciated 30%, so she has to pay taxes on about USD$25K.  I dont know if she’s right, but that’s what she thinks.  I’m going to meet with my acocuntant some time this week and go over all this stuff with him and get it straight.   It’s good for me to know and at the same time, I’ll post the details here with some examples of how it would apply to expats buying property… residents and non-residents.   

The truth is, based on the average Uruguayan’s ability to avoid taxation, I expect we’ll see a large drop in the price of the average property sale, as officially reported.  

Today, a doctor from downstairs was visiting at our friends place.  She was also depressed.  On July 1st, her salary drops $7K overnight.  Since she was just making ends meet before, ( no car, no vacations, modest lifestyle), she was trying to figure out what she could cut to make up for the instant loss.  I asked the question ‘so what are you getting in return?’.  The sober answer was ‘nothing’.  Then I asked what is the government going to do with this ‘mountain’ of money it will be getting.   I’m sure her answer was the typical Uruguayan’s…  these new government people will get very rich, very quickly. 

I’m still trying to figure out how the government can tax the profit on the sale of a car.  I’ve never personally met anyone who made money selling a used car.  But maybe it targets car dealers.  It’s very common here for a car dealer, new or used, to sell you the car personally.  I always assumed they did this to get around the taxes a car dealer company would have to pay.  Maybe the government figures the same thing?   


18 Responses to “Income tax reform…”

  1. roberto said

    Today, a doctor from downstairs was visiting at our friends place. She was also depressed. On July 1st, her salary drops $7K overnight. Since she was just making ends meet before, ( no car, no vacations, modest lifestyle), she was trying to figure out what she could cut to make up for the instant loss

    She must be doing wrong the calculations. For your salary to drop $7k after the new income tax, you need to have at least $75K in salary, which is more than USD3K. In the site http://www.uruguayavanza.gub.uy you can download a spreasheet that will help with the calculations.

  2. urufish said

    She’s a gastroenterologist. If you make USD$2K per month, you’re over UYP490K/year. You pay 20% tax. On UYP46,000 (USD2K/mo), that’s UYP9200/mo in taxes. She’s paying $7K, so she’s making less than USD2K.
    What did I misunderstand?

  3. urufish said

    Oops. forgot to thankyou for the link.. I knew it existed, but I couldn’t find it.

  4. laurel said

    id she makes 2000 dollars a month and pays 20% on it, it is $400.00 per month X 12 monthe X 20% = $4,800 dollars a year tax not 7 thousand dollars.

  5. urufish said

    ahhhh… I get it.. Because I live here, my habit (most of the time) is to use $ fror Pesos.. USD for dollars. maybe I’ll get into the habit of using UYP in the future… in the original post, I meant UYP7K. Sorry for confusing you.

  6. urufish said

    For those of you who dont live here, when a local (or an expat) uss $, it usually means UYP.

    Another local convention is when we talk about salary, we usually talk about monthly income, mensual. Up north, casually, we talk about it as a weekly amount. Officially, it’s expressed as yearly or sometimes monthly.

    The first time I’ve evern seen it shown as a yearly figure here was on the income tax table. Prior to that table, I’ve seen it shown monthly in other government examples. I guess they figured by the end of the process, that not everyone makes the same amount every month.

  7. Brazzie said

    When they started taxing capital appreciation of real estate properties in Brazil, many sellers negotiated lower “official” price upon a sale. Of course, this only pushes the tax to the new owner and to a later date.

  8. gaberoo said

    If she makes less than 2k USD and has a hard time making ends meet, then you can imagine that this is the situation with most doctors in Uruguay (they work in several mutualistas and still have a hard time scraping by). How did the Frente Amplio (or whatever their current name is) come up with this “brilliant” idea of taxing the incomes of people who already have barely enough (most of the population in Uruguay, I’m sure: the average salary is surely less than 2k USD and I think the “canasta basica familiar”–the basic needs of a family of four–is at around 29,000 uruguayan pesos, or roughly 1260 US dollars. This calculation was from around October of 2006 so it should still be valid.)?
    The popular concept of “it’s their turn now” with regards to politicians likely contains much truth.

  9. Brazzie said

    Irv, sorry to roil the waters. Either I not understanding the spreadsheet cited by Roberto or her math is wrong. When I do the math, I come up with a tax of 7k pesos per year!
    Here’s what I did.
    1) I assumed she is making 55,000 pesos (2,200 USD) per month.
    2) I looked at the tax table and saw that up to 30 times the BPC (minimum wage, I think) you pay nothing.
    this translates to an exemption of 49,080 pesos.
    3) Her taxable amount is then 5,920 pesos per month
    4) The table says that 10% of that amount is taxable or 592 pesos per month
    5) 592 times 12 is 7,104 pesos per year in income taxes, or 284 USD
    Please let me know if got something wrong. Cheers

  10. urufish said

    Could be she doesnt understand the spreadsheet. She’s a doctor, but I haven’t talked to anyone yet who isn’t confused.
    Brazzie, are you sure the deduction of UYP49k is a monthly amount. That sounds way too high for any kind of income tax deduction. That would translate into over USD25K per year in basic deduction. Dont know about the US, but Canada’s basic deduction is around CAD2500 nowadays.
    If the average working guy who makes around USD500/mo is paying around 10% of gross in taxes, it couldn’t possibly be a monthly deduction. Your spanish is a lightyear ahead of mine. Read it again and let me know.

  11. urufish said

    If you’re going to have an income tax without a revolution, you have to go easy on the little guy, a little harder on the average guy and even harder on the upper income earner. You cant piss off the upper income earner too much. You have to make the majority of your money from the middle class. That’s hard here because most of the middle class disappeared (by definition of yearly income) during the military years.

    From what I’ve heard since I’ve been here, middle class Uruguayans are embarrassed with the condition of their education system and old people. Most people would pay more taxes if it went there. But no one believes that these taxes will do this. They believe the government will come up with schemes and projects so that corrupt politicians can take their cuts.

    When I was at the dentist today getting a root canal (definitely a post there), he hardly ever looked in my mouth. He was talking to my wife (official translator) the entire time about the income tax and the profit tax on selling cars and houses. I wish she had a better memory because I’d love to know exactly what he said so I could compare it to what I know and what I’ll hear from other people.

  12. urufish said

    Forgot to mention I asked the dentist what his take was on the crazy tax on profits for selling a car. I asked him if he ever knew anyone who made a profit selling a used car. He said that several years ago, there was a time when you would buy a used car and you would sell it for more than you paid for it. I asked why a government, that wasn’t even in power then would decide to make a law to cover a situation that doesn’t exist any more. He said ‘maybe they’re stupid’.
    My money’s still on that loophole they’re exploiting, where they sell a car at cost (plus IVA of course), from a dealership to the owner or employee and they sell it to the customer at a profit. Because there was no personal income tax before, this was a way to avoid paying taxes on new car sales.
    I’m starting to see that this isn’t an income tax at all. Maybe that’s why it’s called a tax reform. They’re just widening the net. But by not having an across the board ‘income tax’, inequities and convulated methods of evasion will get worse.
    This year, they’re adding taxes for ‘rent’, ‘selling an automobile’, ‘selling property’ and ‘salaries’ to the net.

  13. Brazzie said

    Hi Irv,

    I scoured the uruguayavanza site and you are right. The deductible amount mentioned is annual (which is weird because most everything else is monthly).

    Therefore my calculation above is completely incorrect, since the deduction amount was assumed to be monthly.

    Poor woman, she is going to pay a lot of money in taxes.

  14. roberto said

    If she has a gross monthly income of UYP 49.000 and she works at a hospital (if she is self employed the calculations are different), nowadays she would be paying UYP 2.940 for IRP (Impuesto a las Retribuciones Personales), with the new law this IRP is derogated and she will be paying UYP 6.091 for IRPF (Impuesto a la Renta de las Personas Fisicas), so she will be paying UYP 3.151 more per month than before. There are some special months like June and December were we get “Aguinaldo” and when we get “Salario Vacacional” or Vacations Salary where she will be paying a bit more as this additional income will also be taxed.

    Also if she has children younger than 18 years old, se will pay a bit less as she is allowed some deductions for them.

  15. urufish said

    Roberto, so far you are the only person I have met who has a coherent knowledge of the details. Are you an accountant, an accounting student, or a sponge who is interested in the tax reform or has stumbled into it by accident 🙂 (This is meant as a compliment).

    The only ‘facts’ that I know for certain is she said she will be paying $7K more/month, works for at least one mutualista, has a private practice and 2 children under 18. It’s possible she has miscalculated. It’s possible she didn’t take into account the reduction in IRP. Maybe by the time I see her, (she is to become my ‘butt’ doctor), she’ll know for sure.

  16. roberto said

    Im just one who is going to suffer this and has tried to read and listen so as to know how it will affect me, so Im just Sponge Bob. 😉

    From the income she gets from the mutualista, she will be paying a bit more (IRP becoming IRPF). The problem for her is that the part she earned from the private practice wasnt taxed before, and now it will. This was one of the situations I think this tax reform was trying to address.

  17. Futurexpat said

    Is this new income tax being linked in any way with a reduction in the national sales tax?

  18. urufish said

    Yes.. I think its supposed to drop from 23% to 22%, then drop some more. Perhaps, I’m a pessimist, but I really expect the government to drag their heels on this.. and who knows, maybe delay further reductions indefinitely, citing problems with the system and a drop in anticipated tax revenues.

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