Punta del Este, Uruguay

Latin American Tax News

December 2023
Follow some important tax developments in the region:

Argentina: Significant Foreign Trade and Tax

1 Measures.
The recently elected Government has moved fast in passing new tax and
foreign trade measures which intend to promote exports while eliminating fiscal
deficit. Please find below an executive summary on main dispositions:

a. Exports Incentives Program. Exports are generally and with no timeline

restrictions subjected to a preferable FX rate which is determined based
on an 80% official exchange rate (post 54% devaluation of AR$) + 20%
blue chip swap rate (i.e., contado con liquidación).

b. Increase in Imports FX Tax. The tax applicable to FX transactions through

which importers access to foreign currency has been increased to 17.5%
(from former 7.5%). This applies to most import, transport and freight
transactions.

c. Reduction in foreign-related transactions tax collections. Taxes and

collection obligations applicable to transactions entered into with foreign
parties and/or abroad by Argentine residents have been reduced and
refers to the so-called impuesto PAIS and income tax | personal assets tax
collections due on payments made through credit | debit cards, digital
services, transport and tourism, among others.

d. Access to the FX market for the import of goods. No prior authorization is

required for the new imports of goods filed with customs as of December
13 th, 2023, subjecting payments to a schedule ranging between immediate
access to FX market and 180 calendar days, depending on the goods
involved. While insurance and freight is payable upon first access to FX
market for new imports, any pending transactions and most imports
1

relating to filings made with customs prior to December 12 th, 2023, require
Page

authorization.
 e. Access to the FX market for the import of services. In similar terms to the
above-mentioned imports of goods, services’ payments accruing as of
December 13 th, 2023, do not require prior authorization and are subjected
to a schedule of up to 180 calendar days. Obligations arisen before such
date are subject to prior authorization from Argentine Central Bank.

f. Pending goods and services’ imports bond. Argentine Central Bank will
offer bonds nominated in USD with a maturity until October 31st, 2027,
which can be subscribed by importers in AR$, bearing an interest of up to
5% and which may be anticipatedly rescued and/or used to cancel certain
tax obligations. Such bonds are subject to the imports FX tax (see point b
above) if subscribed as of February 1st , 2024 (subscriptions prior to such
date are exempted).

g. Urgency Decree issued by President Milei incorporates the de-

regularization of all foreign trade transactions among other economic and
general measures while an overall package has been sent to Congress.

h. Congressional extraordinary sessions have been called throughout

January to address significant tax topics, including the ratification of the
Double Taxation Agreements entered into with China, Luxemburg, Japan
and Turkey, as well as a new tax amnesty and wealth tax regime, among
others.

In addition to the above, the leaving government has set forth a 15%
extraordinary and anticipated income tax payment for the oil and gas industry
which applies to legal entities which have filed an IBT exceeding AR$ 600B in
FYs 2022/23 (depending on FY closing), before losses are considered. This
measure is in line with prior similar regulations applicable to other industries and
continues to apply under new administration.

Important: The current business environment in Argentina requires local teams’

full focus on existing challenges and their alternatives. Local tax and foreign trade
planning is being jointly handled by Latin American Tax and in-house teams in a
demanding summer season. Developments will continue to be reported.

Brazil: Amended Tax Deferral Rules for Individuals

2 and Investment Funds.

Brazil has incorporated new deferral rules that are applicable as of
January 2024. In simple terms, holding companies which previously provided
deferral strategies to owning individuals have now been characterized under
Controlled Foreign Corporations (CFC) regulations and their accounting profits
2

subjected to a 15% tax. Optional transparency regime permits disregarding

Page

holding companies and taxing underlying assets accordingly. Individuals are

given the possibility of updating their foreign assets’ market value as of
December 31 st , 2023, and taxing the difference at an 8% rate.

Focus is made on trusts and similar instruments' dispositions and distinction

between revocable and irrevocable structuring, including the provision of
information by settlors and/or trustees. Also, the application of withholding
income tax (IFFR) has been established for investment funds with qualifying
requirements as investment entities permitting a beneficial 15% IFFR.

Important: Latin American Tax is helping Brazilian resident individuals review

their wealth structuring under new deferral rules and securing both their tax and
family planning positions.

Chile: DTA with US in force.

3 Chile and the US have completed the ratification process and the
corresponding Double Taxation Agreement (DTA) is now in full force as
of January 1 st , 2024, for other taxes and February 1st, 2024, for
withholding taxes. DTA’s incorporations for US residents doing business in Chile
will have a significant incidence on source withholding rates, PE qualification,
transfer pricing (APA and MAP included) and double taxation avoidance, among
many others.

Important: Ratification of the Chile - U.S. DTA constitutes a key tool for
investments by such countries, particularly when critical minerals’ exploration
projects are expected in the region. Its detailed analysis has become important
for existing and prospective investments and may have additional consequences
under MFN clauses for other DTAs. At Latin American Tax we are supporting
clients in such analysis.

Dividends paid to French Holder only Partially Exempted.

Dividends paid by a Chilean wholly owned subsidiary to its French holder do not
benefit from the exemption rules applicable to domestic and/or EU legal entities
notwithstanding dispositions under Section 22 of the Chile – France DTA
establishing same tax treatment than the one applicable to French or other EU
Member States.

The Paris Court of Appeal has decided (decision may still be revised by Conseil
d’Etat) that Chilean dividends are subject to the French parent-subsidiary regime,
exempting 95% and taxing 5% of the dividends if certain requirements are met.
This implies that the current 99% dividends exemption would not be applicable
to Chilean distributions.
3

Important: Dividends distributions by Latin American subsidiaries are often

Page

executed taking into account the consolidated effective tax rate forecast. Chile is
many times involved in such process and demands special focus on both (i)
domestic WHT under complex regime and (ii) subsequent crediting and taxation
at holders’ level. Latin American Tax has a vast experience in such two-fold
analysis and supporting MNEs central tax teams.

Colombia: Taxation of Foreigners’ Significant

4 Economic Presences.
Ministry of Finance in Colombia has regulated the taxation of foreign
parties Significant Economic Presences (SEP). SEP’s scope and definition
exceeds the concept of a permanent establishment and subjects the
corresponding activity to CIT as of 2024. In a nutshell, SEPs are understood to
include the provision of goods and/or services in favor of Colombian customers
and/or users when a minimum gross income threshold exists and other metrics
or local currency (COP) displayed pricing requirements are met.

SEP´s taxation is reduced to a 3% on gross income if proper filing is made, while

a 10% WHT would apply otherwise. An advance payment upon proper filing will
also be due.

Latest regulations include relevant definitions (e.g.; clients | customers | digital

services), SEP’s scope in cases of goods | services sales and the obligations to
be met by foreign parties holding a SEP.

Important: SEP regulation is broad and should be analyzed in detail to minimize

taxation and eventual unexpected restriction to foreign parties doing digital
related business in Colombia.

Costa Rica: Foreign Passive Income Taxation and

5 Substance Requirements Regulated.

As previously reported, Costa Rica has been excluded from the EU tax
blacklist, but country’s implementation of the so-called Global Forum
recommendations for the automatic exchange of information remains pending.
This last step is expected to be reviewed in early 2024.

Delisting as an EU non-cooperative jurisdiction has been accomplished through

the clarification of the territorial principle and subjecting to tax the foreign sourced
passive income obtained by non-qualifying entities. Qualification depends on the
substance of the legal entity involved and will additionally apply to permanent
establishments located in Costa Rica. Supplementing the described
amendments, foreign tax crediting is incorporated when arising in cooperative
jurisdictions and an anti-avoidance provision permits recharacterization of
4

qualified entities by tax authority.

Page
The above-mentioned dispositions have been duly regulated, establishing
significant clarifications and incorporations thereto.

Important: New status would exclude Costa Rica from EU Member States
defensive measures while repositioning country as a traditional tax platform vis
a vis European MNEs doing business in the Latin American region. At Latin
American Tax we are supporting clients looking into substance requirements and
adjustments that need to be considered when determining legal entities’
qualifying status.

Ecuador: Transfer Pricing Reporting.

6 Tax Authority in Ecuador (SRI) has set forth certain amendments to

transfer pricing reporting obligations, including filing thresholds and
scope. In such regard, reporting duties arise when related parties’
transactions exceed USD 3M (related parties annex) or 10M (comprehensive
report). Also, filing formalities, supporting taxpayers’ return and confidentiality
terms were updated. From a substantive perspective, use of comparable data
has been detailed, including those concerning third parties and prior FYs’ data.

In addition to the above, SRI has issued certain technical instructions which
include TP reports scope | presentation, working capital adjustments formula,
benchmarking criteria and new filing proceedings, among others.

Important: Latin American Tax has a strong transfer pricing team looking after
regional compliance analysis and filing obligations with a centralized and
practical approach where the increasing audits taking place in such arena are
duly considered.

Uruguay: Tax Benefits for IT Professionals and

7 Technicians*.
Law No. 20,191, ("the Law") presents a compelling option for Information
Technology ("IT") professionals and technicians choosing to offer their services
from within Uruguay. They have the choice of either: (i) Paying a Non-Resident
Income Tax ("IRNR") at a fixed rate of 12% based on their taxable monthly
income; and (ii) Opting out of social security contributions, which, in turn,
excludes them from certain benefits within Uruguay's social security system.

Recently, the enactment of the Executive Decree has further clarified these
provisions. To be eligible for these benefits, IT technicians and professionals
must meet specific criteria: (i) Fulfill the prerequisites outlined in the Law,
including not having established tax residency in Uruguay within the past five
5

years. (ii) Decide to work within Uruguay's borders as employees for companies
Page

situated in Uruguay that have been engaged in Research and Development

(R&D) activities in various fields such as biotechnology, bioinformatics, and
software production and development.

Employees are required to exercise this option at the commencement of their

employment by providing a sworn statement. This statement should be
communicated by the employer to the Tax and Social Security Office.

The Decree also outlines certain obligations for employers: (i) Ensuring
compliance with legal requirements. (ii) Providing evidence that the employee's
salary is in exchange for services as specified by the Law. (iii) Verifying the
physical presence of the employee within Uruguay during the employment
period.

The proof of physical presence in Uruguay is verified by obtaining a certificate of

migratory movements from the National Migration Office. Employers are
mandated to retain this documentation for a period of ten years.

Important: Uruguay has given an additional step in attracting the technology

industry and its required resources. This adds to the already existing regime for
the acquisition of the tax residency and its foreign source income holiday which
has made Uruguay a highly attractive jurisdiction for both working nomads and
IT experts in the region. Latin American Tax is actively supporting executives and
individuals moving to this country.

* Contribution made by Rodrigo Fello and Mariana Pisón, with Bergstein Law
Firm.

Please let us know if any clarification or further detail and/or support

is needed. Feedback is appreciated. 6
Page