Uruguay raises the tax holiday threshold to $2 million and introduces a 12% tax on foreign-sourced income

Since 2020, Uruguay has offered foreign individuals and companies the possibility to obtain tax holidays when applying for tax resident status. Under the existing model, residents could benefit from an exemption from taxation of foreign income for up to 11 years: during that period, they were not required to pay taxes on receipts generated by overseas assets.

Previously, qualifying for the favorable regime was relatively straightforward thanks to softer criteria tied to both investment and physical presence in the country. In practice, this meant that applicants typically had to purchase real estate of roughly $590,000 and remain in Uruguay for at least 60 days during the calendar year.

From January 1, 2026, the rules will change—key updates are set out in Law 20.446 (Uruguay’s budget for 2025–2029). In particular, the minimum real estate investment threshold is increased to around $2 million, and some “fast-track” routes to residency under the earlier parameters will no longer work.

At the same time, a new tax framework is introduced for those who do not take advantage of the tax holiday. From that point on, most types of foreign income will be taxed at 12%. The previous link to the 60-day presence requirement is also removed.

According to Francisco Litva, CEO of Settee, the reform is intended to strengthen public spending funding by revisiting the tax rules.

What changes from a tax perspective

Starting January 1, 2026, Uruguay’s tax IRPF (Impuesto a la Renta de las Personas Físicas) will apply to foreign income earned, including through non-resident structures, as well as to related transactions. In particular, the following will fall within the scope:

• income and results from holding movable and immovable capital when the assets are held through non-resident structures;
• capital gains arising from such assets.

For tax residents who do not fall under the tax holiday regime, the relevant receipts will now be taxed at 12%.

Uruguay has already applied a 12% withholding tax to foreign dividends and interest for residents who do not have the benefit of a favorable status (the regime has been in place since 2011). However, certain categories—above all foreign capital gains, as well as rental income earned through non-resident structures—were previously outside the tax net. The revised version effectively closes that exception.

In addition, a “tax transparency” approach is introduced: the results of non-resident companies will be allocated to Uruguay-based individuals—shareholders—for IRPF calculation purposes. This reduces the attractiveness of offshore structures that previously helped lower the overall tax burden.

There are also elements that soften the impact for investors: losses on foreign capital gains can be offset against other foreign capital gains and income from movable capital. At the same time, derivative financial instruments (derivatives) will still not be included in the tax holiday regime.

New conditions to qualify for tax holidays

Tax holidays remain available for new tax residents, but from January 1, 2026 the criteria become stricter. The law sets out three main scenarios:

• Presence in Uruguay for more than 183 days during the year (investments are not required);
• Real estate investments above 12.5 million Unidades Indexadas (roughly $2 million);
• Annual investment of $100,000 for 11 years in the National Innovation Fund.

There is also an additional model linked to investments in local business: a grant of approximately $2.4 million may provide tax residency through a special mechanism. However, it is important to stress that simply obtaining residency does not automatically guarantee tax holidays.

In addition, limitations have been introduced:

• the applicant must not have been a tax resident of Uruguay in the two preceding tax periods;
• the applicant must not have used tax holidays previously.

How the tax holiday will work

For individuals who meet the conditions of the favorable regime, there is full exemption from taxation of foreign capital income:

• for the year in which the tax residency status is granted;
• and for an additional 10 calendar years—for a total of 11 years.

After the favorable period ends, a 5-year transition phase applies with a 6% rate (half of the baseline IRPF rate of 12%).

For investors with higher income levels, the framework also contemplates one-off annual payments in the range of $200,000–$300,000. Final parameters will depend on how the rules are implemented in the implementing regulations.

It is also noted that the prior scheme using a fixed 7% rate on foreign income for new residents is being phased out gradually.

Finally, the grandfathering principle applies: individuals who have already used the benefit will keep the terms they previously agreed to. Law 20.446 confirms that all foreign capital income and capital gains will fall under the existing exemption for the remaining period.

Reform outlook: what experts are highlighting

EC Holdings founder and CEO Philip May believes that current program participants are not affected, and that the reform is a positive change for Paraguay—viewed as Uruguay’s key competitor.

Litva adds that the new option via the innovation fund is available to those who invest $100,000 per year into predetermined projects. Overall, he believes the changes reflect the fiscal priorities of the new government.

At the same time, the expert notes that for existing investors the program could even become more practical: it creates a path to extend the benefit by moving to the 6% rate regime after 11 years.

Litva’s main concern, he says, is more political than purely tax-related. Previously, Uruguay relied largely on a territorial taxation model, allowing residents and foreigners not to pay tax on overseas income. As reforms tighten benefits for Uruguayans, those incentives for participants in immigration programs have largely remained. In his view, widening the gap between groups can create a sense of unfairness—similar to the reaction to the early version of Portugal’s Non-Habitual Residency regime, which was later abolished.

Why the reform could turn out “costly” by regional standards

High-net-worth investors willing to put in $2 million will still be able to secure 11 years without tax without a full relocation, and then an additional 5 years at 6%. For those who prefer investments spread over time, there is also an option involving annual contributions to the fund: by investing $100,000 per year, investors can expect tax holiday benefits comparable to those achieved without a large one-time payment. However, the final outcome will depend on how future rules are written—because the fund issues securities rather than providing “payment certificates” as a form of donation.

Litva also calls the option involving an annual payment of around $300,000 “overpriced” in the regional context. He points out that in Paraguay, Panama, and Honduras, the requirements for obtaining tax residency are often cheaper and involve less emphasis on actual physical presence.

Looking at comparable or lower annual costs, the expert adds, in European jurisdictions—Italy, Greece, Poland, and Switzerland—there are regimes where the benefit is achieved through one-off payments. Demand for relocation among HNW investors remains high there as well.

Whether the Frente Amplio government can raise the required funding—or whether it effectively “redirects” potential residents to competitors—will depend on how the implementing regulations are ultimately applied. In any case, Uruguay’s previous balance between being a tax haven and having a full fiscal obligation is shifting in practice, and the “middle ground” is gradually disappearing.

If you’re planning a move and considering investment-based programs, it’s crucial to evaluate how tax rules are changing in your destination country. Uruguay’s reform—raising the threshold for tax holidays and introducing a 12% tax on foreign income from 2026—may directly affect the economics of your residency status. The Digital Nomad team will help you review the latest requirements and choose an approach aligned with your investment goals and tax planning.

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