Uruguay VAT Rules for Swiss Digital Subscriptions

Uruguay’s General Directorate of Taxation (DGI) released a tax consultation document clarifying the tax treatment of a digital subscription service provided by a Swiss company, under the Uruguay - Switzerland tax treaty, with no permanent establishment (PE) in Uruguay. The tax consultation document includes clarifications of applicable rules of both the income tax and the VAT.

Impact on Foreign Digital Service Providers

The Swiss company argued that since it is not a resident and does not have a PE in Uruguay, only Swiss tax applies under the bilateral tax treaty between Switzerland and Uruguay. Moreover, it held that its income from Uruguayan users is not subject to Non-Resident Income Tax (IRNR). 

Consequently, the company claimed that it is not subject to VAT, as only those subject to IRNR can also be VAT taxable persons for digital services under Uruguayan law. Additionally, the Swiss company claimed that its services, such as recipes, written materials, and images with some audiovisual tutorials, do not fall under the definition of audiovisual products under Uruguay’s VAT legislation.

However, in its tax consultation document, the Uruguayan DGI clarified that tax treaties only determine which country has the right to tax certain income types, without defining whether a person is a taxable person under domestic law. Therefore, this status must be determined by Uruguayan national tax rules. 

The DGI clarified that VAT applies to services provided in Uruguay, including those offered through digital means such as the Internet or applications, when those services are consumed or used in Uruguay. Furthermore, for a service to be taxable in Uruguay, the service recipient must be in the national territory. This can be determined through indicators such as the user's IP address or billing address, or when payment is made through electronic means administered from Uruguay.

Regarding the definition of audiovisual products, the DGI emphasized that it is broad and encompasses all content produced with sounds, images, or moving images, whether combined or separate. Since the platform consists of such materials, specifically audiovisual tutorials as part of the subscription, this type of content falls under that definition.

Conclusion

Ultimately, the DGI concluded that, even though the Swiss company is exempt from IRNR in Uruguay due to the double taxation agreement between countries, its digital subscription services offered to Uruguayan users are subject to VAT because they qualify as audiovisual services consumed within the country. Furthermore, the applicable rules require that, in such cases, local entities making payments for these services act as withholding agents, liable for deducting and remitting VAT on behalf of the foreign provider.

Source: The Director General of Revenue