Countries › Uruguay › Guide › 6. Taxes › Interest deductibility and thin capitalization in Uruguay: no debt to equity ratio, but the 48 percent rule, wealth tax on foreign debt and transfer pricing
Interest deductibility and thin capitalization in Uruguay: no debt to equity ratio, but the 48 percent rule, wealth tax on foreign debt and transfer pricing
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Last verified: 2026-10-27 · Status: Stable
Uruguay's IRAE has no debt to equity ratio or earnings based interest cap; instead, interest paid to a foreign lender taxed at 12 percent IRNR is only 48 percent deductible unless the lender shows an effective foreign rate of at least 25 percent. Loans from abroad, including from the parent, also do not reduce the wealth tax base, so they cost 1.5 percent a year of the balance, while local bank debt is deductible for that tax. Interest on related party and low tax jurisdiction loans must be at arm's length, and lenders in low or no tax jurisdictions face 25 percent withholding, so financing structures are driven by these three rules together.
USD figures use UYU 40.214 per US dollar, the BCU quotation for DLS. USA BILLETE on 26 October 2026; UI amounts use UYU 6.6780 per Unidad Indexada, the BCU quotation for 26 October 2026. Both were retrieved from the BCU quotations service on the verification date; conversions are for orientation only.
Key facts
| Debt to equity ratio for IRAE interest deduction | None; deductibility is limited by the proportional rule of art. 31 T.O. 2023 Title 4 art. 30 and art. 31, as of 2026-10-27 · in force |
|---|---|
| Earnings based interest cap | None in IRAE T.O. 2023 Title 4 Chapter V, as of 2026-10-27 · in force |
| Deductible share of interest taxed to the lender at the 12 percent IRNR rate | 48 %T.O. 2023 Title 4 art. 31, as of 2026-10-27 · in force |
| Foreign loans deductible for the corporate wealth tax | No T.O. 2023 Title 14 art. 19, as of 2026-10-27 · in force |
| Withholding on interest on loans paid to non residents (IRNR general rate) | 12 %T.O. 2023 Title 8 art. 18 literal B), as of 2026-10-27 · in force |
| UYU per US dollar used for conversions (BCU, DLS. USA BILLETE, 26 October 2026) | 40.214 UYUBCU quotations service, as of 2026-10-27 · in force |
The rule
1. Interest is deductible as a necessary, documented expense only if it is taxable income for the lender under IRAE, IRPF, IRNR or an effective foreign income tax. When the lender is taxed under IRNR at 12 percent, only 12/25 (48 percent) of the interest is deductible; at the 25 percent IRNR rate, or with an effective foreign rate of 25 percent or more, the deduction is full; at a lower effective foreign rate it is proportional.
Cost to do it: The non deductible 52 percent raises IRAE by 13 percent of the interest.
Example: Interest of UYU 12,868,480 on a parent loan: deductible UYU 6,176,870, extra IRAE UYU 1,672,902. / US$320,000 of interest: US$153,600 deductible and US$41,600 of extra IRAE.Texto Ordenado 2023 (DGI), Title 4 IRAE, Title 4 art. 30 and art. 31, 2006-12-27 official text · verified 2026-10-27
Cost to do it: The non deductible 52 percent raises IRAE by 13 percent of the interest.
Example: Interest of UYU 12,868,480 on a parent loan: deductible UYU 6,176,870, extra IRAE UYU 1,672,902. / US$320,000 of interest: US$153,600 deductible and US$41,600 of extra IRAE.Texto Ordenado 2023 (DGI), Title 4 IRAE, Title 4 art. 30 and art. 31, 2006-12-27 official text · verified 2026-10-27
2. Exceptions to the general principle allow full deduction of interest on deposits in Uruguayan financial intermediation institutions, interest on loans from international credit organisations Uruguay belongs to and from foreign state financial institutions for long term productive projects, and interest on publicly subscribed, listed bonds and similar debt.
Cost to do it: Full deduction without the proportional limit.
Example: Interest of UYU 12,868,480 on a listed bond issued in Uruguay is fully deductible. / US$320,000 of interest on a qualifying listed bond saves US$80,000 of IRAE.Texto Ordenado 2023 (DGI), Title 4 IRAE, Title 4 art. 33 literals F), G), I) and J), 2006-12-27 official text · verified 2026-10-27
Cost to do it: Full deduction without the proportional limit.
Example: Interest of UYU 12,868,480 on a listed bond issued in Uruguay is fully deductible. / US$320,000 of interest on a qualifying listed bond saves US$80,000 of IRAE.Texto Ordenado 2023 (DGI), Title 4 IRAE, Title 4 art. 33 literals F), G), I) and J), 2006-12-27 official text · verified 2026-10-27
3. For the wealth tax, companies can deduct only listed liabilities: debts with Uruguayan banks and financial entities, with States, international credit organisations and foreign state financial institutions for long term productive projects, suppliers' credit other than loans, unpaid taxes, and publicly offered listed bonds. A loan from a foreign parent or a foreign private bank is not deductible.
Cost to do it: 1.5 percent a year of the non deductible loan balance (before the IRAE offset of art. 55).
Example: A UYU 160,856,000 parent loan costs UYU 2,412,840 a year of IP compared with a local bank loan. / A US$4,000,000 foreign loan costs up to US$60,000 a year of IP.Texto Ordenado 2023 (DGI), Title 14 Impuesto al Patrimonio, Title 14 art. 19, 2006-12-27 official text · verified 2026-10-27
Cost to do it: 1.5 percent a year of the non deductible loan balance (before the IRAE offset of art. 55).
Example: A UYU 160,856,000 parent loan costs UYU 2,412,840 a year of IP compared with a local bank loan. / A US$4,000,000 foreign loan costs up to US$60,000 a year of IP.Texto Ordenado 2023 (DGI), Title 14 Impuesto al Patrimonio, Title 14 art. 19, 2006-12-27 official text · verified 2026-10-27
4. Interest paid to non residents bears IRNR at 12 percent, or 25 percent when the lender is in a low or no tax jurisdiction. Interest on loans to IRAE taxpayers whose assets used for non taxed income exceed 90 percent of total assets is exempt.
Cost to do it: 12 or 25 percent of the gross interest, withheld by the borrower.
Example: UYU 12,868,480 of interest to a foreign parent bears UYU 1,544,218 of IRNR. / US$320,000 of interest bears US$38,400 of IRNR, or US$80,000 for a low tax lender.Texto Ordenado 2023 (DGI), Title 8 IRNR, Title 8 art. 18 literal B) and art. 19 literal B), 2022-10-20 official text · verified 2026-10-27
Cost to do it: 12 or 25 percent of the gross interest, withheld by the borrower.
Example: UYU 12,868,480 of interest to a foreign parent bears UYU 1,544,218 of IRNR. / US$320,000 of interest bears US$38,400 of IRNR, or US$80,000 for a low tax lender.Texto Ordenado 2023 (DGI), Title 8 IRNR, Title 8 art. 18 literal B) and art. 19 literal B), 2022-10-20 official text · verified 2026-10-27
5. Related party loans must carry arm's length terms, and loans from low or no tax jurisdictions are presumed related and not at market value, so the DGI can adjust the rate under the transfer pricing methods.
Cost to do it: Benchmarking cost; any excess interest is added back at 25 percent.
Example: If an 8 percent intragroup rate is above an arm's length 6 percent, the excess UYU 3,217,120 can be disallowed. / A 2 point excess on US$4,000,000 disallows US$80,000 of interest.Texto Ordenado 2023 (DGI), Title 4 IRAE, Title 4 art. 46, art. 48 and art. 49, 2006-12-27 official text · verified 2026-10-27
Cost to do it: Benchmarking cost; any excess interest is added back at 25 percent.
Example: If an 8 percent intragroup rate is above an arm's length 6 percent, the excess UYU 3,217,120 can be disallowed. / A 2 point excess on US$4,000,000 disallows US$80,000 of interest.Texto Ordenado 2023 (DGI), Title 4 IRAE, Title 4 art. 46, art. 48 and art. 49, 2006-12-27 official text · verified 2026-10-27
| Lender | IRNR withheld | IRAE saving on interest | Extra IP on the balance |
|---|---|---|---|
| Uruguayan bank | None | US$80,000 | None |
| Foreign parent taxed abroad at 25 percent or more (proved) | US$38,400 | US$80,000 | US$60,000 |
| Foreign parent, no proof of foreign rate | US$38,400 | US$38,400 | US$60,000 |
| Lender in a low or no tax jurisdiction | US$80,000 | US$80,000 | US$60,000 |
Annual Uruguayan tax cost of US$4,000,000 borrowed at 8 percent (US$320,000 of interest), by lender (T.O. 2023 Title 4 art. 31; Title 8 art. 18; Title 14 art. 19 and 53). IP shown before the IRAE offset of Title 14 art. 55.
Worked example
- A foreign parent lends its Uruguayan subsidiary US$4,000,000 (UYU 160,856,000) at 8 percent: US$320,000 (UYU 12,868,480) of annual interest.
- The subsidiary withholds IRNR of US$38,400. Without proof that the parent is taxed abroad at 25 percent or more, it deducts only US$153,600, saving US$38,400 of IRAE instead of US$80,000.
- The loan balance is not a deductible liability for IP, so the subsidiary pays up to US$60,000 (UYU 2,412,840) more IP than with local bank debt, before the IRAE offset.
- Funding with equity instead removes the interest deduction but also the IRNR and the IP difference; dividends then bear 7 percent IRNR when paid.
Step by step
- Compare the after tax cost of equity, local bank debt and intragroup debt using the three rules: art. 31 (deduction), Title 8 art. 18 (withholding) and Title 14 art. 19 (wealth tax).
- If using intragroup debt, obtain evidence of the lender's effective foreign tax rate to support full deduction.
- Benchmark the interest rate and keep a loan agreement with arm's length terms.
- Avoid lenders in low or no tax jurisdictions: 25 percent withholding and transfer pricing presumptions apply.
- Recheck the structure if the company qualifies for the 90 percent non taxed assets exemption of Title 8 art. 19 literal B).
Common traps
- Absence of a debt to equity ratio does not mean free deductibility: without proof of a 25 percent effective foreign tax, more than half of intragroup interest is non deductible (Title 4 art. 31).
- Foreign debt is a double cost: 12 percent withholding and no reduction of the wealth tax base (Title 14 art. 19).
- Local borrowings that fund exempt or foreign assets are absorbed for IP, so the IP benefit of local debt can disappear (Title 14 art. 19 and 21).
- Back to back loans routed through a Uruguayan bank should be reviewed under transfer pricing and substance rules before relying on the bank exception.
Sources
- IMPO, Texto Ordenado 2023 Title 4 (IRAE)
- IMPO, Texto Ordenado 2023 Title 8 (IRNR)
- IMPO, Texto Ordenado 2023 Title 14 (Impuesto al Patrimonio)
- Banco Central del Uruguay, quotations service
Related pages
- taxes/corporate-income-tax
- taxes/wealth-tax
- taxes/withholding-on-remittances
- taxes/transfer-pricing
- finance/capital-markets-and-banking
- /country/uruguay/
- /calendar/
- Live dashboard
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