Not as advertised

May 27, 2010
Chicago, IL, USA

Uruguay is one of the countries that generally receives a lot of praise and positive commentary in the expatriate blogosphere. It’s often referred to as the “Switzerland of South America,” or compared directly to Paris… probably by people who have been to neither Switzerland nor Paris.

The truth is that Uruguay is a very pleasant country in many respects. It’s relatively clean, quiet, safe, and not very corrupt. Punta del Este, more specifically, is a great town with a hip and sometimes chaotic nightlife for a few months out of the year.

Other parts of the country can leave a bit to be desired… the poverty, blight, and disrepair are more noticeable, and a ridiculous array of taxes and high import duties ensures that only the wealthiest residents have access non-basic goods.

More importantly, though, Uruguay’s reputation as a tax haven and offshore financial center is completely undeserved. I’ve been saying this for a while, most recently on February 26th of this year. It appears that the government is now trying to put an end to the argument altogether.

It started in 2007 when the government imposed a personal income tax. Over the last few years, the country has laid down for the OECD, reducing its attractiveness as an offshore banking center.

Now, Uruguay’s left-leaning government, led by President Jose Mujica, recently unveiled draft legislation to tax all residents on their worldwide income, as well as a wealth tax on the $8 billion worth of assets that Uruguayan residents hold outside of the country.

As the vast majority of Uruguayans have no income or assets outside of the country, the new tax code changes only affect wealthy locals and foreign residents… a small minority in this country of 3 million people.

While the Uruguayan culture is typically not one of blood-sucking socialism at all costs, the enormous demographic gap between those with assets overseas (a small minority) and those without (the majority) suggests that the bill will likely become law.

In my book, this knocks Uruguay off the list of countries where someone should live as a declared resident. It may still be a great place to spend a lot of time, though it would be much more advantageous to do this as a perpetual tourist.

Specifically, one could establish permanent residence in a place like Panama or the Bahamas, then live in Uruguay as a tourist. US, Canadian, and EU citizens are allowed to stay in the country for 90-days at a time; once the 90-days are up, you can hop a 1-hour flight to Buenos Aires, spend the weekend, and fly back to Uruguay.

It’s unclear right now whether Uruguay’s new measures create a tax liability on the worldwide income of non-resident Uruguayan citizens; if not, an Uruguayan passport may still be a reasonable document to acquire… as long as the applicant doesn’t plan on living in the country.

For example, one could travel to Uruguay, establish permanent residence, pay the taxes for 3-years, acquire Uruguayan citizenship, then leave the country for good.

Overall though, I think there are much better options– Paraguay, Brazil, Chile, and even Belgium.

More to follow.