IRPF for Company Partners and Directors in Uruguay: Fees, Dividends and Tax Holiday
IRPF (Personal Income Tax) is the tax on the personal income of tax residents in Uruguay. For company partners and directors, IRPF comes up at several points in their relationship with the company: when they receive a salary or fees for their management work, when the company distributes dividends to them, or when they have other personal income they must declare annually to DGI. Understanding how IRPF works in each of these contexts is essential both for partners and directors and for the companies that act as withholding agents.
What Is IRPF in Uruguay and Who Pays It?
IRPF is levied on income earned by individuals who are tax residents in Uruguay. It is governed by Title 7 of the 1996 Consolidated Tax Code and its regulatory decree, and is structured in two main categories of income: capital income (Category I) and employment and self-employment income (Category II). Employment income includes salaries, professional fees and pay for personal activity, while capital income covers dividends, interest, rents and capital gains. Each category has its own rates and deductions.
Only tax residents in Uruguay pay IRPF. Non-resident individuals with Uruguayan-source income are taxed under IRNR (Non-Resident Income Tax), which has its own rates and a different withholding mechanism. That is why correctly determining whether a partner or director is a Uruguayan tax resident is the first step to knowing which personal tax applies.
How IRPF Is Calculated in Uruguay
How IRPF is calculated depends on the category of income. For employment income (salaries, fees), IRPF is calculated by applying a progressive scale of rates to the taxpayer’s annual income, with deductions for BPS contributions and certain other items allowed by the rules (dependants, mortgage interest on a main home, etc.).
For capital income (dividends, interest, capital gains), IRPF generally applies at fixed flat rates, without the progressivity of employment income. This difference in treatment can have important implications for planning how partners’ income is structured: in some contexts, receiving profits as dividends can be more tax-efficient than drawing them as salary or fees, depending on the person’s total income.
Marginal IRPF Rate in Uruguay
The top marginal IRPF rate in Uruguay is 36%, applicable to the highest brackets of employment income. The scale is progressive, with several brackets starting at 0% for the lowest incomes and rising gradually to 36%. The brackets are expressed in Contribution Base Units (BPC), whose value is updated every year.
As a guide, the scale for employment income is: an exempt first bracket, then 10%, 15%, 24%, 25%, 27%, 31% and, for the highest incomes, 36%. For a business owner or director with significant annual income, planning the mix of their pay — dividends, salary, fees — can have a significant impact on their effective IRPF burden.
IRPF on Directors’ Fees in an SA
Directors’ fees in a Uruguayan corporation (SA) are employment-type income subject to IRPF. When an SA pays fees to its directors for holding that office, the payments are Category II income for the director, subject to the progressive scale. The SA acts as withholding agent: it must withhold the corresponding IRPF when paying and pay it to DGI.
For the company, fees paid to directors are deductible for IRAE, within certain limits the rules set according to the year’s results. This combination — deduction in the company’s IRAE and taxation in the director’s IRPF — can be used as a planning tool to optimise the total tax burden of company and director together.
It is important to distinguish directors’ fees from any salary a director may receive if, in addition to the board position, they are also an employee of the company (for example, as manager). In that case two types of pay with different tax and social security treatments coexist.
IRPF on Partners’ Dividends
Dividends distributed by Uruguayan companies to resident partners are subject to IRPF at 7%, as Category I capital income. The rate is fixed and flat regardless of the total amount of dividends received: there is no progressivity here.
The 7% applies to dividends paid out of profits that were subject to IRAE; there is no additional adjustment that reduces the taxable base. The combined burden on profits is therefore 25% IRAE at company level plus 7% on the remaining 75% distributed, i.e. about 30.25% in total. Dividends paid out of profits that were not subject to IRAE (for example, exempt or foreign-source income) are generally not subject to this 7%, so the accountant must identify the origin of the profits correctly at the time of distribution.
For non-resident partners, dividends from Uruguayan companies are subject to IRNR at 7%, the same rate as residents’ IRPF, which keeps the regime consistent across categories of shareholders.
IRPF for Foreign Residents
IRPF for foreigners who are tax residents in Uruguay works the same way as for Uruguayans: the progressive scale applies to employment income and the flat rates to capital income. The relevant difference is access to the special regime for new residents (the “tax holiday”).
This regime allows foreigners who become Uruguayan tax residents to opt to exclude foreign-source capital income — dividends from foreign companies, interest on bank accounts abroad and, since 2026, also rents and capital gains abroad — from the Uruguayan IRPF base for the year of the change of residence and the following ten years. For those who become resident from 2026, Law 20,446 conditions this benefit on maintaining a substantive link with Uruguay: more than 183 days of presence per year or a qualifying investment (in real estate, productive or innovation funds, or a company). Those who opted for the regime by 31 December 2025 keep their previous terms. Note that foreign employment income is not taxed in Uruguay in any case, as the country taxes work on a territorial basis.
This regime is extremely valuable for foreign entrepreneurs with assets and income in other countries who decide to settle in Uruguay: during the holiday they pay IRPF essentially on their Uruguayan-source income, which can mean a very significant reduction in their overall personal tax burden.
IRPF Withholdings: The Company’s Obligations
Uruguayan companies have IRPF withholding obligations on certain payments to resident individuals. The most common withholdings in a business context are:
- On employees’ salaries: the company withholds IRPF monthly on the worker’s income according to the progressive scale and pays it to DGI (together with the BPS payment).
- On directors’ fees: when fees are approved for the SA’s directors, the company withholds IRPF on that payment.
- On dividend distributions: when the company distributes profits to resident individual partners, it withholds 7% IRPF on the amount distributed out of IRAE-taxed profits.
- On fees paid to independent professionals: when a company pays fees to an independent professional who is not an employee, it may have to withhold a percentage of IRPF if the professional does not prove they already pay it directly.
Failing to withhold makes the company jointly liable for the unwithheld tax, with the corresponding surcharges and interest. That is why maintaining an internal withholding control system is a compliance priority for any company with employees or paid directors.
IRPF Exemptions in Uruguay
Uruguayan IRPF provides several exemptions relevant to company partners and directors:
- Foreign capital income for new residents: for new tax residents who opt for the regime and meet its conditions, as explained above.
- First income bracket: income below the tax-free minimum of the progressive scale is not subject to IRPF, which protects the lowest incomes.
- Certain employment benefits: some components of pay (meals, transport, work clothes) are exempt or have reduced treatment under specific conditions.
- Severance pay: statutory severance payments are exempt from IRPF, although amounts above the legal minimums may be treated differently.
Annual IRPF Return in Uruguay
The annual IRPF return in Uruguay is not mandatory for all taxpayers. In many cases, the withholdings made by the employer or the company distributing dividends are enough to settle the worker’s or partner’s annual tax without filing an additional return.
However, the annual return is mandatory or advisable in several cases: when the taxpayer has income from several sources (salaries from different employers, professional fees and dividends at the same time), when they want to deduct dependants or mortgage interest, when they have foreign income they must declare, or when the sum of their withholdings does not correctly reflect their total annual liability.
The return is filed with DGI within the deadlines set for each year, usually around the middle of the year following the tax year. The taxpayer’s personal accountant — or the company’s accountant acting as adviser — prepares and files it.
Conclusion
IRPF for company partners and directors in Uruguay comes up at multiple points in the relationship between individuals and their company: in fees for management work, in dividends distributed and in the annual return that consolidates all the year’s income. Managing it properly — timely and correct withholdings, use of the available exemptions and planning the mix of pay — can significantly affect the personal tax burden of those who run companies in Uruguay.
For foreigners settling in Uruguay, the new-resident regime for foreign income makes IRPF exceptionally favourable during the holiday period, reinforcing Uruguay’s appeal as a place of residence for international entrepreneurs and investors — provided its conditions, tightened from 2026, are met.
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