Once you have decided to set up a company in Uruguay as a simplified joint stock company (SAS), it is time to run it tax-efficiently. One of the most strategic issues —and one of the most sensitive in the eyes of the tax authority (DGI, Dirección General Impositiva)— is knowing which expenses are deductible from the Tax on Income from Economic Activities (IRAE), Uruguay’s corporate income tax, and which are not. Like any commercial company, the SAS pays IRAE on its net income: revenue minus allowable expenses. But not every expense the company pays can be subtracted from the taxable base. Knowing where that line lies lets you plan properly, avoid objections in audits and, above all, avoid losing legitimate deductions because of missing documentation or misclassifying an item. In this article we explain which expenses an SAS can deduct, which are expressly excluded, which supporting documents you need and which common mistakes to avoid.

General principle: expenses needed to obtain and preserve income

IRAE, at a rate of 25% on net income, is calculated by subtracting from taxable revenue all the expenses that tax law considers necessary to obtain and preserve that income. This principle is set out in Title 4 of the 2023 Consolidated Tax Code (Texto Ordenado 2023, Decree 101/024) and its regulations, and it applies to every entity that pays IRAE, including the SAS. The basic logic is that if an expense is necessary for the company to generate taxable income, it can be deducted; if it is personal, unrelated to the company’s purpose or expressly prohibited by law, it cannot. But there is a key additional rule: as a general principle, an expense is only deductible if it is taxable income for whoever receives it, under IRAE, personal income tax (IRPF), the Non-Resident Income Tax (IRNR) or a foreign income tax. And when it is capital income taxed under IRPF for the recipient (for example, rent paid to an individual) or income taxed under IRNR, the deduction is limited in proportion to the rate: with a 12% rate against the 25% IRAE rate, only 48% of the expense is deductible.

The first thing you must make sure of is that the expense is properly documented. That means having the invoice, debit note, receipt or valid tax document issued by the supplier, made out to the SAS (with the company’s tax ID, the RUT). Without supporting documents, the DGI can reject the deduction even if the expense was actually incurred and necessary. The expense must also be recorded in the right financial year —generally the one in which it accrues— and linked to the company’s taxable activity.

Finally, the nature of the expense must be directly related to the company’s line of business. If your SAS develops software, it is reasonable to deduct tool licenses, SaaS subscriptions, programmers’ salaries and office expenses. If maintenance costs for a recreational boat suddenly appear, the DGI may challenge them unless there is a clear business justification.

Most common deductible expenses in an SAS

These are the expenses that can typically be deducted from IRAE in an SAS, provided they meet the documentation requirements and are linked to the activity:

• Salaries and wages: pay for employees, including social security charges (employer contributions to the Social Security Bank, BPS, the Labor Retraining Fund, the Labor Credit Guarantee Fund and the mandatory workplace accident insurance with the state insurer BSE). Fees paid to directors and statutory auditors are also deductible, as long as they are reasonable and backed by the relevant documentation.
• Rent: leases of offices, premises, equipment, vehicles or machinery used in the business. They must be supported by a contract and an invoice.
• Professional services: fees of accountants, lawyers, notaries, consultants, designers, developers, etc. If you hired a notary for companies in Uruguay for powers of attorney or minutes, that expense is deductible.
• Supplies and raw materials: goods bought for resale, materials for manufacturing or for providing services.
• Office and administrative expenses: stationery, supplies, cloud subscriptions, internet, phone, management software, hosting.
• Advertising and marketing: digital campaigns, graphic design, community management, promotional events, trade fair stands.
• Depreciation and amortization: wear and tear of fixed assets (furniture, IT equipment, vehicles, machinery). Tax rules set maximum annual depreciation rates by asset category.
• Travel and per diem expenses: transport, accommodation and meals when they respond to a business need (client visits, events, training). They must be documented and justified.
• Financial expenses: loan interest, bank fees, loan arrangement costs, as long as the financing was used for the business.
• Other taxes related to the activity: these can generally be deducted, but there are express exceptions: neither IRAE itself nor the Net Worth Tax (Impuesto al Patrimonio) is deductible.

Every expense must have a valid tax receipt. If you buy supplies from an informal supplier who does not issue invoices, that expense cannot be deducted. Also, if your SAS is registered for VAT (IVA), the VAT included in purchase invoices is an input tax credit, not an expense deductible from IRAE. The treatment is different: VAT is handled separately, offsetting output VAT against input VAT.

Incorporation and start-up costs

The costs needed to get the company up and running —notary fees, stamp duties and registration fees with the General Registry Office (DGR), publications and the accounting fees for the start-up— are also deductible. If you chose to buy a ready-made (shelf) SAS, keep in mind that the price of the shares is paid by you as the buyer, not by the company, so it is not a deductible expense of the SAS. In principle, the fees and formalities the SAS itself contracts after the purchase (for example, changing the director or amending the bylaws) are. Check the correct treatment for your case with your accountant.

Vehicle and fuel expenses

If the SAS buys or leases a vehicle for business use, maintenance, fuel, insurance and registration costs are deductible to the extent the vehicle is used in the business. If there is mixed (personal and business) use, the business portion must be separated and only that portion is deductible; personal expenses of partners or shareholders are not allowed. The DGI may ask for justification in an audit, so it is advisable to keep a log of trips and use.

Non-deductible expenses: what the DGI does not accept

Some expenses are expressly non-deductible from IRAE, even if the company paid them. The most important are:

• IRAE itself: you cannot deduct the IRAE you paid. Nor the Net Worth Tax or penalties for tax infringements.
• Non-qualifying donations: donations are subject to a specific regime. Only those made to authorized entities and within certain limits are deductible (for example, recognized educational, sports or cultural institutions). Donations to individuals or non-authorized entities cannot be deducted.
• Personal expenses of partners or shareholders: meals, trips, clothing, entertainment, private housing costs of the partners, even if paid with company funds. If you want to use the SAS to pay personal expenses, they should technically be recorded as profit withdrawals or advances to shareholders, not as company expenses.
• Fines and penalties: penalties for tax infringements (for example, DGI or BPS fines) are not deductible.
• Value added tax (IVA): VAT is not a company expense but a tax the company collects for the State. VAT on purchases is an input credit offset against VAT on sales. Only in very specific cases (non-recoverable VAT) could it be treated as an expense, but that is not usual.
• Accelerated depreciation outside the rules: if you try to depreciate an asset faster than tax rules allow, the excess will be disallowed.
• Undocumented expenses: any expense without an invoice, receipt or valid document will be challenged.

Entrepreneurs who are new to running a company often confuse the company’s assets with their own. Remember that the SAS is a legal entity separate from you as a shareholder. Everything the company pays must have a business justification. If you need funds for personal expenses, the right approach is for the company to pay you dividends or advances, and for you to pay the corresponding IRPF where applicable.

Documentation needed to support deductible expenses

The burden of proof before the DGI lies with the taxpayer. That means you (or your accountant) must show that the expense existed, was necessary and is properly documented. The minimum documentation you need includes:

• Invoice or tax receipt: issued to the SAS, with the company’s RUT, a description of the goods or service, the amount and VAT shown separately where applicable.
• Proof of payment: bank transfer or another traceable payment method. The DGI usually asks for traceability, especially for significant amounts, and professional fees not paid through the electronic or bank channels required by Law 19,210 on financial inclusion are not deductible.
• Contract or agreement: for recurring services (rent, monthly fees, subscriptions), it is advisable to have a contract backing the business relationship.
• Accounting records: the expense must be entered in the company’s books, with the corresponding entry in the journal and ledger.
• Additional supporting documents: for trips, for example, it is useful to keep itineraries, event invitations and emails with clients. For training expenses, the course or seminar program.

If your SAS uses digital services from abroad (software, advertising on international platforms), make sure you have the invoice and that payment goes through the banking system. Also bear in mind that some payments abroad require withholding IRNR (and, in certain cases, VAT) if the income is considered Uruguayan-source, and the deduction may be limited depending on how the supplier is taxed. This calls for precise advice, especially if your activity involves foreign trade or digital services.

What if I lost the invoice or never got one?

If you lost the original receipt, you can ask the supplier for a duplicate. For years the DGI has been promoting electronic invoicing (CFE), which is recorded in its system. If the invoice was issued electronically, your accountant can look it up and retrieve a copy from the DGI portal. If, on the other hand, it is an old paper invoice and you lost it, it will be harder to justify the expense in an audit.

Common mistakes to avoid

Over time we have seen a number of recurring mistakes that can cost you dearly:

• Mixing personal and business expenses: using the SAS account to pay your gym membership, your personal credit card or family holidays. Each time you do so, that expense will not be deductible and may cause problems in an audit.
• Not separating VAT from the expense: the VAT included in an invoice is not an expense deductible from IRAE if your company is registered for VAT. You must break it out correctly.
• Not asking suppliers for invoices: buying services or goods “off the books” to save VAT ends up being a bad decision: you lose the IRAE deduction (which matters more) and expose yourself to legal risks.
• Miscalculated depreciation: trying to depreciate an asset in a single year when the rules require spreading it over several years.
• Poorly documented travel and per diem expenses: the DGI may challenge travel expenses if there is no clear evidence they were for business.
• Not recording advances to shareholders: if you withdraw money from the company and book it as an “expense”, the DGI will eventually reclassify it as an advance or dividend and adjust your return.

These mistakes can lead not only to disallowed expenses but also to fines and interest. The good news is that with tidy accounting and professional advice, they are all avoidable. If you are comparing types of companies in Uruguay and weighing which legal structure to choose, remember that all of them —the limited liability company (SRL), the corporation (SA) and the sole proprietorship— apply the same expense deductibility rules when they pay IRAE (a sole proprietorship providing personal services may, in certain cases, pay IRPF instead of IRAE, and small businesses under the “Literal E” regime do not file IRAE).

Additional considerations: tax planning and optimization

Knowing which expenses are deductible is not just a compliance issue but also a matter of strategic planning. A well-advised company can structure its operations to maximize legitimate deductions and reduce its tax burden within the law. For example:

• Contracting services through the company instead of paying for them personally and then reimbursing yourself. If the SAS pays for the service directly and has an invoice, that expense is deductible.
• Properly structuring the fees of partners who work in the company, avoiding the “unpaid partner” setup when they are in fact devoting time and effort. Reasonable fees are deductible; profit withdrawals are not.
• Taking advantage of tax incentives for investment in Uruguay, such as exemptions for certain sectors or promoted projects (free trade zones, software, biotechnology, renewable energy), which may affect the deductibility or treatment of certain expenses.

Another aspect to consider is the corporate Net Worth Tax in Uruguay. Although it does not directly affect the deductibility of expenses, it does affect your SAS’s overall tax burden. The good news is that, unlike an SA, the SAS does not pay the Corporate Control Tax (ICOSA), which is a significant administrative and tax saving.

Also, if you are looking at how much it costs to maintain a company in Uruguay, bear in mind that accounting, legal and compliance costs are also deductible. That includes professional fees for keeping your books, filing tax returns and handling formalities with the DGI, BPS and other agencies.

Frequently Asked Questions

Can I deduct entertainment expenses or meals with clients?

Yes, as long as they are backed by an invoice made out to the company and you can show they had a business purpose (client meeting, negotiation, closing a deal). The DGI accepts these expenses within reasonable limits; what matters is documentation and proportionality to the activity.

Are dividends I pay to shareholders deductible from IRAE?

No. Dividends are a distribution of profits, not a company expense. They are paid out of after-tax profits. Where applicable, the company withholds IRPF (7%) from resident shareholders or IRNR from non-residents on those dividends, but the company cannot deduct those payments from IRAE.

What happens if the DGI disallows an expense in an audit?

If the DGI disallows an expense, it will adjust your IRAE return, recalculate the tax due and assess the difference plus interest and, possibly, fines if it considers there was concealment or negligence. You have the right to file a defense and provide additional evidence. That is why it is essential to keep your documents in order and retain them for the statute of limitations period (five years in general, extended to ten in cases of fraud or failure to register).

Conclusion

Understanding which expenses are deductible in an SAS and which are not is essential to managing your company’s taxes properly and avoiding unpleasant surprises in a DGI audit. The golden rule is that the expense must be necessary to generate income, properly documented with an invoice made out to the company and linked to the business activity. Personal expenses, IRAE itself, fines and undocumented expenses cannot be deducted.

Keeping tidy books, always demanding a tax receipt, clearly separating business from personal and getting professional advice are the best practices for optimizing your tax burden within the law. If you are deciding whether to create an SAS or considering other options, remember that all company types share these same expense deductibility rules for IRAE.

At sociedadesanonimas.uy we support entrepreneurs and business owners —residents and foreigners— at every stage, from incorporation to tax management and regulatory compliance, with fully online procedures. We can help you structure your operation correctly and make the most of your legitimate deductions. If you have questions about which expenses you can deduct in your case, book a consultation with our team and let’s work through your situation together.

Disclaimer: The information in this article is general in nature and does not constitute personalized legal, accounting or tax advice. For specific decisions, we recommend consulting specialized professionals.