Uruguay has established itself as a regional tech hub, and a key part of its appeal is the tax exemption regime for companies that export software and related services. If you have decided to set up a company in Uruguay to develop and export software, IT services or digital products, it is essential to understand how to apply the IRAE exemption correctly and what your company must do to keep the benefit over time. The SAS is one of the structures tech entrepreneurs use most for its flexibility, low running costs and operational simplicity, but the tax exemption is not automatic: the company must meet the regime’s conditions, apply it correctly in its returns and keep supporting documentation. In this article you will find a complete, practical explanation of how the IRAE exemption works for an SAS that exports software, what steps to follow, what limits exist and what documentation you need from day one to operate in compliance and make the most of the benefit.

What Is the IRAE Exemption for Software Exporters?

Corporate income tax (IRAE) taxes company profits in Uruguay at a general rate of 25%. However, since 2007 (Decree 150/007 and its amendments), Uruguay has had a regime that exempts from IRAE the income from producing software and related services — custom development, IT consulting, testing, remote technical support and other information technology services — when they are used abroad.

The benefit applies only to income from software and services used abroad, which means that if your company also invoices locally within Uruguay, that part of its income is subject to IRAE. Moreover, since 2019 the exemption has been subject to a substance rule: the exempt percentage depends on the proportion of the software’s development costs incurred directly in Uruguay (mainly qualified staff and local suppliers) compared with total development costs. To apply the benefit correctly, the company must separate its income by origin (export or local market) and keep records that allow DGI to verify compliance.

It is important to note that the exemption is not exclusive to the SAS: it also applies to the SRL, the corporation (SA) and the sole proprietorship. However, when deciding which legal structure to choose, many entrepreneurs opt for the SAS because of its flexible management, no minimum capital requirement and lighter administrative burden. The SAS also does not pay ICOSA (the tax on corporations), which is an additional saving on fixed annual costs.

Requirements for the IRAE Exemption

For an SAS exporting software to apply and keep the IRAE exemption, it must meet a series of technical and formal requirements that DGI can verify at any time. The exemption does not require a special registration or a prior authorisation, but the company must meet the conditions of the regime in every year in which it applies it, and be able to prove it.

Applying the Regime Correctly from the Start

The first step is to register the company properly with DGI, with an activity and corporate purpose compatible with software development and export, and to apply the exemption in its returns in accordance with the rules in force (including any sworn declarations or information DGI requires about the regime).

It is common for entrepreneurs to start invoicing without having organised their records to support the exemption, which can cause problems later. That is why it is advisable to set this up together with incorporating the company, ideally with professional support covering both incorporation and full tax registration.

The Software Must Be Used Abroad

The exemption applies only to income from software and related services used abroad, that is, sold to clients outside Uruguay for use outside Uruguay. In practical terms, the client should be based abroad and there should be documentary evidence of the international nature of the transaction. There is no requirement to invoice in a specific currency, and no physical export or customs procedure is needed, as software is intangible, but it is essential to be able to show that the service is used abroad.

For companies working with clients abroad through digital platforms (software marketplaces, freelancing platforms or direct contracts), it is advisable to keep written contracts, purchase orders, emails, bank transfer receipts and any other evidence of the foreign origin of the income. DGI may ask for this documentation at any time, and a lack of adequate support can lead to the loss of the benefit and a retroactive tax adjustment.

Meeting the Substance Rule

The exempt percentage depends on how much of the development is carried out in Uruguay. In practice, this means keeping track of the development costs incurred in Uruguay (local staff, local suppliers) and those incurred abroad or with related parties, so the exempt proportion can be calculated and supported. The more of the development done in Uruguay, the higher the exemption.

Separating Income in the Accounts

If the company has mixed income (exports and local market), its accounts must clearly identify which part of the income is exempt and which is subject to IRAE. This means issuing separate invoices, keeping separate records of income and costs, and calculating the tax result of each activity separately. This separation must be properly documented in the accounting books and in the annual IRAE return.

Although it may seem bureaucratic, this separation is key to avoiding tax objections and showing transparency in the use of the benefit. Many companies choose to work only with exports to simplify accounting and administration, but if there is local income, proper separation avoids future tax contingencies.

Limits and Scope of the Exemption

Although the IRAE exemption is one of the most attractive tax benefits for tech companies in Uruguay, it is important to know its limits: it does not cover all taxes or all situations. The exemption applies only to IRAE on income from software used abroad, and the company remains subject to other tax and social security obligations that must be met on time.

Taxes That Still Apply

Even if the company is exempt from IRAE, it must still meet its other tax obligations. In particular:

• VAT: exports of services are exempt from VAT, but if the company has local expenses (office rent, equipment, local services), it pays VAT on those purchases and may generate tax credits that, in some cases, can be recovered.
• IRPF: if the company has employees or pays fees to professionals, it must act as withholding agent for IRPF on those payments. Partners who receive remuneration or dividends may also be subject to IRPF or IRNR depending on their tax residence; dividends paid out of exempt income are generally not subject to the 7% tax on dividends, which should be confirmed with the accountant.
• BPS: the company must be up to date with employer and employee contributions for all staff, as well as contributions for partners who actually work in the company. Meeting these obligations is part of the cost of running a company in Uruguay and is not covered by any exemption.
• Net Wealth Tax: although an SAS does not pay ICOSA, it is subject to corporate net wealth tax at 1.5% on its net taxable assets. This tax is unrelated to the IRAE exemption.

Partial Exemption with Mixed Income

As mentioned, if the company invoices both abroad and on the local market, the exemption applies only to the export part (and in the proportion allowed by the substance rule). The company must therefore calculate IRAE at 25% on local income and on any non-exempt portion. In practice, this can result in an effective IRAE rate below 25%, but not a total exemption. The company must keep rigorous control of each type of income, and its accounts must correctly reflect this distinction.

It is also important to remember that the exemption is applied year by year: in each year, the company must meet the requirements. If in a given year the company stops exporting, it loses the benefit for that period and must pay IRAE on all its income. That is why many entrepreneurs working with international clients structure their activity exclusively around exports to maximise the benefit and simplify management.

Documentation and Formalities to Keep the Benefit

Applying the exemption is only the first step. Keeping it over time requires orderly document management, meeting periodic obligations and being able to show at any time that the company still meets the regime’s requirements. DGI may request information and documentation at any time, and an incomplete or late response can lead to the loss of the benefit or tax adjustments with interest and fines.

Contracts and Supporting Documentation

Each export transaction must be supported by documentation proving its international nature. This includes service contracts, purchase orders, export invoices, international bank transfer receipts, emails with the client and any other document showing that the service was provided to a client based abroad. For companies working through digital platforms (Upwork, Toptal, SaaS platforms), it is advisable to keep screenshots, platform statements, terms and conditions and payment receipts.

This documentation should be kept for at least the tax limitation period in Uruguay (generally five years, and longer in some cases). In an audit, DGI may ask to see all contracts, invoicing details and proof of receipt of funds. A lack of documentary support can lead DGI to conclude that the income does not qualify and that the company must pay IRAE retroactively with interest.

Returns and Periodic Obligations

The company must file an annual IRAE return with DGI, even if it is exempt. The return must report total income, separate the exempt export part from the taxable local part, detail the costs and expenses of each activity and calculate the resulting tax. The company must also prepare financial statements supporting the figures declared.

Any significant change in the company’s activity, corporate purpose, ownership or way of operating should be reflected in its DGI registration and reviewed in light of the regime’s conditions. If in doubt about how to handle these procedures or what documentation is needed, specialised accounting and legal advice is essential to avoid mistakes that could jeopardise the benefit.

Frequently Asked Questions

Is the IRAE exemption automatic when setting up a software SAS?

No, the exemption is not automatic. Even if your SAS’s purpose is developing and exporting software, it must meet the regime’s conditions (software used abroad, substance rule, documentation) and apply the exemption correctly in its returns. If it does not meet them, the company must pay 25% IRAE on all its income.

Can I combine software exports with local invoicing and still be exempt?

Yes, but only on the export part. If your company invoices both abroad and within Uruguay, it must pay 25% IRAE on local income and will only be exempt on export income, in the proportion allowed by the substance rule. It is essential to keep separate accounts that clearly identify each type of income.

Do I need a bank account abroad to apply the exemption?

No. You do not need a bank account abroad, nor is it a legal requirement that payments arrive in a particular way, but it is advisable for clients’ payments to come through the formal financial system so that the foreign origin of the income can easily be shown. Many companies operate with local bank accounts in Uruguay and receive international transfers directly, which is perfectly valid. If you are considering options for receiving international payments, see how to open a US bank account from Uruguay, although it is not a requirement for the exemption.

Conclusion

The IRAE exemption for software exporters is one of the most attractive tax benefits for tech entrepreneurs who choose Uruguay as their base. The SAS, with its flexibility, low running costs and simplicity, is one of the structures most used to take advantage of this regime. However, the benefit is not automatic: it requires meeting the regime’s conditions, applying the substance rule, keeping separate accounts and holding supporting documentation that can be audited at any time.

To make the most of the benefit and avoid tax contingencies, professional advice from day one is essential. At sociedadesanonimas.uy we support entrepreneurs and business owners throughout the process: from incorporating the SAS, registering with DGI, BPS and other bodies, to accounting follow-up and meeting periodic obligations. If you want to operate with peace of mind, comply properly and make the most of the IRAE exemption, book a consultation with our team and let’s get started.

The information in this article is general in nature and does not constitute personalised legal, tax or accounting advice. Each business situation is different and should be assessed by specialised professionals. For specific advice on your case, contact our team of specialists.