Thursday, September 20, 2007

Paraisos Fiscales

Is Uruguay A "Paraiso Fiscal"?

Admittedly, even though I studied a little bit of Spanish before I arrived in Uruguay, I'd never heard this term before I got here.

Paraisos Fiscales basically translates as "fiscal paradises" -- or a more direct translation is "tax havens". To be considered a paraiso fiscal a place needs to shield money from another jurisdiction's taxation.

When I moved to Uruguay, there was *no* income tax -- not even for the locals. In one short year, that has become a fond memory. Of course, still holding my US citizenship has made this semi-irrelevant.

For US citizens we are taxed on *world-wide* income regardless of where we earn it. Luckily for us, we have an $80k/yr tax exclusion as long as we can prove we were actually residing outside of the US. I've heard numbers like 325 days/yr outside of the US, but I'm not certain there is a hard and fast rule. However, this is basically a subsidy for large multi-national corporations to give to expat Execs working overseas. Why do I say this? Well, income on investment income is taxed from the first dollar -- even when we are living in another country.

For Europeans, Australians, and other South Americans however, Uruguay is very much a paraiso fiscal.

Why is Uruguay a "paraiso fiscal"?

1.) strong banking secrecy laws

2.) strong protection for foreign property ownership (even US citizens are not obliged to disclose foreign real property ownership to the IRS (yet!) any bank account over 10k you are obliged to file a treasury dept form)

3.) foreign income for those living in Uruguay is not taxable (for those non-US citizens obviously).

In other words, if you are Australian and want to trade forex, and don't want to pay taxes on your can move to Uruguay and simply show that your money was sourced from investments made "offshore" and you are least that's MY understanding :)

So, yes, as far as Paraisos Fiscales go, in spite of recent political pressure to crack down, Uruguay is still very much famous for being a haven for foreign money (just have a look at some of the homes in Punta del Este with Argentinian plated luxury vehicles parked out front if you don't believe).....It's just not as a big of a haven for their own citizens and those that chose to make a living here.....

Hmmmmm....sound familiar? Ironically, the US is the biggest paraiso fiscal of them long as you aren't (north) American! :)




Anonymous said...

I think you're right about the exec's. What else could it be? The 80k went up a couple of G's. I'll take it how i can get it!! Why is the US not on the list of tax havens like most of the others on the OECD list?Confucio say: sum ting wong!!

Chuck Stull said...

There are two ways to qualify for the earned income exclusion: the physical presence test (330 days overseas in a 12 month period) or the "bone fide resident" test which seemed more complicated.