Status
The United States has no income tax treaty with Uruguay. Payments to residents of Uruguay are withheld under the Code with no treaty reduction. The two countries signed a tax information exchange agreement in Montevideo on October 24, 2023.
What to withhold
- U.S.-source fixed or determinable income (dividends, royalties, rents, interest that is not otherwise exempt, pay for services performed in the United States) is withheld on at 30% of the gross payment.
- The Code's own exemptions still apply: portfolio interest, bank deposit interest, and income effectively connected with a U.S. trade or business documented on Form W-8ECI.
- Pay for services performed entirely outside the United States is foreign-source: no withholding and no Form 1042-S.
- A W-8BEN or W-8BEN-E that claims treaty benefits for Uruguay cannot be relied on for the claim, but still documents foreign status. A nonresident working in the U.S. has no treaty exemption to claim on Form 8233.
- Payments are reported on Form 1042-S with the payee's country code, whether or not tax was withheld.
The information exchange agreement
A tax information exchange agreement lets the IRS and the other jurisdiction's tax authority ask each other for, and share, information needed to enforce their own tax laws. It is not an income tax treaty: it sets no withholding rates, has no residence, permanent establishment or business profits rules, and gives a payee nothing to claim on a W-8BEN or W-8BEN-E. The agreement covers U.S. federal income, employment, estate and gift and excise taxes, and Uruguay's business and personal income taxes, non-resident income tax, capital tax, VAT and excise tax. It reaches bank and ownership information; criminal tax matters are covered without regard to the taxable period, other requests for periods beginning after entry into force.
Where payers go wrong
- Treating the agreement as a treaty. A W-8BEN or W-8BEN-E that claims a treaty rate for Uruguay cannot be relied on. The form still documents foreign status.
- Withholding on services performed abroad. Pay for work done outside the U.S. is foreign-source: nothing is withheld and no Form 1042-S is filed.
- Missing the Code exemptions. Portfolio interest, bank deposit interest and income effectively connected with a U.S. business (documented on Form W-8ECI) are not withheld on, treaty or not.
Documents
Questions payers ask
Is there a U.S.-Uruguay tax treaty?
No income tax treaty. The United States and Uruguay have a tax information exchange agreement, which provides for sharing tax information but sets no withholding rates.
What is the U.S. withholding rate on dividends paid to a Uruguayan resident?
30% of the gross dividend, because there is no income tax treaty.
Do we withhold on a contractor in Uruguay who works only there?
No. Pay for services performed outside the United States is foreign-source income. Keep the contractor's W-8BEN or W-8BEN-E on file.