Uruguay: COVID-19 Solidarity Fund

Today Parliament approved a bill of law proposed by the Executive Branch creating the “COVID-19 Solidarity Fund.” The COVID-19 Solidarity Fund will be financed by, among other items, revenues from the COVID-19 Health Emergency Tax on those collecting income from the public sector including non-State public persons and companies under private law in which the State is a shareholder, as well as an additional to the Social Security Assistance Tax (IASS) that will be levied on retirement benefits exceeding a nominal amount of UYU 120,000 per month.

COVID-19 Solidarity Fund

The COVID-19 Solidarity Fund will be used to cover:

• All government activity geared to protecting the population in connection with the national health emergency.
• Expenditures by the Ministry of Public Health and other public health care providers directly or via assistance and transfers to private providers.
• Prevention, mitigation, attention and rehabilitation actions that are the responsibility of the National Emergency System, in the context of the health emergency declared by the Executive Branch.
• Payment of Sickness Benefits and Unemployment Insurance provided by the Social Security Administration (BPS) due to the COVID-19 health emergency as of March 13, 2020.
• The drop in revenues of the Social Security Administration due to reduced economic activity.

The Fund will be fed by:

• A percentage of 2019 earnings of Banco de la República Oriental del Uruguay.
• Up to 100% of the earnings accrued upon passage of the National Development Corporation (CND) Law.
• The total revenues from the COVID-19 Health Emergency Tax.
• Local and foreign donations in money to the COVID-19 Solidarity Fund.
• Certain funds deriving from loans from international organizations and multilateral credit institutions.
• All other items, funds or contributions to the Fund created by this law.

COVID-19 Health Emergency Tax

The law creates the COVID-19 Health Emergency Tax to be paid by government employees and those non-employees who provide personal services to government agencies, non-State public entities or companies in which the States is the majority shareholder, whose nominal monthly income exceeds UYU 120,000 (the 13^th monthly salary or aguinaldo and vacation pay benefit are not subject to the tax).

Taxpayers are all individuals obtaining income from government bodies:

1) Employees of the Central Administration, Legislature, Judiciary, bodies included in articles 220 and 221 of the Constitution of Uruguay, and of Departmental Governments.

2) Persons holding personal services contracts with the State, including works and services agreements involving a temporary relationship and who are not government employees, excluding Value Added Tax, regardless of source of financing.

3) Persons providing personal services to non-State entities under public law and state-owned entities in which the State or any public entities holds a majority stake, regardless of legal nature, the nature of the relationship and financing. This includes employees of para-State Retirement Funds, such as the Professionals Retirement Fund, the Bank Employees Fund, the Notaries Fund, LATU and INI, among others. Likewise, the employees of DUCSA, ALUR and all subsidiaries in which the State has a direct or indirect participation.

4) Beneficiaries of subsidies granted by law to persons who have held public office or trust positions. 

The tax will not be payable by health care personnel participating directly or indirectly in the assistance process (medical and nonmedical workers) who because of their jobs are exposed to SARS-CoV2 contagion, which causes the COVID-19 illness.

 The tax will be stepped from 5% to 20%, and the law specifically provides that the net amount payable cannot be less than UYU 80,000 (after deducting the contribution to the pertinent health care system, the Job Retraining Fund, Individual Income Tax, and the new tax created by the law). That is, a  nominal salary is UYU 125,000 must pay COVID-19 Health Emergency Tax of 5% on total remuneration, but with the limit that the net amount payable after all deductions  established in the law cannot be less than UYU 80,000.

The following chart shows the rates applicable by band.  

Band in Uruguayan pesos	Over	Up to	Rate
		120,000	0%
1	120,000	130,000	5%
2	130,000	150,000	10%
3	150,000	180,000	15%
4	180,000		20%

 

The COVID-19 Health Emergency Tax is levied at its highest rate of 20% on political positions, trust positions and foreign service positions. It will be paid by the President and Vice President of the Republic, Legislators, Ministers and Undersecretaries of State, Departmental Heads (Intendentes) and other political and trust employees.  Also included in the special 20% regime are the subsidies established for political and trust positions designated by the law, the President and the Vice President, members of the Supreme Court of Justice, the Administrative Court (including the Chief Administrative Prosecutor), the Electoral Court, the Court of Accounts,  the Chief Public Prosecutor, the Attorney General of the Nation, Ministers and Undersecretaries of State, Director and Assistant Director of the Office of Planning and Budget, Chief of Staff and Pro-Secretary of the Office of the President of the Republic, and Directors of Autonomous Entities and Decentralized Services.  The minimum net payable amount of UYU is guaranteed.

In no case will the new tax be deductible when computing Individual Income Tax (IRPF).

IASS Additional  

The law creates an additional to the Social Security Assistance Tax (IASS).  This new tax will be levied on income from retirement benefits, pensions and similar benefits paid by public and private Uruguayan resident institutions per the following scale: 

Band	Over	Up to	Rate
		120,000	0%
1	120,000	130,000	5%
2	130,000	150,000	10%
3	150,000	180,000	15%
4	180,000		20%

The IASS additional rules provide that the net amount to be collected cannot be less than UYU 100,000 (after deducting the contribution to the pertinent health care system, IASS and the newly created tax).

All taxes created will apply to income accrued for the months of April and May 2020, with the Executive Branch being authorized to extend application for a maximum of 2 months, by notifying the General Assembly.