PRESIDENT’S FRAME OF MIND
The way Uruguay’s president-elect Luis Alberto Lacalle Pou sees it, his country faces a couple of pressing problems: too few residents and too little investment. Why not solve both in one stroke by making the South American nation of 3.5 million people so attractive to well-heeled foreigners that they’ll pack up and move there? .It’s generally accepted that Uruguay would benefit from 100,000 or 200,000 more people.
Greece, Spain, and Portugal have gone down this road, wooing the wealthy with relatively loose requirements for official residency status. In Portugal, you can invest as little as €350,000 ($387,000) in property to qualify. To be eligible for tax residency under Uruguay’s current rules, a foreigner must spend more than 183 days a year there, as well as purchase real estate worth more than $1.8 million or invest more than $5.4 million in business. Expats pay a flat 12% tax on income earned from offshore assets after a five-year grace period.
To lure the foreigners and elude the slowing economy, the incoming government thinks of reducing the residency requirements to 90 days and $500,000. Not many people are going to come way down here to a small country like Uruguay if it’s not competitive.
On the economic front, the view is less pleasing. Growth has averaged a meager 1.3% the past five years, and unemployment stands above 9%. The public-sector deficit is approaching 5% of gross domestic product.
Attracting residents wouldn’t be a miracle cure, but it couldn’t hurt. “As people with high disposable income settle here, that will have an immediate impact on the economy,” says incoming Tourism Minister German Cardoso, because they’ll buy homes, enroll their children in private schools, and employ domestic help.
Uruguay nestled between Argentina and Brazil; it’s one of South America’s wealthiest nations. The coast is lined with stunning beaches, the countryside dotted with picturesque farms and vineyards. Plus, Uruguay has so far avoided the social unrest that convulsed other nations in the region last year. Violent crimes and tax frauds have increased over time in Uruguay.
Uruguay has an export-oriented economy. The country is one of the largest exporters of beef (21 percent of total exports). Exports in Uruguay have decreased due to COVID-19 as China is the biggest importer of goods from Uruguay.
DBRS Inc. (DBRS Morningstar) has confirmed the Oriental Republic of Uruguay’s Long-Term Foreign and Local-Currency – Issuer Ratings at BBB (low). At the same time, DBRS Morningstar confirmed the Short-Term Foreign and Local-Currency – Issuer Ratings at R-2 (middle). The trend on all ratings is Stable.
THE BOTTOM LINE
Uruguay’s president-elect wants to follow in the footsteps of Greece and Portugal and change tax-residency rules to make it easier for affluent foreigners to settle there.
Uruguayan ex-president Jose Mujica countered saying that instead of attracting 100,000 foreigners, Uruguay should try to convince its citizens who have some 24 billion dollars holdings overseas, to bring some of those funds back to help spur the local economy.
Luis Lacalle will take office as president of Uruguay in March after winning November’s vote.