In December 2003, Act 17.703 which regulates trusts was approved, giving Uruguay the possibility to develop and use an instrument which is used in different countries and used for different purposes for investments, guarantees, net worth administration, asset securitization and solutions to a company’s in bankruptcy proceedings.
The possibility of using Uruguayan Trusts with Uruguayan Corporations that can have bearer shares and are exempt of taxes, if their activity, operations, income or assets are not Uruguayan, make the combination of these two instruments an ideal way to plan different operations which can be exempt of taxes.
2.1 Grantor or Trustor.
The Grantor is the proprietor of the assets being transferred to the Trust, and they must be destined and administered according to the Trust Agreement. The assets can exist at the time the agreement is signed or can be expected to exist in the future.
The Trustor can be an individual or a legal entity, for example a Uruguayan corporation.
The Trustee will be in charge of the administration of the Trust in order to achieve the purpose of the Trust. Trustees must comply with the instructions stated in the Trust Agreement and are able to transfer the assets and rights in the Trust fund.
The Trustee can be an individual or a legal entity, for example a Uruguayan corporation with bearer shares and a director furnished by our firm. Trustor and trustee may be the same person.
If a Trustee acts as Trustee in more than five Trusts during the year, applicable law considers it a professional Trustee and filings and disclosure obligations apply.The Trustee has the legal obligation to have a separate accounting for the Trust and maintain secrecy regarding the Trust’s operations, agreements, assets and other information related to the Trust.Trustees are required to fulfill fiduciary duties, and are liable according to the same standard used for directors of corporations. They are responsible for the taxes the Trust must pay, if the Trust does not make the corresponding payments.
2.3 Trust Beneficiary.
The Trust Beneficiary will receive the assets or profits from the Trust Fund. The Trust Beneficiary can be the Grantor or a third party, which may be an individual or a legal entity, like for example a Uruguayan corporation. It can also be a person that will be born or an entity that will exist in the future and there can be more than one Trust Beneficiary.
The Trustee cannot be the Trust Beneficiary, except in Trusts used as guarantees which are executed for the benefit of a financial institution.
3. Trust fund.
The assets and rights that compose the Trust fund are separated from the assets and rights of the trustee, trustor and beneficiary. This means that:
- Creditors of the Grantor or Trustee may not reach the assets or rights of the Trust Fund.
- Creditors of the Trust Beneficiary can also not reach the assets and rights while they are in the Trust Fund.
- The trustee is not liable with its own assets for the obligations of the Trust Fund.
4. Tax issues.
According to the territorial tax system applicable in Uruguay, if the activity, operations, profits, or assets of the trustor, Trustee, Trust Beneficiary and Trust are abroad, no taxes will be levied.
If the Trustee is a Uruguayan Free Zone Corporation, taxes will also not be levied on the income or retribution of the Trustee.
It the Trust, Grantor, Trustee or Trust Beneficiary have income or assets in Uruguay, they will be levied with taxes, unless they are Free Zone Corporations.
5. Constitution formalities.
The Trust is a simple private agreement which requires certification of the signatures of the parties involved or the necessary participation of a public notary if there is real estate involved in the assets transferred to the Trust Fund.
The Trust can be constituted in Uruguay or abroad, in this last case the Trust agreement must be legalized for Uruguay.
The Trust agreement must be filed with the National Register and the names, domicile, nationality and passport of the Trustor and Trustee must be stated. If they are national legal entities or from abroad, the following must be stated: type of legal entity, domicile, filing before the IRS in Uruguay, assets in the Trust Fund and destination of the assets. Foreign companies that act as Grantors are not required to comply with filings as a branch in Uruguay.
6. Examples of possible operations.
6.1 Net Worth Administration.
A Trust used for the administration the net worth of a person can be used for estate planning, tax planning, family distribution of assets, anonymity in relation with certain assets o just the mere administration of the net worth by a Trustee.
Using a Trust fund as collateral can make recovery for creditors much faster and much cheaper, avoiding repossession procedures and public auctions.
6.3 Investments with different investors.
In complex projects such as highway constructions, real estate developments, financial operations, the trust can be used to control the flow and distribution of cash and protect the different rights of participating parties with different interests and expectations.
6.4 Project financing.
Credit can be obtained by separating the funds flow in a Trust, and issuing securities in exchange.
6.5 Bankruptcy proceedings.
The Trust can allow the constitution of guarantees and refinancing methods, with an independent third party acting as trustee.