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Taxes
on Income from Farming Activities.
In
Uruguay there is a tax called I.R.A. (Tax on Income from
Farming Activities) applied on the real income obtained
from the owner of an agricultural and/or cattle-raising establishment.
This regime is optional in nature. This is due to the
fact that there is another tax coexisting with the I.R.A.,
called IM.E.B.A. (Tax on the Sale of Farming Assets).
The latter is
levied on the sale of farming output when it leaves the primary
sector for the secondary and tertiary sectors (Trade and Industry),
and it has different rates according to the products concerned.
We
said that there is a choice of taxes to be paid on income.
This option works as follows: if the farmer chooses to pay
the I.R.A., all payments (withholdings) made during the fiscal
year on the IM.E.B.A. are considered advance payments on account
of the I.R.A. payment. If they exceed the latter, the surplus
is reimbursed and with it the farmer may settle other tax
obligations and even pay social security contributions. Likewise,
if the I.R.A. is chosen, the farmer benefits from reimbursement
of the I.V.A. (Value-Added Tax) paid when purchasing
goods and services for the operation of the farm. The so-called
reimbursement of the "I.V.A. agropecuario" can also
be used to pay other taxes or the social security entity.
If the farmer, on the other hand, chooses the other
option, i.e. not paying the I.R.A., he can no longer enjoy
the benefits concerning the IM.E.B.A. or the “I.V.A.agropecuario”.
With
regard to the choice itself, we should point out that it is
final, in other words, i.e. once a farmer has chosen to be
taxed with the I.R.A. he cannot, the following year, go back
on his option. We shall now describe in greater detail some
of the most relevant issues concerning the I.R.A.
When
settling the tax, a larger administrative infrastructure is
required since the income taxed is determined on documented
income and expenditure, and for this an accounting organization,
albeit rudimentary, is needed.
Basically,
the tax is applied to the net earnings of the farms, i.e.
the difference between gross earnings and operational expenses.
Earnings from the sale of land and the improvements thereon
are not taxed; the lease of land is, by contrast, taxed.
Regarding
agricultural activities, gross earnings are computed by subtracting,
from the sales made in the fiscal year, the costs incurred
in, regardless of whether payment was actually collected.
As
far as cattle-raising is concerned, gross earnings are determined
by the sales and purchases performed during the fiscal year
at cost value, regardless of whether payment was actually
collected. Moreover, these earnings are determined by the
sales and purchases made that year plus the variation in the
herd owned, and any upward change in the market price of said
livestock is irrelevant for computation purposes.
It
is mandatory for taxpayers to invoice any and all sales of
farming output: livestock, grains, leather and hides, wool,
hair, etc.
A
sale is considered to have been made when the product is delivered
or the service rendered.
Additionally,
the taxpayer must document any and all costs for them to be
deducted. By way of example:
-
Direct sales cost
- Salaries and wages
- Inputs
- Services
- Administration expenses
- Any other expenditures necessary to obtain or maintain the
income taxed.
It
must be stressed that any disbursements that are technicallyinvestments
are fully deductible as expenditures during the fiscal year
in question, such as watering places, pastures, afforestation,
etc.
Depreciation
of fixed assets and the fictional remuneration of the owner
or of the partner in a partnership are also deductible.
Lastly,
it must be pointed out that the fiscal year in the case of
farming activities is from July 1st to June 30th
of each year. |
