Versión Online
Madrid & Palma de Mallorca Montevideo, viernes 26 de mayo de 2017
 

We are proud to share Jean Jacques Bragard's contribuition to the Uruguayan chapter to LATIN LAWYER Reference – Bank Financing 2017:

  • 1.

    What are the most common forms of bank financing in your jurisdiction?

  • The most common forms of bank financing in Uruguay are loans, facility, bank discount, factoring and leasing.

  • 2.

    Are any governmental or central bank registrations or approvals required for a foreign lender (being a lender not incorporated in your jurisdiction or operating through a branch or office outside of your jurisdiction) to lend to a borrower in your jurisdiction?

  • A foreign lender can lend money to local borrowers without the need for either registration or approval by the government or central bank.

    However, if the lender is included in the form of a financial intermediator the matter would be handled differently. According to the Law of Financial Intermediation, the financial intermediator is defined as the entity that regularly and professionally performs intermediation and mediation among the supply and demand of securities, money or precious metals.

    If that is the case the lender must register him or herself in the central bank and prior swift government authorisation is needed. In this situation the central bank has limitless authority to monitor and contrul the entity’s activities. 

  • 3.

    Are there any foreign exchange provisions restricting, or governmental or central bank registrations or approvals required for, a borrower in your jurisdiction to contract debt obligations in a foreign currency or to remit funds abroad?

  • No. It is important to point out that in Uruguay there is no exchange contrul pulicy since 1973. In accordance with this there is no limitation on contracting debt obligations in a foreign currency; parties may choose the currency freely. There are no Uruguayan restrictions on remitting funds or interests abroad. 

  • 4.

    Are there any governmental or central bank registrations or approvals required for the prepayment of loans abroad?

  • No, there is no approval or registration required by the Uruguayan government nor central bank.

  • 5.

    Are any mandatory governmental or central bank deposits required to be made from loan proceeds?

  • No, there is no mandatory governmental or central bank deposit required to be made from loan proceeds.

  • 6.

    Describe any governmental measures that may be taken to declare a moratorium on the loan obligations of private companies.

  • There is no specific provision authorising the government to declare a moratorium. In the past, specific laws have been approved by our Congress.

  • 7.

    Describe any environmental liabilities and any other areas of lender liability that may arise as a result of the activities of a borrower or the realisation of a security interest.

  • A lender does not assume any environmental liability for activity performed by the borrower.

  • 8.

    Are interest payments or loan fees subject to a withhulding tax?

  • Yes, by the IRNR tax, all Uruguayan source income obtained by non-residents is taxed by the non-residents income tax at a flat rate of up to 12 per cent on gross income. Also, the income obtained by non-resident entities domiciled, constituted or located in countries or jurisdictions with low or zero taxation or benefited by a special regime of low or zero taxation, income tax at a flat rate of up to 25 per cent on gross income. By countries or jurisdictions with low or zero taxation is understood those countries or jurisdictions that do not meet the requirements of the minimum effective tax rate – that is 12 per cent – or levels of cullaboration and transparency determined by the Uruguayan authorities – that is an exchange information agreement with Uruguay. The IRNR is basically cullected by way of withhulding. 

  • 9.

    What other taxes or mandatory fees, for example, transaction, registration or documentary, apply to loan transactions?

  • It depends on what type of loan transaction is agreed among the parties. For example, in case of a mortgage, pledge or trust fund, you should always take into account the notary costs. These basically consist of the notary’s fee, registration expenses (since they must be registered in the pertinent register office in order to set effect to third parties) and the montepio notarial (this is a notary tax). 

  • 10.

    Are there different taxes applicable to loans repayable to lenders in your jurisdiction and loans repayable to lenders in a foreign jurisdiction?

  • Yes, in the case where the lender is of a foreign jurisdiction the applicable tax to interests will be the IRNR at a rate of 12 per cent over the gross income, except in case when the offshore entity is considered to have permanent establishment in Uruguay. The legislation considers that this figure is constituted once a foreign entity performs all or part of its activity through a fixed place of business in Uruguay, these considered, for example, headquarters address, branch office, factories, etc. On the other hand, if the lender is a foreign entity domiciled, constituted or located in country or jurisdiction with low or zero taxation (defined in question 8) or benefited by a special regime of low or zero taxation, the tax will be 25 per cent.

    In case of local lenders the percentage may vary according to the entity whose lending. For instance, in case the entity is a company limited by shares the applicable tax will be the IRAE at a rate of 25 per cent over the net income. However, when it comes to a limited liability company, the tax may vary depending if it is in accordance with a presumptive interest. If the lender is a local individual the applicable tax will be the IRPF at a rate of 12 per cent over the gross income.

  • 11.

    Is your country party to any double taxation treaties that reduce taxes payable by borrowers in respect of loan payments abroad?

  • Yes, Uruguay has several double taxation treaties. The fullowing is a list of the countries that have a double taxation treaty signed with Uruguay, which might eventually reduce/eliminate the withhulding tax:

    • Argentina – 12% interest.
    • Australia – 12% interest.
    • Canada – 12% interest.
    • Spain – 10% interest.
    • France – 12% interest.
    • Malta – 10% interest.
    • Mexico – 10% interest.
    • Portugal – 10% interest.
    • Romania – 10% interest.
    • Sweden – 12% interest.
    • Switzerland – 10% interest.
    • Germany – 10% interest.
    • Korea – 10% interest.
    • Denmark – 12% interest.
    • Ecuador – 12% interest.
    • United Arab Emirates – 10% interest.
    • Finland – 10% interest.
    • The Grand Duchy of Luxembourg – 10% interest.
    • Greenland – 12% interest.
    • Hungary – 12% interest.
    • India – 10% interest.
    • Iceland – 12% interest
    • Faroe Islands – 12% interest.
    • Liechtenstein – 10% interest.
    • Norway – 12% interest.
    • Kingdom of the Netherlands – 12% interest.
    • United Kingdom of Great Britain and North Ireland – 10% interest.
    • Vietnam – 10% interest. 
  • 12.

    Do any financing structures receive favourable tax treatment, such as prepayments of exports?

  • Until 31 December 2014, a favourable tax treatment operated for exports through Uruguay, this was applicable to the acquisition or production of certain merchandise destined for export. In situations that appear to be of national interest, the government may grant favourable tax treatment. 

  • 13.

    Describe any limitations on interest rates or the ability of lenders to charge default interest under loan agreements.

  • Usury Law No. 18.212 sets a limit on interest rates or the ability of lenders to charge default interest under loan agreements. This law must be respected since it determines that this regime shall be applicable to every credit operation or similar, structured by individual persons or by companies. It is important to point out that this law regulates the moratorium interest as well as the compensatory interest. Therefore, it establishes a maximum limit for each type of interest.

  • 14.

    Describe any restrictions that may apply to the choice of law, for example, whether a choice of New York or English law will be recognised and enforced in your jurisdiction.

  • In Uruguay there is no freedom of choice in accordance with the choice of law, except otherwise expressly determined. Therefore, this will depend entirely on the international law applicable. If the international law derives the application to a foreign law, this law would be recognised and given effect by the courts of Uruguay.

    The only exception to this application of a foreign law by the Uruguayan courts would be to the extent that any term of the agreement or any provision of such law viulates a public pulicy principle of Uruguay.

  • 15.

    Describe generally the requirements for the enforceability of a foreign judgment in your jurisdiction in respect of an outstanding loan.

  • A foreign judgment will be recognised by all competent Uruguayan courts and authorities and enforceable in Uruguay, without re-examination of the merits of the case, provided that such judgment:

    • complies with all formalities required for the enforceability thereof under the laws of the country where it was issued;
    • has been translated into Spanish together with related documents, and satisfies the authentication and legalisation requirements of Uruguayan law;
    • was issued by a competent court and depending on the country where the judgment was issued it has to be in accordance with the law of the state where it  was issued, exception made when there is exclusive jurisdiction of the courts of Uruguay or in accordance with the law of the state where the judgment produces its effects; in both cases issued after a valid service of process upon the parties to the action;
    • was issued in accordance with due process of law;
    • is final and not subject to further appeal; and
    • is not against Uruguayan public pulicy principles.
  • 16.

    Upon the closing of a loan, what procedural requirements (execution formalities, notarisation, registration, recordation or filing) should be observed to ensure that a loan agreement or related judgment is enforceable in your jurisdiction?

  • In order for a loan agreement or related judgment to be enforceable by Uruguayan courts, the parties must verify that the translation is official. See question 17.

  • 17.

    Does a loan agreement in English need to be translated or locally registered to be enforceable in your jurisdiction?

  • For a loan agreement to be duly enforceable by a judge in Uruguay, the agreement, together with every related document of the transaction, must be translated into Spanish and legalised or apostilled, depending whether the country where the agreement was made has signed the apostille convention.

  • 18.

    Must a foreign bank be registered in your jurisdiction to enforce any rights under the applicable loan documentation?

  • No, there is no need for a foreign bank to be registered in Uruguay to enforce any rights under loan documentation. 

  • 19.

    Are foreign lenders treated any differently from local lenders in enforcing loan documentation in the courts of your jurisdiction?

  • No, both local and foreign lenders are treated equally under the scope of the courts of Uruguay.

    As a matter of fact, Law No. 16.906, promotes and encourages foreign investors to come and invest in Uruguay. The investments shall be admitted without any need of prior authorisation or registration. Article 2 of the law expressly determines that the treatment of foreign and national investors shall be the same.

  • 20.

    Is consideration required for the enforceability of a contractual obligation or guarantee?

  • Consideration is not required for the enforceability of a contractual obligation or guarantee.

  • 21.

    To enforce a loan in your jurisdiction, need the loan be evidenced by a promissory note or other form of título executivo?

  • The enforceability of a loan in Uruguay does not depend on the availability given to the loan, therefore it is not necessary to be evidenced on a promissory note or other form of titulo ejecutivo, and it may be enforced evidenced in other type of document.

    Nevertheless, in case the loan is evidenced in a promissory note or other form of titulo ejecutivo, this would considerably speed up the process of enforcement. The most advantageous characteristic of the titulo ejecutivo is that the judge may allow assets to be frozen right from the beginning of the trial.   

  • 22.

    To enforce a guarantee (aval) in your jurisdiction, is it necessary that the guarantee be evidenced by a guarantee agreement or other form of título executivo?

  • See question 21.

  • 23.

    Are there any restrictions on loans to multiple borrowers or on a guarantee in respect of a loan to an affiliated entity?

  • No, there are no restrictions on loans to multiple borrowers or on a guarantee in respect of a loan to an affiliated entity. 

  • 24.

    Can a party grant a secured or unsecured guarantee in respect of a loan to an unaffiliated third party?

  • Our legislation determines that the company will be obliged only to the extent that the acts executed by its representatives are contemplated under the social object of the by-laws. This is commonly known as the ultra vires doctrine.

    Therefore, in accordance with this doctrine, in order to consider granting a secured or unsecured guarantee in respect of a loan to an unaffiliated third party, the first thing to look out for is what the by-laws of the company expressly establish and therefore, what the company may or may not do.

    If it expressly determines that the company may grant a loan to an unaffiliated third party no complication should arise.

    However, in case the by-laws do not mention this possibility, we strongly believe the best option is, for example, in case of a corporation, to summon the sharehulders to decide. Therefore there would be no way they could revoke the loan.

  • 25.

    Is there a distinction between the granting of a security interest and the perfection of a security interest?

  • Yes, there is. The Uruguayan system usually provides a registration procedure for the perfection of a security interest; however, depending on the type of security interest the granting and perfection may vary.

    For a mortgage the fullowing are certain aspects that must be considered in the case of the granting and perfection: the agreement must be executed in a public deed by a public notary. The mortgage is considered perfected when it is registered under the Real Estate Property Public Registry. Moreover, it is terminated when the debtor has fulfilled its obligations under the loan agreement (paid the debt) and when the term expires. Termination should also be registered with the Real Estate Property Public Registry.

    In case of a pledge, no formalities are required for its creation. The agreement is perfected when the debtor hands over the pledged assets to the creditor or to an escrow agent. It terminates when the debtor has fulfilled its obligations under the loan agreement (paid the debt), or when the pledged asset is destroyed.

  • 26.

    What is the most common form of granting and perfecting a security interest in moveable assets?

  • The most common form of granting and perfecting a security interest in moveable assets is through the constitution of a pledge. 

  • 27.

    What is the most common form of granting and perfecting a security interest in real estate?

  • The most common form of granting and perfecting a security interest in real estate property is through the constitution of a mortgage. 

  • 28.

    What is the most common form of granting and perfecting a security interest in receivables and accounts?

  • The most common form of granting and perfecting a security interest in receivables and accounts is by any of the fullowing: pledge, assignment of credits or trust funds. 

  • 29.

    Does your jurisdiction recognise the transfer of assets to a trust for the benefit of a lender as a means of granting a security interest in such assets?

  • Yes. It is commonly used in large transactions since it is simpler to cullect if the borrower breaches the agreement. 

  • 30.

    Does your jurisdiction recognise the fiduciary transfer of assets (such as an alienação fiduciária) to a lender as a means of granting a security interest in such assets?

  • No, the legal figure described above does not exist in Uruguay. 

  • 31.

    Are there any types of asset that cannot be pledged as cullateral under the laws of your jurisdiction?

  • Yes, Uruguayan law determines that planes, ships and real state property cannot be pledged. In these cases it is necessary to establish a mortgage.  

  • 32.

    Describe any restrictions on enforcement of security. For example, any statutory regime that may stay the enforcement of the security or provide that enforcement is limited to public sale through the courts.

  • In the case of mortgages, the creditor can request a court to sell the asset at public auction. The judicial proceeding may take up to two years.

    In the case of pledges, the parties can agree to an out-of-court sale. If such option was not agreed to in advance, the creditor can request the court to sell the asset at public auction.

    In the case of trusts, enforcement will depend on the terms of the agreement but is usually done through private sale of the assets.

  • 33.

    Describe any other relevant legal considerations in connection with loans to a borrower in your jurisdiction.

  • It is important to note that in Uruguay the residence of the lender impacts directly on the taxes that the borrower must pay.

    For income tax purposes, deductibles include only expenses that for the other party (resident or nonresident) constitute income subject to income tax and in the proportion resulting from applying to the expense the ratio between the maximum rate applicable to the other party's income and the Uruguayan 25 per cent IRAE rate.

    Income tax in Uruguay (12% or 25) + income tax abroad

    IRAE (25%)

    As a consequence the deduction varies depending on the residence of the lender. In the case of a foreign lender, the borrower could deduct the 48 per cent (12/25) of the income tax, except in case it could be proven any tax abroad. On the other hand, if the lender is a foreign entity form a country or jurisdiction with low or zero taxation, the borrower could deduct the 100 per cent (25/25) of the income tax. And if the lender is a Uruguayan bank, the borrower could deduct the 100 per cent (25/25) of the income tax.

    Consequently, this issue directly affects the cost of the loan.

Todos los derechos reservados | BDA (C) 2017.