Oxstones Investment Club™The way Uruguay’s president-elect sees it, his government will face a couple of problems: too few residents and too little investment. Well, why not make the country so attractive to well-heeled foreigners that they’ll pack up and move there, solving both with one blow?
“It seems to me that it’s generally accepted that Uruguay would benefit from 100,000 or 200,000 more people,” Luis Lacalle Pou said in a national radio interview last week, explaining changes he wants to make in tax-residency rules in the nation of 3.5 million.
Countries from Portugal to Spain to Greece have gone down this road, aiming to woo the wealthy with relatively loose requirements for official residency status. In Portugal, for example, you can invest as little as $385,595 in property to qualify.
In Uruguay right now, a foreigner’s path to tax residency includes spending more than 183 days a year there as well as purchasing real estate worth more than $1.8 million or investing more than $5.4 million in a business. Lacalle Pou, who will take office March 1 and end 15 years of rule by leftists, hasn’t said how low he wants to go.
Destino Punta del Este, a nonprofit that promotes the resort city, has asked the incoming president’s team to change the rules to 90 days and $500,000.
“The idea is for it to be competitive,” said Juan Carlos Sorhobigarat, the group’s chairman. “Not many people are going to come way down here to a small country like Uruguay if it’s not competitive.”
Actually, Uruguay has a lot to sell. 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.
Wealthy visitors are already important to the tourist industry, which generated more than 8% of GDP in 2018. Coastal towns like Punta del Este in particular are magnets for Argentines who’ve been investing for generations in luxury summer homes and the high-rise apartments that line the beach.
And Uruguay has so far avoided the social unrest that convulsed other nations in the region last year, including the former oasis of peace and prosperity, Chile. Incoming Tourism Minister German Cardoso likens his county to an “island of tranquility” in a continent beset by conflict.
But there are challenges ahead. The overall public sector deficit, approaching 5% of GDP, is unsustainably large if Uruguay wants to keep its access to cheap credit. Lacalle Pou’s policy plan is to cut that and to make potentially contentious social security reforms and reduce what his advisers have called wasteful spending.
It will be a delicate task to do it all without a backlash from Uruguayans who view their costly welfare state as a birthright. Violent crime has been rising for years despite significant investments in policing. The stable but sputtering economy also needs all the help it can get, with growth averaging a meager 1.3% the last five years and unemployment above 9%.
Attracting new residents definitely wouldn’t be a silver bullet, but it sure couldn’t hurt.
“As people with high disposable income settle here that will have an immediate impact on the economy,” Cardoso said in an interview earlier this month, because they’ll buy homes, enroll their children in private schools and employ domestic help.
Ignacio Albanell, whose real estate firm Meikle focuses on posh Montevideo neighborhoods like Carrasco, would certainly welcome policies that could lead to more home sales. But, he said, the key to doing that would be reducing onerous financial reporting requirements related to foreign buyers.
“Today, if a foreigner comes here to open a bank account, he’s almost treated like a criminal,” Albanell said.
Those concerns might be addressed. Cardoso said that the president-elect also wants to streamline the central bank’s oversight of property-related transactions to boost foreign investment in real estate. Leaders from Uruguay’s left-wing Broad Front party, which during its 15 years in power implemented strict anti-money laundering rules, have criticized any softening of central bank oversight regulations as worrisome.
In Argentina, Lacalle Pou’s tax-residency plan hasn’t gone down well with the political establishment, which views it as a thinly-veiled wink to rich Argentines thinking about decamping.
While Argentina has imposed capital controls and raised taxes amid a deep economic crisis, foreigners with Uruguayan tax residency at the moment pay just 12% on the dividends and interest earned by offshore assets after a five-year grace period.
In a recent interview with the television station C5N, President Alberto Fernandez urged Lacalle Pou to “think twice” before making the country what he suggested would be a tax dodger’s paradise. “It cost Uruguay so much to escape its nickname as a fiscal paradise that to go back to that doesn’t seem to me to be a good idea,” Fernandez said.
Uruguay has sought to shed that moniker with the anti-money laundering program and by sharing more information about Argentine residents with that country’s tax agency.
Lacalle Pou said Fernandez has nothing to worry about, vowing that everything will be transparent and above board. He has yet to submit his residency plan to Congress, where his five-party coalition will hold legislative majorities.
If such a plan is approved, will it work? Time will tell, and it could take some time.
“We have to see how many people participate and what is the economic result of the activities they undertake,” said Julio de Brun, a former head of the central bank. But in general, “I see it as something positive.”
Tags: attracting new residents, impact on the economy, official residency status, tax-residency rules, uruguay, wealthy visitors