Contributors from Uruguay were asked three questions: What were the highlights/trends in your market last year? (i.e. important mergers, regulatory changes, economic situation etc.); What are the opportunities and challenges for accounting firms in the market?; What are the expectations for the future short/medium/long term?
By Andres Hirschfeld, senior partner, Rodolfo Hirschfeld & Associates, MSI Global
Each of the successive crises that affected Uruguay had their origins in foreign countries – Argentina in 1981, Brazil in 1998 and Argentina in 2002 (the international crisis of 2008 passed Uruguay by). They left an increasing number of people out of work.
New jobs created required new skills, with the consequence that jobless people found themselves marginalised from the economic activity. Many families have seen two and three generations in these conditions, and are being subsidised by the state.
This, together with left-wing oriented public policies and mismanagement in the public sector, are the causes of increasing deficits in the government’s budget, notwithstanding successive increases in tax levels.
Foreign clients are very important to first-tier and mid-tier tax and accounting firms. They are not only able to recognise high-quality services; they were also used to paying for them.
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The foreign requirement of Uruguayan tax and accounting services (mainly Argentinian and Brazilian) has been steadily decreasing since 2015 for the following reasons:
l Argentina and Brazil, under heavy pressure from the OECD, in 2016 gave their respective taxpayers the opportunity to self-declare the assets they had managed to hide from their respective tax authorities
l Uruguay, once known as the Switzerland of America, also pressured by the OECD, has been enacting one law after the other establishing more and more controls of money flows (independently from their anti-money laundering aspects), with the effect that Argentinian and Brazilian investors in real estate in Uruguay withdrew from the country
l Argentinians carrying out farming and cattle raising activities in Uruguay opted to close or markedly reduce their operations in Uruguay, mainly in 2016. This was because the tax on these activities fell in Argentina but rose in Uruguay, and this was combined with a steady increase in operation costs. They have gone back to Argentina and/or went to Paraguay, which is booming (Paraguay has a very low taxation level).
l Firms’ tax and accounting services were and still are mainly invoiced in foreign currencies. Operating costs, calculated in foreign currency, have been increasing markedly for several years in a row. Reduced demand for services and increasing costs have put accounting services providers in a difficult situation.
Foreign firms that come to Uruguay still mainly go directly to the local representatives of foreign parent companies.
Short-term expectations are more negative than neutral – that is, matters will tend will continue as they are and no positive change envisioned.
Medium-term expectations? The future is unpredictable, since Uruguay’s economy is highly dependent on the Argentinian and Brazilian economies.
The long term is anybody’s guess. It will depend on what happens in Brazil and Argentina in forthcoming years, and this is impossible to predict today.
I have been working with Argentinian and Brazilian clients for 50 years. In the past, I have seen the economies of these countries rebound in a few months, but it seems that this will not happen this year. And, if it should happen, we foresee only a small trickle of foreign clients returning.
By Jorge Valdez, managing partner, Estudio Kaplan ((CPAAI)
In Uruguay, GDP growth was seen from 2010 until 2014, helped by favourable international and regional contexts. Unfortunately, since 2015, there has been a slowdown from a growth rate of over 4% to one of less than 0.5%. However, 2016 was noticeably better, seeing a growth of 1.5%.
Regarding the profession, several tax rules were issued by the administration which had a collective effect on companies and individuals.
Because of all this, the start of new ventures by some of our clients has slowed down, as has the incorporation of new clients.
On the other hand, some tax rules were issued and maintained, which support the real estate construction sector, in which our firm participates actively. This has helped our firm to avoid economic stagnation.
Regarding accounting standards, the IFRS for small and medium-sized enterprises were adopted for the preparation of financial statements of entities that do not resort to public savings. The list of entities reached grew with the requirement to submit information to the authorities. This has meant an increase in work, which has not always been translated into billable hours.
Finally, the progress of the incorporation of the international legislation on the prevention of money laundering and terrorism financing means more organisations are forced to report suspicious transactions, affecting many of our clients, who feel they have a greater administrative burden.
The opportunity is to identify each change that affects clients and to anticipate and report its repercussions, especially in the tax and accounting framework. In this way, we seek to prevent problems for our clients and/or save them money and at the same time to strengthen the long -term relationship.
The most important challenge from our point of view is keeping employees permanently updated, especially those who have direct contact with customers. Technological advances and regulatory changes have been extensive, especially in recent times, in both volume and complexity.
In the short term, we believe that the economic and financial situation will not present any great surprises. The neighbouring countries of Brazil and Argentina appear to be returning to the path of order and stability, which can be interpreted as a good sign for Uruguay.
From the point of view of the profession, it is clear that communication and coordination between the tax administrations of the countries and the internationalisation of our clients means that more and more tax, accounting and legal knowledge are needed at a global level.
Visualizing what will happen in the medium and long term is hard, as it is difficult to anticipate what will happen, for example regarding events in Venezuela, the tension in North Korea, the economic and social impact of president Trump’s policies, Britain’s departure from the EU, or the substantial increase in the monetary issue of the most important central banks.