Uruguay’s GDP grew by 2.7% in 2017. This has brought the country’s positive growth streak to an unprecedented 15 years. While neighboring countries like Brazil or Argentina are seeing fluctuations in their GDP, Uruguay remains a force of stability.
Uruguay is now one of the most attractive Latin American jurisdictions for the establishment of companies. Uruguay allows 100% foreign ownership of local companies, and companies can be formed with only one shareholder.
Below, we outline the reasons why you should consider benefiting from these factors. Learn how setting up a trading business in Uruguay positions you for success in Latin American industries.
Uruguay is well-connected via trade agreements
One of the key benefits of setting up shop in Uruguay is its far-reaching trade agreements. Trade agreements ensure a smoother flow of goods across borders. For trading companies in Uruguay, this ensures a reduction in export or import taxes, which benefits business. Also, Uruguay is part of the World Trade Organization (WTO). The WTO is an alliance made up of 164 countries worldwide (plus 23 ‘observer’ governments) that have relaxed the ‘red tape’ at their borders to facilitate trade. However, Uruguay reaps the biggest benefits from its membership to two major trade associations. These associations are ALADI and MERCOSUR.
These associations target reduced barriers to trade between member countries. Both associations are based out of Uruguay’s capital city, Montevideo.
ALADI is a Montevideo-based trade association comprised of thirteen South and Central American countries. Uruguay holds numerous bilateral trade agreements of different scopes with ALADI partners. ALADI members include Argentina, Bolivia, Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Panama, Paraguay, Peru, Uruguay, and Venezuela.
Under ALADI’s Economic Complementation Agreements, Uruguay enjoys and grants special preferential access to trade with Bolivia, Chile, Colombia, Cuba, Ecuador, Mexico, Peru, and Venezuela. ALADI’s general regional tariff preference mechanism (PAR, by its Spanish acronym) reduces the number of trade tariffs to varying degrees and applies to goods traded between all member countries.
Uruguay is also a founding member of MERCOSUR. MERCOSUR’s main objective has been to promote a common space that generates business and investment opportunities through the competitive integration of national economies into the international market. As a result, it has established multiple agreements with countries or groups of countries, granting them, in some cases, the status of Associated States – this being the situation of the South American countries. The Southern Cone Common Market is comprised of Argentina, Brazil, Bolivia, Chile, Colombia, Ecuador, Paraguay, and Peru.
Montevideo is the headquarters of MERCOSUR’s Secretariat and Parliament. The association supports the liberalization of 80 percent of trade between the blocs. Currently, Mexico is awaiting its acceptance into the association as a full-fledged member. At this point in time, MERCOSUR and the EU are also negotiating a trade agreement. If this negotiation is successful, this will extend MERCOSUR’s reach to a global scale and provide further opportunities for international trade for its members. This in turn leads to enhanced business opportunities.
These two associations afford Uruguay comprehensive access into a large number of Latin American markets. This access is beneficial for foreign investors looking to set up in Uruguay when it comes to distributing their product or expanding their services.
Besides being part of the two trade associations, Uruguay has several other trade agreements in place. Recently, the country has attempted to diversify its trade away from MERCOSUR countries in order to improve its trade portfolio. In doing so, Uruguay has successfully established a comprehensive trade agreement with Mexico and a free trade agreement with Chile.
These agreements allow Uruguay to diversify its options when participating in international trade. This offers a wider target market for international businesses looking to invest in Uruguay.
Free Trade Zones are a haven for business activity
Uruguay has also established free trade zones within its border. These zones (Zonas Francas) are areas in Uruguayan territory which can be both public or privately owned. Companies can develop any business, industrial and service activity in these zones. To date, Uruguay has eleven free trade zones with a variety of specializations. These areas are located near the metropolitan area.
Operating in free trade zones gives companies various attractive tax advantages, granted by law. In order to be granted the status of a user of a free trade zone, the company will need to be registered at Dirección de Zonas Francas. It should be noted that there are two types of users of free trade zones:
- The Direct User: This user gets the right to operate in the free trade zone and the process occurs through signing a contract with the entity that manages the free trade zone.
- The Indirect User: This user acquires the right to operate in a free trade zone and has to sign a contract with the owner and then has the right to use or exploit the zone for commercial purposes.
Free trade zone users are exempt from all existing and future national Uruguayan taxes. Additionally, Uruguay offers fiscal benefits within the following taxes for companies operating in free trade zones:
- Corporate Income Tax (IRAE)
- Net worth taxes (IP)
- Value Added Tax (VAT)
- Internal Specific TAX (IMESI)
- Tax on Public Limited Companies (ICOSA)
Uruguay’s Free Trade Zones liberate businesses and offer great financial benefits. These zones are designed to facilitate business success, illustrating Uruguay’s willingness to attract foreign investors.
An advantageous location for regional business
Besides the trade benefits themselves, Uruguay also has a promising geographical location. Uruguay’s coastline allows the country to be a home for trade by sea. Furthermore, because of its central location, there is a lot of opportunity for distributing further into Latin America. This is an opportunity the government seeks to capitalize on. Consequently, Uruguay has a beneficial regulatory framework for logistics companies.
Uruguay’s regulatory framework offers significant advantages for logistics operations, offering high incentives for the establishment of Regional Distribution Centers (RDC) and for managing goods in transit. This includes free trade zones, free port and airport access, bonded warehouses, and temporary admission systems.
In recognizing regional trading opportunities, Uruguay has created an institutional structure for logistics. This institution aims to improve and protect its distribution qualities by working together with the private sector. In 2010, the National Logistics Institute (INALOG) was created, which serves as a private-public space for participating in and coordinating the development of the sector.
Furthermore, Uruguay possesses an outstanding infrastructure to support its regional trade by air, road, and sea. In 2009, Uruguay completed the Carrasco International Airport, which was designed to be one of the four best airports in the world. Uruguay has the heaviest road transport flow in all of Latin America, and its port infrastructure is the only port in the South Atlantic coast that uses a Free Port system.
Combining this infrastructure with Uruguay’s trade agreements such as MERCOSUR and the geographical location causes a very advantageous situation. Consequently, any foreign investor looking to set up in the Latin American country will find new ways of adding value to their business.
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International trade plays an important role in attracting investment and capital to Uruguay. The government continues to develop industrial, business, and service activities in Uruguay. As the government welcomes foreign business and foreign capital, investment opportunities in the region grow. It comes as no surprise that businesses see Uruguay as one of the most appealing destinations in Latin America to set up a trading business.
If you are interested in taking advantage of the benefits for trading businesses in Uruguay, get in contact with Biz Latin Hub. We are experienced in helping companies to develop their commercial operations in Latin America.
Reach out to a member of our team today at [email protected] and see how we can support your business development.