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Free trade zones have been the catalyst for multinational expansions across the world. By benefiting from the competitive tax and customs exemptions, businesses are able to reinvest profit and grow faster.
Uruguay is home to 12 free trade zones in total. Within these zones, all forms of business activities are permitted: from manufacturing and warehousing, to services and trade. As such, these special economic areas play a key role in attracting foreign investment to Uruguay.
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Benefits of Uruguay’s Free Trade Zones
Free trade zones (FTZs) are put in place by nations in order to draw foreign investment into their countries. Through the mediums of rent, employment, and other secondary spending from large companies, nations are able to generate large income streams.
Well-known companies such as PepsiCo and Sony base operations within two of Uruguay’s zones and, as such, have profited greatly over the last decade. Out of the 12 FTZs, 11 are privately owned whilst one remains owned by the state in the city of Nueva Palmira. Despite private ownership, all zones are monitored by the Free Zone Area which reports to the General Trade Bureau of the Ministry of Economy and Finance.
In order to draw attention from foreign investors, Uruguay has set a number of incentives for companies to benefit from when setting up operations in these areas. The most appealing of these is zero tax.
Tax exemptions
Tax exemptions are probably the most beneficial part of operating from an FTZ. Operators working in these zones are exempted from all national taxes except social security for their employees unless deliberately waived by the employee.
Customs duties exemptions
As well as being exempt from national taxes, goods and services coming in and out of the zones are also exempt from any custom tax. Even when transferring goods and services to and from other FTZs, they are exempt from any Value Added Tax. Imports and exports from a non-free zone, however, do incur taxes but only to be paid by the non-free zone agent.
Other benefits
The trade of foreign currency, gold, and other precious metals is completely tax-free.
No commercial transactions or forms of payment go through or are interfered with by any economic authority.
Quick setup time
Although relatively longer than the normal company incorporation process in Uruguay, to set up a business within a Free Trade Zone only takes 9 weeks. Compared with other FTZs worldwide, this is a highly competitive time frame for company formation.
Recent changes to the legal structure of Free Zones
Recently, Uruguay has implemented a slightly more robust free zone legal structure requiring businesses to introduce best practice procedures. Outlined are the most relevant changes and formal requirements that free zone users must comply with as a result of a number of new resolutions to Free Trade Zone regulations.
Provision of services to IRAE taxpayers
This law explains that the companies operating in free trade zones are permitted to provide services to a local company located outside the free zone, but only if the local company pays a tax called IRAE (Tax on the Rents and Activities in Uruguay). Zone users can be indirect tax contributors to the IRAE (taxpayers located outside of free zones).
Zone users will also be obliged to report annually to the Dirección General Impositiva (DGI, the authority responsible for Uruguay’s internal tax affairs) the detail of the income generated by these services provided to IRAE taxpayers. Other details required by the DGI are the total monetary value of the services provided and the dates on which the services were verified. The DGI must also be informed of foreign sales by identifying whether they are goods or services.
Furthermore, all the companies within the Free Trade Zone must print an invoice with the caption “Contribuyente amparado en la Ley 15.921” allowing them to be exempt from certain taxes. This helps to clarify the identification process of untaxed goods.
Research and Development
Regarding Research and Development, the amendment explains that all the income derived from the use of intellectual property and other intangible assets are exempt from the IRAE tax. However, this exemption is based on the percentage of costs and expenses that are directly associated with the research and development activities carried out within free trade territories.
This information is outlined in the update of article 54 of Decree 309/2018.
Every year, this information is updated and audited for the effective control of the percentages and other related data.
Exceptional activities outside the free zone
This amendment allows free zone companies to perform certain exceptional activities outside the free zone. However, only if they oblige to the following requirements:
- Communicate their company’s RUT (tax administration number) prior to carrying out these activities, as well as the address where they will be carried out.
- Inform DGI prior to the start of the tasks as well as provide a copy of the authorization of the corresponding Free Zones Area.
- Provide details of the auxiliary activities to be carried out: employed personnel, estimated period of activity, copy of the user contract and authorization of the activity in free zones.
Other important amendments
When a foreign company wants to start a business in a Uruguayan free zone it must provide:
- Company background information
- Details of the investment project including the business plan that allows the DGI and the Ministry of Commerce and Finance to evaluate its economic and financial viability and its contribution to the fulfillment of the objectives established in article 1 of this law.
Make the most of Uruguay’s FTZ benefits
Investing in Uruguay’s Free Zones is beneficial to both individual businesses and the national economy. FTZs attract massive foreign investment, generating capital through jobs and spending and businesses get a tax break. A company’s tax burden can be the difference between turning a profit on a years’ worth of business or making a loss. Using a tax relief to re-invested into the improvements and growth of your business offers companies the chance to grow like no others.
With offices all over Latin America filled with specialized market entry lawyers and accountants, we can help your business grow faster than ever with an introduction into the Free Trade world. Our experienced Uruguay team offer a full suite of market entry and back-office services to get your business up and running as quickly and efficiently as possible in your new commercial environment.
Contact us now today to see how we can help push your business into new heights.
The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.
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