The Free Trade Zones in Uruguay have high growth potential for your business but it is imperative that you understand the reform to the new laws.
Uruguay was long considered one of the countries that had harmful regimes in terms of adverse tax competition, but that all changed when they committed to modify it in 2018. The law is now amended with new points spelled out in Law 19,566 highlighting the free zones and regulations to match international standards, such as BEPS and other demands from Organization for Economic Cooperation and Development (OECD). Uruguayan regulations must accompany international standards, implementing limitations and controls for companies that decide to settle in the free zone.
Free Zones in Uruguay are part of a set of policies that were created to boost investment, exports, employment and international economic integration. Free Trade Zones can be public or private, and they are all authorized and controlled by the General Business Administration Free Zone Area. There are currently eleven Free Zones in Uruguay in the cities of Canelones, Colonia, Colonia Suiza, Florida, Fray Bentos, Libertad, Montevideo, Nueva Helvecia, Nueva Palmira and Punta Pereira.
The current regime is governed by Law 15,921 with the amendments introduced by Article 65 of Law No. 17,292, Article 23 of Law 17,781 and indirectly by Law 18,083 and Law 19,566. There are three types of subjects that can be adopted by companies in relation to Free Zones:
- one who contracts with the Operator in exchange for a price freely agreed with him, and obtains the right to operate in a Free Zone
- one who contracts, no longer with the operator but with the direct user, in exchange for a price agreed by the latter, obtaining as consideration the right to operate in the Free Zone using their facilities, such as, for example, using of your deposits
Free Zone Operators
- is the natural or legal person that provides the necessary and sufficient infrastructure for the establishment and operation of a Free Trade Zone.
The Free Trade Zone can be exploited by the State or duly authorized individuals. The private ones are managed by individuals and authorized by the Ministry of Economy and Finance, which supervises and controls them through the Free Zones Area of the General Directorate of Commerce.
Creation of Free Zones in Uruguay
To create a Free Trade Zone in Uruguay, a government resolution is necessary in which details are given such as:
- period of exploitation authorization
- area occupied by the Free Trade Zone
- the minimum investment that the operator (s) commits to carry out
- the canon that these must pay, among others.
How Law 19,566 affects users
For the current direct and indirect users, their contracts must be presented for approval by the Free Zones Area of the General Trade Directorate, within one year from the regulation of the law. Up-to-date information about the company and the current business plan is needed to allow evaluating the economic and financial viability of the business.
Changes for businesses
The most important changes for businesses in this law are:
- the requirements to authorize companies in the free zone have increased
- users will have to meet to be approved along with their projects
- the Executive Power is empowered to establish requirements in terms of minimum levels of employed personnel or fixed assets
- legal entities that are installed as users of free zones must have as an exclusive object the realization of any of the activities foreseen in this law about their performance in the territory national
- that requests for direct and indirect user authorization must contain information about the company and the investment project to be carried out. Limits are also established for authorization periods
- for authorizations of indirect user contracts and their respective extensions, the maximum term will be 5 years for the realization of any type of activity. Automatic extensions be not accepted.
Changes have been established in the activities that can be carried out in the free zones. Until now, free zone users could provide services within the free zone, and to third countries. The new law brings with it some benefits for companies, for example it will be possible to provide services to Uruguayan companies and to develop certain activities in the rest of the Uruguayan territory.
The following services may be provided to the rest of the non-franco national territory:
- International call centre
- Email boxes
- Distance education
- Issuance of electronic signature certificates
The Executive Power is empowered to enable other services.
- Commercial activities cannot be carried out outside the free zone unless there is prior authorization
- direct or indirect users must submit an affidavit to the Free Zones Area of the General Directorate of Commerce every two years about compliance
- authorize the exploitation of thematic free zones of services, for the provision of audiovisual services, entertainment and entertainment, with the exception of games of chance and betting
- minimum percentage of 75% of Uruguayan personnel may be temporarily reduced upon authorization of the Executive Power, taking into account special situations. And the Executive Power may require users to train workers with the objective of reaching a minimum of 75%.
Income derived from the exploitation of intellectual property rights is exempt if the activities are carried out in the free trade zones. The users of the free zone are liable for the tax obligations that correspond to the passive subjects of the IRAE.
Penalties for non-compliance
When the conditions referred to in the Law are not met, the State, through the Free Zone Area of the General Trade Directorate, may revoke the authorization of the contract. Non-compliance can cause the business to be forced out of the Free Zone.
TMF Uruguay has the local knowledge and experience to compile the information about a company and the business plan that the company must present to be able to evaluate the economic, financial viability and its contribution to the objectives of free zones.
Understanding local law, regulations, processes, and requirements is what we do. No matter what country you're based in, our team of experts will help you to understand the laws and how to enter the Free Zones in Uruguay.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.