Investment The investment climate in Uruguay is positive and foreign and national investments are treated in a similar way. Uruguay major trading partners are Brazil, Argentina, the European Union and The U.S.A. and many American companies operate in the country. The Uruguayan government is strongly encouraging international trade and the Uruguayan social indicators are excellent when compared with Latin American standards. Uruguay has the lowest poverty rates and income distributions is equitable.
Economy Indicators for 2004
Gross domestic product : $13.2 billion
Annual growth rate: 12.3%
Per capita GDP: $4,078
Natural resources: Arable land, pastures, hydroelectric power
Major imports suppliers: Argentina 25.7%, Brazil 25.7%, United States 9.0%, China 7.1%, Germany 3.4%.
Economic growth and safe investment
As a brief summary it should be stated that Uruguay is one of the more prosperous Latin American countries. It has a strong traditional agriculture sector even though in the last few years industrial products increased in importance. A significant place is occupied by cattle, horses, sheep and pork production. Water is abundant in this country and the soil is rich in different elements and nutrients, 40% of the county’s land is used for pasture and the remaining 60% is used for crop farming and mainly produces cereals, rice, fruit and vegetables. However, only 12% of the land is used for cultivations. Forestry is another major industry followed by a moderate fishing industry. Mining is confined to small-scale extraction of building materials and industrial minerals. The government has been promoting industries oriented towards exports, the main ones being textile (wool, cotton and synthetics), beef sub products and overall food products. Chemical and electrical industries are also of importance.
The main commercial associates are Brazil, Argentina, USA, Germany, UK, China and Italy.
Imports are mainly food products, chemicals, plastic resins, machinery and vehicles.
Over the last decade, tourism has become a major source of income.
Uruguay has a democratic presidential system. The country offers safety and a good level of comfort for those who live here. The temperatures are mild all year round while the summer season is ideal for the use of Uruguay’s abundant beaches. Spanish is the official language while English is usually used for business transactions.
Among the main advantages of Uruguay, let’s mention the economic, political and social stability of Uruguay, no restrictions in the transfer of capital and/ or gains. The country is oriented to foreign market being a full member of Mercosur and internationally recognised as a financial centre
Uruguay is the geographical centre of a market of 215 million inhabitants, with the highest income per capita of the continent. Its investor friendly attitude makes Uruguay the ideal entry port for Mercosur.
The country has an extensive communication network and the appropriate infrastructure to support the business community. Adding to this, its long economical and political stability and its openness and cosmopolitan attitude of its society, positions the country as ideal for business venture for the region and the world. Uruguay is the country member to the mercosur which had the highest growth over the last decade. In respect to the financial aspect, the country has become the principal financial centre of the region thanks to its policy of unrestricted movements of capitals maintained over the past 25 years and its banks secrecy guarantied by law. What is more, the last years have seen a considerable drop of the inflation rate which is between 5.5 % and 7.5% yearly. This is expected to continue dropping over years to come.
As mentioned previously tourism is a major export business accounting for 695 million dollars yearly, placing Uruguay among the ten countries with the highest tourism increase.
Unemployment is today around 12.1%. There is a minimum salary established by the government which today is around U$A 100 dollars but to be only taken only as a parameter.
By law an employee works 48 h per week and is entitled between 20 and 30 days holiday a year.
Uruguay is strategically located between South America's two largest economies: Brazil and Argentina. This factor, coupled with Uruguay's stable economy and institutions, presents a favorable climate for foreign investors either seeking to do buisness in the country itself, or in neighbouring countries, through Uruguay.
The country's business environment can be summarized in the following basic principles:
i. Equal treatment for foreign and local investors Uruguayan law does not discriminate between local and foreign investors. Foreign investors do not face any restrictions and do not require authorization to settle within the country. They can freely develop industries, engage in trade activities, and obtain access to local banks and financial markets. Foreign investors are also elegible for promotional tax regimes on their investments.
ii. Absence of special requirements for the establishment of new companies Foreign investors can operate freely in Uruguay. They receive the same treatment as local investors, whether they choose to form a local company or to simply act without formally establishing themselves.
iii. Absence of restrictions on the amount of foreign capital that can participate in an investment Investors can participate in the stock of a local company in any proportion. Local companies can be 100% foreign owned. Other forms of corporate structures can be adopted, such as joint ventures, and associations of different kinds.
iv. Free entrance and repatriation of capital and dividends
Freedom of capital repatriation and profit remittances abroad is guaranteed. This can be done at any time, regardless of the moment that the initial investment was carried out.
v. Favorable tax treatment on imports of capital equipment
Imports of capital equipment have favorable tax regimes: import duties and other taxes are not levied i many cases.
vi. Freedom of prices and lack of exchange controls
The Uruguayan economy has no exchange restrictions. Transactions can be carried out in any currency, and can be freely exchanged locally.
There are no administrative price controls.
vii. Freedom of choice regarding nationality when hiring labor
Uruguayan law allows local and foreign investors to hire foreign labor, with only a few minor restrictions in certain areas (these, regarding the proportion of foreign workers hired).
viii. Possibility of total anonimity for investors
Investors are guaranteed anonimity by way of operating through bearer-stock corporations.
The Uruguayan banking system has one of the world`s strictest banking secrecy laws which further guarantees anonimity.
ix. An open trade policy, and an expanding market through the consolidation of the Mercosur trade agreement
Uruguay is strategically located at the heart of the MERCOSUR trade area, (formed by Argentina, Brazil, Paraguay and Uruguay in 1991). This trade agreement provides investors in Uruguay with an expanded market of two hundred million consumers.
x. A solid and independent judicial system.
Respect and enforcement of the law (including commercial law) is guaranteed by an independent judiciary. Contracts can be regulated by the law of choice of the parties, and arbitrage clauses can be agreed upon.
xi. Legal protection of private property and copyright
Private property, patents, and copyrights are expressly protected by law.
xii. An important financial center
Uruguay is home to the region`s most important financial center. The banking sector consists of twenty-two private banks and government-owned banks. The private banks are all totally or partly owned by leading American or European financial institutions.
The banks are controlled by the Central Bank of Uruguay, which has a strict policy regarding the authorization of new banks.
xiii. Absence of income tax for individuals
No income tax is levied on individuals.
xiv. The existence of instruments to channel off-shore investments virtually tax-free Uruguay is South America`s only off-shore low-tax jurisdiction.
xv. Availability of political-risk insurance
Political-risk insurance is available through an existing agreement between the Uruguayan government and the U.S. Overseas Private Investment Corporation.
The insurance covers all risks except general credit risk, and claims are subject to international arbitration panels.
Uruguay's business law allows local and foreign investors to conduct their activities in the form of several types of locally incorporated corporations, or to act as branches of their parent companies (in the case of foreign firms) without the need to formally incorporate an independent company within the country.
For the investor who chooses to incorporate a company in Uruguay, the most common form is the "sociedad anonima" or "S.A." (akin to Germany's "Ags", Italy's "SpAs", or Britain's "PLCs"). The advantages of acting through a Sociedad Anonima are the following:
• The company can be incorporated immediately.
• The company is a limited-liability one.
• The company may have one sole owner (an individual or a company).
• The company's shares can be in the form of bearer shares.
• The company can name directors other than their shareholders.
• The company's annual formal requirements are minimal (mandatory approval of financial statements, and filing of tax forms).
Uruguay`s tax system consists of indirect taxes, direct taxes, taxes on capital, and social security taxes.
One of the key advantages of Uruguay's tax system is the absence of personal income taxes, and of taxes on financial transactions.
A. Indirect taxes
a. Value-added Tax This tax is multistage and non-cummulative. It is levied on each stage in which value is added to a good or service. This tax is known as "Impuesto al Valor Agregado" (IVA), or "Value-added tax"(VAT) and it is levied on the price of the good or service. Its basic rate is 23% (14% for certain basic goods). It applies to the import (with exceptions) or sale of goods and services within the country, except for banking services. Exports are not taxed.
b. Tax on luxury and other specific goods An additional consumption tax is levied on certain goods such as automobiles, alcoholic beverages, gasoline and tobacco. The rate ranges from 0% to 100%. For most products, it is 20%.
c. Tax on transfer of property. The transfer of real estate is taxed. The rate is 2% of the fiscal value of the property, for each of the parties in a transaction. The sale (partial or total) of shares of a company which owns real estate is not taxed.
B. Direct taxes
a. Income tax for corporations Direct taxes are levied on the income of corporations. The tax is levied on income generated within the country, regardless of nationality.
It includes branches or subsidiaries of foreign companies.
The tax is assessed on the income of 12-month periods.
The rate is 35%.
To calculate the tax, the carry-over of losses is permitted up to a period of three years. There are special regimes which establish exemptions on certian activities.
C. Taxes on capital
Both corporations and individuals are taxed on their net worth.
In the case of individuals, there is a minimum non-taxable amount of aproximately USD 50,000.
The tax rate ranges from 0.7 to 3% of the net worth in the case of individuals, and between 1.5% and 2.8% for corporations.
The tax only takes into account assets located within the country.
D. Social security taxes
Both the employer and the employee must pay social secutity taxes.
The employer`s contribution is 18.5% of the salary. The employee`s contribution ranges between 19% and 24%
Certain activities are benefited by special tax regimes and direct subsidies, specially created in order to promote investments in those areas. The most important promotional regimes are:
A. Tourism
Investments in infrastructure for the tourist industry are benefited by generous tax exemptions.
This applies to hotels, resorts, and various other types of establishments.
The tax benefits include:
• A total exemption on V.A.T. on equipment and materials imported to build or equip the establishment.
• Exemption of corporate income tax.
• Exemption of capital/assets tax for a period of 10 years.
B. Forestry
Since 1987, a special law guarantees numerous tax benefits and direct subsidies for investors in forestry plantation and industrialization:
• Exemption from all national taxes.
• A guarantee that no new taxes will be imposed for a period of twelve years since the first plantation.
• A direct government subsidy proportional to the planted area.
• Exemption from import duties on equipment and vehicles.
• Special credits are made available through the state-owned Banco de la Republica.
C. Industrial promotion
At the investor`s request, the government can declare a project of "national interest" if it fulfills certain requirements.
(These are related to the expansion of production facilities and export-oriented industries. This includes industries such as fishing, agro-industries, dairy products, and mining, to name a few).
The regime guarantees the investor:
• Exemption of import tariffs and other taxes on the import of capital goods.
• Exemption of capital/assets tax.
• Partial exemption of corporate income tax.
• Special funds that grant generous credit schemes.
D. Free Zones
Uruguay has established several Free Zones in parts of its territory.
These areas can be used to store, comercialize, and assemble goods, for their introduction into Uruguay, or to third countries.
Other activities that can be carried out include financial services.
Goods shipped from third countries to a Free Zone are not treated as imports, and therefore do not pay taxes or import tariffs.
Users of Free Zones are exempt from all national taxes, except for social security taxes on local labor.
E. Off-shore companies
Since 1948, Uruguay grants favourable tax treatment to companies that channel off-shore activities.
These special type of corporations are known as "Sociedades Anonimas Financieras de Inversion" or SAFIs.
A SAFI can channel investments, own foreign property, act as a lender, and make investments in other companies.
The company can carry out these operations on its own or on behalf of third parties. They are exempt from all national taxes except for a 0.3% tax on capital/assets, which can be further reduced to 0.1% depending on the company's liabilities.
There will be a comprehensive tax reform in 2007, which will change a few of the items mentioned here.
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