Why Invest in Uruguay?

Levels of Government Transparency

Acceptance of a bribe is a felony under Uruguay’s penal code. US businesses report that government corruption is not an obstacle to foreign investment, although bureaucratic procedures are sometimes complicated and slow moving.

Transparency International is a Berlin-based organization that ranks and scores countries by their levels of perceived corruption (the abuse of public office for private gain). The scores range from 10 (squeaky clean) to 0 (very corrupt). A score of 5.0 is the number Transparency International considers the borderline figure distinguishing countries that do and do not have a serious corruption problem.

For 2007, Uruguay was ranked the 25th least corrupt country out of 179 countries, with a score of 6.7. It is the second least corrupt country in Latin America after Chile. For comparison, here is the ranking of Southern Cone countries:

Chile ranked 22 with a score of 7.0
Uruguay ranked 25th with a score of 6.7
Brazil ranked 72nd with a score of 3.5
Argentina ranked 105th with a score of 2.9.

Latest IMF Board Report Summary of the Executive Board Assessment (November 11, 2009)

Executive Directors commended the authorities’ achievements in reducing Uruguay’s vulnerabilities, which have enabled the economy to withstand well the global recession. Directors praised in particular Uruguay’s sound macroeconomic policies and skilful public debt management; its robust and well-regulated banking system; its solid external position—underpinned by a flexible exchange rate regime; and its advances in poverty alleviation. Low private sector leverage and minimal bank exposure to foreign toxic assets have also helped to limit the transmission of the global crisis to Uruguay. Directors noted the quick turnaround in the Uruguayan economy, welcoming the resumption of growth in the second quarter of 2009.

Directors commended the authorities’ policy response to the global recession. The monetary policy stance was appropriately tighter than in other emerging markets in light of inflation concerns, while fiscal policy was geared to broadly maintaining the significant increase in nominal expenditure as planned, allowing automatic stabilizers to work. Directors supported the authorities’ commitment to improve productivity and the business climate.

Full report available at :
(http://www.imf.org/external/np/sec/pn/2009/pn09127.htm)

Beneficial Promotion Systems

Attractive incentives for investment, which may qualify for company income tax exemptions of up to 100% of investment. The government has taken the necessary steps to enable potential investors to go through a friendly and efficient system when considering investing in Uruguay.

In 2008, the Government improved the Investment Law by creating an automatic, predictable, effective and transparent mechanism that benefits a broader base of firms and it specifies government’s criteria for granting them.

It streamlines procedures in terms of tax exemptions requests, and establishes a one-stop-shop for investment requests and the guidance of potential investors.

Project Size	Project Size*	Maxium of the investment deduction from taxes	Maximun period
Denomination	in U$S millions	%	Years
*Small*	Up to 0.35	60	5
*Medium S1*	Up to 1.2	70	15
*Medium S2*	Up to 6.2	80	20
*Large S1*	Up to 12	90	25
*Large S2*	Up to 44	90	25
*Large S3*	Up to 625	100	25
*Very Large*	More than 625	100	25

Attitude Towards Foreign Investment

The Government of Uruguay recognizes the important role foreign investment plays in economic development and strives to maintain a favourable investment climate. Aside from a few sectors in which foreign investment is not permitted, there is neither de jure nor the fact of discrimination toward investment by source or origin, and national and foreign investors are treated equally. In 1998, the Uruguayan Government approved a law No.16.906 that declares that promotion and protection of national and foreign investment is in the nation's interest. The law states that (1) foreign and national investments are treated alike, (2) investments are allowed without prior authorization or registration, (3) the government does not prevent the establishment of investments in the country, and (4) investors may freely transfer abroad their capital and profits from the investment. There are no restrictions on technology transfer. One hundred percent foreign ownership is permitted, except where restricted for national security purposes. The Investors Support Center (ISC) was created by the Uruguayan government seeking to facilitate and simplify the process of evaluation of investment projects.

Tax Exemptions/Incentives for Foreign Investors

Free Trade Zones

Wealth and Income Tax exempted areas, as well as from any other tax created or to be created in the future.
Introduction of merchandise into the FTZ is exempted from all import levies.
Authorized to develop any industrial, commercial or service activity.

Free Port

Montevideo: first and only free port of the Atlantic Coast of South America.
Free merchandise transit, no authorizations or formal procedures required. Within port facilities goods are exempted from all import levies.

Free Airport

Value adding services can be carried out, in activities related to goods.
Also in activities associated with services that are applied to goods.
Exemptions work in the same manner than in the Free Port regime.

The Investment Law N° 16.906 of January, 1998, grants general and automatic benefits to investments, applicable to taxpayers of corporate income tax who carry out manufacturing or agriculture and livestock activities: - Exemption of Capital Tax on goods devoted to the productive process and on equipment for data processing; - Exemption of VAT and Excise Tax due to the import of such goods and VAT´s reimbursement on local acquisitions; - The Law entitles the Executive Branch to grant exemptions of Capital Tax to remodeling and improvements made to: fixed assets of agriculture, livestock production and manufacturing activities, intangible goods such as brands, patents, industrial models, copyrights, 'key values' and concessions granted for the prospecting, crops, extraction or exploitation of natural resources, and other goods, inventions or creations which incorporate technological innovation.

Exemption on reinvestment of profits

Net profits, after deducting all other tax exemptions, may be exempt from income tax (business income tax, or farming tax) up to a ceiling of 40 percent of the taxable base. Exempted income cannot be distributed and must be appropriated to a reserve, which can only be capitalized.

These exemptions may be equivalent up to 40 percent of the acquisition cost of machinery and industrial installations, agricultural machinery, fixed improvements in the agriculture sector, utility vehicles; furniture and fittings for equipment and re-equipment of hotels, motels and other lodging facilities, capital goods destined to improve services rendered to tourists in entertaining, information and transportation activities; equipment necessary for electronic data processing and for communications.

These exemptions benefit up to 20 percent of the cost of construction and extension of hotel, motel and lodging facilities as well as buildings and their extensions destined to manufacturing activities.

Promotional Regimes

The Investment Law foresees a set of incentives that depend on the Executive declaring specific investment projects or sector activities as worthy of being promoted.

The beneficiaries of such privileges shall be companies whose projects or specific areas of activity are declared promoted by the Executive, be they engaged in industry, agriculture and cattle raising, trade or services.

In granting such fiscal benefits, special attention will be paid to investments incorporating technological progress, facilitating the increase and/or diversification of exports, in particular those that involve a greater national value added component, that generate productive employment either directly or indirectly, that facilitate productive integration involving a greater national value added component at the different stages of the productive chain, that foster the activities of micro-, small and medium-sized enterprises for their effective capacity for technological innovation and productive job creation, that contribute to a geographical de-centralization and that fall within the sphere of industrial, agro-industrial or service provision activities that require significant labor and local inputs.

Benefits

The Executive may grant the tax privileges to the activities or investment projects declared worthy of being promoted:

Income tax: an amount equivalent to the investment made through self-funding is exempted.
Capital tax: assets incorporated to an investment project are exempted for a certain period.
Tax on real estate transfers: on real estate acquired for purposes of the project.
Taxation on importations: the importation of capital goods to be incorporated to the project is exempted from all importation taxes provided the goods are not in competition with the local industry.

Pursuant to the Investment Law, the Executive may not grant tariff exemptions counter to the commitments engaged in by Uruguay within the framework of the MERCOSUR agreements. The benefits to be granted by the Executive, pursuant to this Law, in favor of projects or activities that are important because they contribute to the geographic de-centralization process of economic activity in Uruguay, shall be higher in both term and amount to amount to those granted to equivalent projects or similar activities to be implemented in the Department of Montevideo.


		Investment Opportunities in Uruguay