In recent months, Free Trade Zones in Uruguay have expressed their strong opposition to the introduction of the Domestic Complementary Minimum Tax, known as the Global Minimum Tax of 15% that has been proposed in the draft Budget Law for the four-year period of 2025 to 2029. In a formal statement issued by the entity, they affirm that the inclusion of Articles 628 and 662 in the Budget Law would put at risk the stability of the free trade zone regime and consequently, the predictability and legal certainty to which our country is accustomed; it would expose the country to international litigation processes and place Uruguay at a disadvantage with its main competitors in the region.
In this blog post, we want to delve into the points raised by the Chamber in this important debate, analyze the risks and benefits of applying the Domestic Complementary Minimum Tax, and explain why Free Trade Zones continue to be a key pillar of the country’s economic model.
Forty Years Fostering Competitiveness
It is not the first time that Free Trade Zones in Uruguay express their discontent with a measure they deem harmful to the stability of the regime. As stated, the free trade zone framework in the country was defined by the democratic authorities that returned to the country in 1985, as a State policy, meaning a policy that is not meant to change with the incoming governments.
One of the main purposes of the free trade zone regime, then and now, is to contribute to the competitiveness of the country in order to attract and retain high-value investments. The economic value added by the free trade zones can be measured in several ways. According to data from the Chamber of Free Trade Zones in Uruguay, in recent years, they have accounted for approximately 6.6% of GDP, 40% of total exports, and have indirectly created and directly maintained more than 66,000 jobs. But the contribution of the system extends beyond these figures, and it is based on them that they once again call for the stability of this key engine of the economy.
Uruguay has been recognized in recent years as a benchmark for the installation of new operations by international companies, in part because of the appeal and added value of the free trade zone system, through which companies with different business models and aimed at both national and international markets, in industries such as manufacturing, logistics, technology or global services, choose Uruguay as a platform to carry out their operations on a regional or even global scale.
The ecosystem of innovation, technological transfer, and management that they bring to the country becomes key in strengthening human capital and the productive fabric of the country.
On the other hand, the entry of multinational companies into Uruguay and the arrival of foreign professionals who work in them generate a positive multiplier effect on several sectors (housing, education, health, and others) and, with that, also increase economic activity in the country.
But that is not all, as Free Trade Zones claim that Uruguay is not losing revenue with the regime. On the contrary, using data provided by the Chamber of Free Trade Zones of Uruguay, every dollar of tax exemption in free trade zones generates more than seven dollars in added value for the national economy.
In other words, businesses that operate in the country under this regime not only purchase and subcontract nationally (generating income and jobs for Uruguayan suppliers), but they also contribute to the maintenance and improvement of infrastructure and generate additional economic activity in other sectors and with domestic companies that are dependent on export-oriented companies and their needs.
Legal Uncertainty and Contractual Risks
The Chamber’s statement also highlights that, in addition to the reasons mentioned above, the application of the tax, by including the provision of a Domestic Complementary Minimum Tax, would alter legal certainty, one of the values on which Uruguay has built its success in recent decades to attract foreign investment.
Specifically, Article 628 of the draft Budget Law for the period 2025-2029 includes a provision to modify Article 19 of Law No. 15,921, which means that, if approved, the Domestic Complementary Minimum Tax will no longer be subject to the tax exemptions enjoyed by companies with free trade zone authorization.
In this regard, the statement specifically affirms that “neither Article 628 nor Article 662 provides sufficient legal guarantees on the rights of companies with already signed contracts, violating acquired rights and predictability.”
The stability and clarity of the legal framework are not just semantic or technical issues. Companies decide to invest or expand in Uruguay based on these conditions. Any change that endangers this legal predictability can have negative repercussions on the credibility of the country.
International Disputes
In the statement by the Free Trade Zones in Uruguay, another risk they highlight in the event that the change is approved is that the country would be exposed to international litigation processes, not only with investors that they contract with under free trade zone laws, but also under investment protection treaties.
The fact is that free trade zone contracts as well as investment protection treaties are not exempt from these clauses, and any change that does not respect the legal certainty to which these companies are entitled is exposed to being challenged in international forums.
Uruguay’s Free Trade Zones conclude this section of their formal statement, arguing that in addition to the above risks, the mere announcement of the new tax has already generated adverse publicity abroad, with international investors following developments in the country closely.
Threats to investment and jobs
The position of Uruguay’s Free Trade Zones is that the application of the proposed tax will lead to a reduction in new investment and may even lead to the dismantling of some companies already in the country, which would directly affect jobs, exports, and Uruguay’s competitiveness as a platform to serve the region and the world.
On the other hand, the statement points out that no other country in the region, except for Brazil, has approved the new tax, which means that to apply it now would place Uruguay at a competitive disadvantage within the Latin American region, where countries compete to attract high-quality foreign direct investment.
Does Uruguay have to apply the tax now?
Another argument made in the Chamber’s statement is that Uruguay is under no obligation to apply the new tax in the coming years.
In fact, the entity points out that large countries such as the United States, China, and India have not done so. The fact is that, in June, the G7 countries, which had promoted the measure, agreed to freeze its implementation.
In addition, several European countries that have implemented the tax in recent years have already admitted, in light of their experiences, that they regret having done so due to its negative impact on their economies. The OECD, the intergovernmental body that has promoted this type of measure, has not put pressure on Uruguay to do so either.
In this context, for Uruguay’s Free Trade Zones, the application of the new tax without a strategic purpose would be hasty, precipitate, and unnecessary. On the contrary, it is important to take a prudent approach, monitoring how the international debate on the subject evolves and acting at the appropriate time and when all the technical studies and positions are analyzed.
Free Trade Zones in Uruguay: A Permanent Pillar of Development
The position of Uruguay’s Free Trade Zones on the matter is based on the considerations mentioned above and, in its final paragraphs, reaffirms that free trade zones must remain a permanent pillar of the country’s development. The added value of the industry to the country, in terms of exports, high-quality job creation, and its role in integrating Uruguay into global value chains, has been proven over time.
In that sense, the Chamber of Free Trade Zones of Uruguay asks the National Parliament to eliminate Articles 628 and 662 of the 2025-2029 Draft Budget Law so that, together, they can preserve employment and competitiveness and Uruguay’s reputation in the region and the world. And it warns that protecting the stability of the free trade zone system is the only way to continue to have credibility and continue growing in the coming years.