Free trade zones in Uruguay (abbreviated as “FTZs”) are regions of the national territory designated by the Uruguayan Ministry of Economy and Finance (MEF) for the development of specific industrial, commercial, or service activities. The fundamental attraction and advantage of FTZs is that users are exempt from any national taxes related to their actions in the zone’s confines.
The promotion of free trade zones in Uruguay is in the national interest
The development and promotion of the free trade zones by the Uruguayan government have been proclaimed in the interest of the country, with the objectives of promoting investment, diversifying the national productive network, creating jobs, increasing the skills of the country’s workforce, increasing national added value, and encouraging high technology and innovative activities. In addition, through the use of free trade zones in Uruguay, the country wants to promote the decentralization of business sectors and regional development.
Uruguay now has eleven free trade zones with various specialties; several are located in the metropolitan region of Montevideo or its environs. Among them are the following:
Aguada Park, Science Park, UPM Fray Bentos Free Zone, Colonia Suiza Free Zone, Libertad Free Zone, Colonia Free Zone, Nueva Palmira Free Zone, Florida Free Zone, Punta Pereira Free Zone, Zonamérica, and the WTC Free Zone.
What activities are allowed in free trade zones in Uruguay?
Although the Executive Power may be required to include activities that it considers beneficial for the national economy or the economic and social integration of the State, existing laws contemplate the following.
- Commercial or industrial operations
The following industrial and commercial activities can be undertaken in the free trade zones in Uruguay: selling merchandise or articles and logistics operations.
The legislation obliges them to enter the FTZ in which the activity is carried out or in another FTZ to qualify for tax exemptions (both possibilities are included, regardless of whether it is inside or outside national borders).
Logistics operations permitted in free trade zones in Uruguay include conditioning, sorting, grading, distilling, assembling, installing software, and configuring hardware.
Manufacturing facilities may also be set up and operated in an FTZ located in the country.
The Law does not establish any restrictions and allows service provision. In this area, the services must be provided within the free zone for consumers or promoters of the free zones or third countries.
Some services can be provided nationally as long as monopolies and government concessions are considered. In this sense, the provision of the following services (within Uruguay) is allowed: international call centers (excluding those whose sole or primary objective is the rest of the national territory), mailboxes, distance education, and electronic signature certificates.
Services provided within an FTZ are also included for the convenience of users of the zones. They can also be leased from the free zones to the non-free territorial limits to companies subject to Income on Economic Activities (IRAE) as long as they do not interfere with monopolies, state exclusivities, or public concessions.
- Prohibited activities
The Law establishes that ZF users cannot perform certain acts. Weapons, gunpowder, and ammunition are among them. Likewise, the act of “retail trade” is prohibited.
However, the exchange of products and services between users is allowed, as well as commercial operations or services aimed at satisfying the needs of individuals. At the same time, they carry out work activities within them. Free zone restaurants are a good example.
What requirements must be met to operate in a free zone in Uruguay?
The operator or promoter of a foreign trade zone in Uruguay can be the government or a private company. In the latter case, it can be a physical or legal person. It must offer the necessary and adequate infrastructure for constructing and operating a free zone in exchange for a fee.
Consequently, the permit fee must be paid once or periodically to the State (the most common arrangement).
It is common for private operators to be, at the same time, the owners of the properties affected by the FTZ. However, the operator does not own the entire region in other circumstances. Still, only the majority of the affected registries have direct authority over the rest of the registries affected by the FTZ.
The application for a license to exploit and develop an FTZ must be submitted to the Ministry of Economy and Finance (MEF) with an investment project demonstrating its economic viability and advantages.
Once the official request is submitted, the examination of the case by the Executive Power can last up to 45 days from the submission date, not including the time for studying the file.
In practice, the application must be accompanied by a face-to-face presentation of the idea to government officials by company representatives.
It is also recommended to provide support material for the introductory presentation and encourage instances of interaction with the authorities throughout the process. Within the scope of the authorization for the deployment of free trade zones in Uruguay, the Executive Authority may require the operator and users to offer guarantees. Said guarantees are established to ensure the chosen rate and the fulfillment of the committed duties.
- Users of FTZs in Uruguay
Users are those (natural or legal) who have obtained the authority to carry out any of the actions specified in the legislation. To obtain said authority, a procedure must be carried out before the General Directorate of Commerce (Free Zone) under the Ministry of Economy and Finance.
Remember that there are two types of users: direct and indirect. The direct ones are those who enter into a contract to obtain the right to settle with whoever runs the free zone, be it the government or an individual. On the other hand, the indirect ones are those who carry out the lawful act with the help of others.
Contracts can be entered into by both legal persons in their capacity as “future users.” In reality, these are owned by legal entities that acquire one of the following types of companies: Public Limited Companies (SA), Limited Liability Companies (SRL), Simplified Stock Companies (SAS), and “foreign company branches.”
- Request for authorization of user contracts.
For the General Directorate of Commerce – Free Zones Area to sanction the activity, the contract must be presented between the users (direct or indirect) and those with the right to exploit the free trade zones.
The request must include the following elements: the contract of the parties and the investment plan (including the business plan). In addition, the necessary information must be provided: substantial and complementary activity to be carried out, human resources to be used in the FTZ and details of the employees affected outside it, and any other information that the company deems necessary.
The permit granted by the General Directorate of Commerce (Free Zone Area) will have a maximum duration of fifteen years for carrying out industrial operations and ten years for services and commercial activities since it is a direct user.
For an indirect user, the usual term is five years. In both circumstances, it is essential to highlight that the deadlines are renewed upon request to the competent authorities.
Despite the preceding, the Executive Power may allow longer-term contracts. Even so, as the regulation establishes, users must base their decisions on the amount of the investment in fixed capital, the anticipated employment, or other factors that determine a contribution.
- Workers: A minimum of 75% of employees must be of Uruguayan nationality.
Another criterion for training an FTZ user is that 75% of the entire workforce must be of Uruguayan nationality, whether physical or legal.
The proportion may be reduced depending on the unique characteristics of the task to be carried out and for reasons of public interest.
However, it is worth mentioning that when it comes to service operations, the number of Uruguayans can drop to 50% if the nature of the company requires it.
What are the main advantages of operating in a free zone in Uruguay?
- Tax regime
The main advantage of working in free trade zones in Uruguay is that users are exempt from all national taxes.
There are exceptions: single contributions to social security and legal monetary advantages created in favor of non-state public law persons of social security (for example, donations from the University Professionals Fund).
- Particularities for foreign workers
The Law allows foreign workers who work in the free trade zone to indicate in writing their desire not to participate in the Uruguayan welfare system. The user is not obliged to make the contributions required under this premise.
- Non-tax benefits
The legislation allows government agencies that offer supply inputs or services to users of free zones to establish promotional prices. In the same way, in the free zones, the monopolies of state services in the industrial and commercial fields will not govern.
In the same way, the entry and exit of the free zones for securities and national and foreign currencies would be free.
For more information on free trade zones in Uruguay, contact LATAMFDI.