Uruguay recently updated its investment promotion regime to support faster growth and increase access to tax benefits for small and medium-sized enterprises (SMEs). President Yamandú Orsi’s administration removed a USD 500,000 investment threshold for smaller companies and provided them with additional tax exemptions while establishing strong incentives for large investment projects valued at over USD 30 million. Through this reform, Uruguay modified its investment promotion regime to ensure that fiscal incentives reach a broader base of investors across the economy.
The reform aims to incentivize private investment as part of the government’s efforts to spur job creation and reduce territorial inequalities in employment and income.
Supporting Growth Remains Priority for Government
Promoting economic growth has been one of the hallmarks of Yamandú Orsi’s economic cabinet since before the elections. Candidate Orsi made growth central to his vision for financing public policies and social spending during the electoral campaign. Then, upon assuming office, President Orsi reiterated his commitment to growth when sending the bill for the five-year national budget to Parliament.
One of the mechanisms chosen by the government to put growth into practice was updating the country’s investment promotion regime to increase access to tax exemptions and benefits for micro, small, and medium-sized investors while preserving incentives for large national and foreign companies. In this context, Uruguay modified its investment promotion regime as a strategic tool to link tax benefits more closely with employment creation, innovation, and regional development.
In this regard, Uruguay modified its investment promotion regime linking fiscal incentives to job creation, innovation, and territorial equality.
Uruguay’s Investment Promotion Regime Treat Update
Uruguayans regard their investment promotion regime as established state policy rather than as dependent on political cycles. The original law establishing this regime was approved back in 1998 during Julio María Sanguinetti’s second presidency.
Subsequent administrations, both from the ruling coalition and the now-opposition Multicolor alliance, have maintained the investment promotion regime unchanged, only updating some indicators and criteria.
Essentially, the investment promotion regime benefits any company that undertakes investments or activities beneficial to job generation, decentralization, exports, clean technology adoption, research, development, and innovation (R&D+I), and those carried out in strategic sectors.
Uruguay’s predictable investment-friendly environment has contributed to the country’s reputation as a safe haven for investment in Latin America.
Reform Aims to Update Incentives and Increase Social Impact
“The purpose of the decree is to modernize the matrix of indicators,” announced Uruguay’s Ministry of Economy and Finance (MEF). Updating indicators means that tax exemptions will focus more on social inclusion and territorial equality.
Tax exemptions are oriented toward benefiting companies willing to hire workers belonging to vulnerable groups with diminished opportunities to join the workforce. These groups include young workers, women, adults, and workers living in departments with high poverty and unemployment rates, among others.
Decentralization of investments is also incentivized since projects executed outside Uruguay’s capital city of Montevideo tend to develop less economic activity than their Montevideo-based counterparts.
Tax Incentives under Uruguay’s Investment Promotion Regime
Once a project is declared “promoted,” the responsible company benefits from several tax exemptions under Uruguay’s tax law, such as:
- Exemption from the Corporate Income Tax (IRAE) equivalent to a percentage of the promoted investment (maximum 100% of IRAE).
- Exemption from Net Worth Tax.
- Exemption from import tariffs and fees on capital goods not subject to local competition.
- Certificates of credit for VAT acquired with the purchase of national inputs, equipment, or services.
Thanks to these exemptions, investors can significantly lower the effective cost of their investments, allowing otherwise marginal projects to become viable. These incentives are particularly impactful in investments with high fixed costs and lower variable costs, such as manufacturing, logistics, renewable energy projects, or tech companies.
Better Treatment for SMEs under Uruguay’s Investment Promotion Regime
President Orsi’s most significant change to the investment promotion regime is how SMEs will be treated under the new law:
- Small and micro companies benefit from an additional IRAE exemption of 15 points and two additional years of use.
- Medium-sized companies with fewer than 50 employees benefit from an additional 10-point IRAE exemption and an additional year of use.
Another important aspect of this incentive change is that there is no longer an investment threshold of 3.5 million inflation-adjusted units (approximately USD 500,000) that SMEs must surpass to benefit from Uruguay’s investment promotion regime. In addition, companies without fully audited accounting books will now be able to access the regime.
Reform Opens Opportunities for Larger Projects
In addition to SMEs, the reform created incentives for companies willing to make significant investments in Uruguay. Investments of USD 30 million or more qualify for a 100% exemption from IRAE if submitted by December 31, 2027, and executed before the end of 2029.
To qualify for this incentive, projects must:
- Score five points in the “creation of new jobs” category.
- Score four points in research, development, and innovation.
Projects valued over USD 50 million qualify for even more extended submission and execution deadlines. Businesses can apply until December 31, 2028, and have until December 31, 2031, to finish execution and qualify for 100% exemption from IRAE.
Streamlining COMAP and Project Assessment
Companies interested in receiving incentives from Uruguay’s investment promotion regime must present their investment project to Uruguay’s Commission for the Application of the Investment Law (COMAP), dependent on MEF, for analysis and approval.
In addition to updating the investment promotion regime, Uruguay also instituted some regulatory changes to COMAP’s internal operating procedures. A significant change is using new technologies to reduce investment approval times.
Investment promotion has long been one of Uruguay’s strengths as a place to do business. As Uruguay modified its investment promotion regime to reward investment projects creating positive social impacts, it affirmed its commitment to investment-friendly policies. The modified investment decree came into force on February 1, 2025, leaving Uruguay well-positioned to attract investment in the years to come.