Country Report Uruguay

 

BRIEF OVERVIEW

Uruguay, officially the Oriental Republic of Uruguay, a country on the South Atlantic Ocean coast of southern South America, south of Brazil, it borders Argentina in west.

With an area of 176,000 km², the country is the second-smallest nation (after Suriname) in South America, but still almost twice the size of Portugal or slightly smaller than the U.S. state of Washington.

Uruguay has a population of 3.25 million inhabitants (2011 census) of whom 1.3 million live in the capital and largest Montevideo, the majority of the country’s population resides in the southern half of the country. Official language is Spanish.

Government & Politics

Uruguay is governed by a presidential representative democratic republic. The president-elect is both the head of state and the head of government and serves a five-year term. The vice president is elected on the same ticket.

The Legislative Branch Of The Government Of Uruguay

Uruguay has a bicameral parliamentary system known as the General, which comprises of the Chamber of Senators (Camara de Senadoras) and the Chamber of Representatives (Camara de Representantes). The Chamber of Senators has 31 members 30 of whom are elected to serve for a term of five years with proportional representation. The country’s vice president is responsible for presiding over the Chamber of Senators. On the other hand, the Chamber of Representatives comprises of 99 members also elected to serve a term of five years by proportional representation.

 ECONOMIC   OVERVIEW

Uruguay stands out in Latin America for being an egalitarian society and for its high per capita income, low level of inequality and poverty and the almost complete absence of extreme poverty. In relative terms, its middle class is the largest in America, and represents 60% of its population. Uruguay occupies the top spots in the region in terms of various measures of well-being, such as the Human Development Index, the Human Opportunity Index and the Economic Freedom Index. Institutional stability and low levels of corruption are reflected in the high level of confidence that citizens have on the government. According to the World Bank’s Human Opportunity Index, Uruguay has managed to attain a high level of equality of opportunity in terms of access to basic services such as education, running water, electricity and sanitation.

In July of 2013, the World Bank placed Uruguay as a high-income country.

Two main characteristics —a solid social contract and economic openness— paved the way to the reduction in poverty and the promotion of shared prosperity that Uruguay successfully followed in the last decade.

With an annual average growth rate of 4.54% between 2003 and 2016, Uruguay’s robust economic performance has given it a greater economic resilience to external shocks.

Moderate poverty went from 32.5% in 2006 to 9.4% in 2016, while extreme poverty has practically disappeared: it went down from 2.5% to 0.2% in the same period. In terms of equity, income levels among the poorest 40% of the Uruguayan population increased much faster that the average growth rate of income levels for the entire population.  Inclusive social policies have focused on expanding program coverage; for example, around 87% of the over-65 population is covered by the pension system: this is one of the highest coefficients in Latin America and the Caribbean alongside Argentina and Brazil.

It’s robust macroeconomic performance was also reflected in the labor market, which registered historically low unemployment levels in 2014 (6.6%), although in view of a marked slowdown in growth, the latter has increased to 7.8% in July of 2017. Concerning export markets, these have been diversified with the aim of reducing the country’s dependency on its main trade partners; currently, 77% of exports go to 15 different destinations.

Taxes in Uruguay

Uruguay is consider to be an offshore haven, with little tax burden on foreign residents.

Income and holdings from outside Uruguay are not taxed.

Uruguay has strong laws on tax secrecy as well as banking secrecy, so “what’s reported in Uruguay stays in Uruguay”. And what you do report is not of public record.

• The basic rate for VAT in Uruguay is 22% for most goods, and 14% for certain basic goods.
• Property taxes: The municipal property tax (known as contribucióninmobiliaria) runs from 0.25% to 1.2% of the market value of the property.
• Personal Income Tax on wages or fees as an independent worker is only paid on income generated within Uruguay, on the amount over 173,124 pesos per year.The tax rate ranges from 10% to 25%, and certain expenses are deductible.
• Individuals who rent out their property must pay a flat income tax of 12%. This is not in addition to the personal income tax above.
• The capital gains tax rate is 12% for individuals, 12% for foreign corporations, and 25% for Uruguayan corporations.

GDP – GROSS DOMESTIC PRODUCT

Growth in the economy decelerated in the second quarter of 2017 to 2.8% over the same period last year, according to detailed data released by the Central Bank on 14 September. The reading came in below Q1’s 4.4% expansion and marked the lowest result since Q3 2016. The deceleration came on the back of a notable fall in fixed investment, mainly due to a noteworthy drop in the construction of electrical power generation equipment. Nevertheless, the economy continued to grow at a respectable pace thanks to expanding private consumption and a significant increase in exports.

Fixed investment shrank by 19.1% in annual terms in Q2, a notable deterioration from Q1’s 0.8% decline. The drop came on the back of a contraction in both private and public fixed investment, with the latter plummeting more than 50% due to a strong fall in infrastructure spending on electrical power generation. This can be partly explained by the ongoing closure of the La Teja refinery for maintenance, which was reflected in a substantial drop in manufacturing output in the second quarter. Additionally, stockpiles decreased and spending on construction works also fell. The fall in fixed investment was partly offset, however, by resilient private consumption, which grew 4.4% in Q2 year-on-year, up from Q1’s already robust 4.1% expansion and the strongest reading since Q4 2013. Households benefited from rising wages, lower unemployment and declining inflation.

WHY TO INVEST IN URUGUAY

• Favorable business climate, great social stability, with important tax incentives for investors
• A consolidated democratic system, always keeping their commitment and respect with the rules of the game.
• Trustworthy and attractive destination for foreign investors
• Investors from abroad enjoy the same incentives as the locals, with no discrimination from the tax point of view, or restrictions for the transfer of profits abroad
• The exchange market floats freely, with no limitations on the purchase or sale of foreign currency, and investments may be made in any currency.
• The tax system is also neutral with regard to foreign investment and it is not necessary to register or request prior authorization to make an investment, with the exception of environmental authorization. Moreover, Uruguayan laws currently in force expressly provide for the existence of bank and tax secrecy.

WHERE TO INVEST IN URUGUAY

Energy and Infrastructure sector

The Uruguayan government has established an infrastructure plan for the period 2015-2019. The investment in infrastructure is a priority in order to ensure the sustainability of growth and productivity levels of the Uruguayan Economy.

The infrastructure plan will be undertaken with both Public Budget and private funding, reaching 12.370 million USD. A third corresponds to PPP projects and two thirds to public financing.

Uruguay has a long-term energy policy unanimously approved by a multi-party committee. This shows the significance of the issue and supports the State policy status of energy policy.

Energy policy features a strong hope for renewable energy, with important introduction goals in the short term and material tax benefits for this type of undertakings.

Energy policy further includes a commitment to diversification and non-reliance on external sources, which has resulted in investments in onshore and offshore hydrocarbon exploration activities.

Logistic Sector

Uruguay has become a regional hub in the Southern Cone due to the large advantages it offers for the development of logistic activities.

Uruguay is the regional hub par excellence for the Southern Cone: it offers important advantages for the location of Regional Distribution Centers (RDCs).

Uruguay has a brand new airport which became operative in 2009, deep water ports – with top level infrastructure – and the busiest highway network of Latin America.

Uruguay is geographically located at a privileged area featuring two ports in the main gateway to the Southern Atlantic coast with access to Parana-Paraguay-Uruguay waterway. The richest cities of the continent can be reached in 12 to 96 hours by land and 1 to 3 hours by air.

The Uruguayan legal framework provides major advantages to logistics operations, with highly strong incentives to the setup of RDCs and the handling of goods in transit. This includes Duty-Free Zone, Free Port and Airport, bonded warehouses and temporary admission regimes.

Logistics in Uruguay has its own institutional framework. In 2010, the National Institute for Logistics (INALOG) was created by Law as a means for public/private participation and coordination of logistics development.

Agribusiness Sector

The extensive legal framework that Uruguay provides guarantee clear rules of the game, as well as attractive incentives to investors such as the law no. 16,906 regarding the promotion and protection of investment

Foreign investment has reached record levels, which allowed Uruguay to position itself as the second country with further reception of FDI in Latin America (5.6% in terms of GDP). 22% of foreign direct investment is associated with forestry and Agro industry business.

It is offered attractive conditions for the development of the forestry and the agribusiness activity.

Relevant advances in infrastructure are some of the favorable conditions for forestry and agribusiness sector.

In recent years, major foreign investments have been setting up in the industry of pulp, forestry and agribusiness. In 2015, the sector exported around USD 7500 million.

Touristic  Sector

A favorable business climate, with tax incentives for investors, cause tourism to account for 7% of the Uruguayan GDP and to generate more than 110.000 direct jobs.

The number of foreign tourists has been growing steadily, and exceeded 3 million foreign visitors in 2015. Together with the strong growth of domestic tourism, it has positioned tourism as one of the main productive activities in the country.

The country offers very attractive natural conditions for different types of tourism, all located a very few kilometers away from each other. In addition to the traditional sun-and-beach and urban tourism, the country offers tourism involving rural spaces and nature, hot-springs and leisure, nautical, congress and events destination, and social tourism, among others.

Automotive Sector

Over the last years, foreign investments have been made in the Uruguayan automotive industry, both in the assembly of vehicles and in the manufacturing of auto parts. The industry exports reached US$ 322 million in 2015.

According to the Investment Promotion Act, companies may be eligible for 100% deduction of the invested amount from the Corporate Income Tax, along with other tax benefits.

The industry exports receive a benefit of 10% reimbursement on the FOB value by means of credit certificates issued by the State’s Tax Authority.

Uruguay has a Temporary Admission regime in place for machinery and input included in the exported goods, so import taxes are not applicable to these products (customs duties and others),

The import of parts (CKD kits) for vehicle assembling intended for the domestic market is applied reduced tariffs (2%).

Uruguay has free access to the Argentinean, Brazilian and Mexican market for automotive products, with more favorable terms for new models. Uruguay also boasts preferences when entering other regional markets, such as: Bolivia, Chile, Colombia, Ecuador, Peru and Venezuela.

Other Sectors

Uruguay has several incentives which adjust to different types of activities, from industrial to commercial and service activities intended to be performed in the country. Schemes provided for by the Investment Law, free zones, free port and free airport schemes, public-private partnership agreements, industrial parks and temporary admission are some of the main incentive schemes available in the country.

There is no limitation for hiring foreign staff (except in the free zones, where it may not exceed 25% of the workforce, subject to exceptions). In turn, favorable policies towards foreign investment translate into incentives for foreign immigration and, as well as for the return of Uruguayan citizens who have resided abroad.

 

PROFESSIONALS IN URUGUAY

GRO CONTADORES & ASOCIADOS

A firm dedicated to the accounting, tax, financial and other aspects of business management with the objective of providing comprehensive advice regarding all types of commercial activity.

Assistance to non-resident clients

They are characterized by professionalism and commitment to excellence with a portfolio of clients from diverse sectors of activity both locally and abroad. At GRO they focus on results based on business efficiency at all levels maximizing profitability while keeping costs to a minimum.

​Their team provides advice for effective tax planning while maintaining a low cost structure that meets all tax obligations for both companies and individuals.

Doing a thorough study is essential to know how to choose between different regimes and choose the most suitable for each client in particular. To achieve this goal in tax matters it is vital to be up to date and adapt quickly to regulatory changes.