NATIONAL INTEREST
The promotion and development of the Uruguayan free zone regime has been declared of national interest, with the objective of promoting investments, diversifying the productive model, creating job opportunities, increasing the number of qualified national jobs, increasing the national added value, promoting innovative and technological activities and promoting the decentralization of economic activities and regional development. In general terms, it aims to increase the country’s participation in the international trade of goods and services and international investment flows.
The regulations seek to make the regime more dynamic and specialized, encouraging activities of special interest for the country and promoting new investments.
Additionally, the free zone regime is aligned with the process that Uruguay has been developing to align tax incentives with international standards regarding guidelines and requirements in terms of international taxation.
Nowadays, Uruguay has 11 free zones with different specializations, most of them close to the metropolitan area[1]. These include: Aguada Park, Parque de las Ciencias, Zona Franca Colonia, Zona Franca Colonia Suiza, Zona Franca Florida, Zona Franca Libertad, Zona Franca Nueva Palmira, Zona Franca Punta Pereira, UPM Fray Bentos, WTC Free Zone, and Zonamérica.
STRUCTURE OF THE FREE ZONES
Operator | Developer:
It can be the State itself or a private person. In this case, the operator or developer can be a natural or legal person and must provide the appropriate infrastructure for the installation and operations of a free zone, in exchange for a price. Authorizations are therefore to be paid, and such payment can be cancelled as a lump sum, or paid as regular operation fees to the state; being the latter the most frequent regime.
Users:
They are natural or legal persons that acquire the right to develop their activities within the free zone, but they are not allowed to conduct any other type of activity outside the free zone.
There are 2 categories of users: Direct and Indirect. Direct Users are those who contract directly with the operator, while Indirect Users contract with the Direct User, and are entitled to use the facilities of the latter.
MANAGEMENT, SUPERVISION AND CONTROL
Management and supervision are in charge of the Ministry of Economy and Finance through the General Commerce Directorate – Free Zones Department. This directorate is the main interlocutor concerning any regulations, permits and controls regarding all the country’s Free Zones.
Since the Uruguayan New Customs Code (CAROU), Law 19.276 dated 19/SEP/2014, was passed, free zones moved from being an exclave to be part of the customs territory, and, therefore, under the control of the National Customs Directorate (DNA).
INTERNATIONAL BUSINESS PLATFORMS
The free zones primary objective is to develop commercial and industrial activities and services, with the benefits and in the terms foreseen in the legislation in force.
The introduction to free zones of guns, gunpowder, ammunition and other materials used for warlike purposes, as well as those declared contrary to the interests of the country by the Executive Power, is prohibited.
ACTIVITIES OF THE USERS IN THE FREE ZONE
These are some of the activities that stand out:
- Commercialization of goods, warehousing, storage, conditioning, selection, classification, division, assembly, disassembly, handling or mixing of goods or raw materials of foreign or national origin.
- Installation and operation of manufacturing establishments.
- Service provision in the following way:
- From the free zone to other users in other free zones.
- From the free zone to companies located in the national territory (not a free zone): all types of services can be provided, on the condition that the company located in the non-free zone is a taxpayer of the Income Tax on Economic Activities (IRAE), which must be communicated to the free zone user and performed in the terms established by the Tax Administration Department (DGI).
- From the free zone to third countries.
- Other ways which, according to the Executive Power, are beneficial for the national economy or for economic and social integration.
ACTIVITIES OF THE USERS OUTSIDE THE FREE ZONE
GENERAL RULE
As a general rule, the users of a free zone will not be able to perform industrial and commercial activities or activities related to services outside the free zones. Some exceptions may be applied. These are outlined below.
EXCEPTIONAL ACTIVITIES
Exceptionally, the users will be able to perform the following activities in non-free zones:
- Collection of delinquent portfolios, provided that it is made through third parties. “Delinquent” refers to credits whose payment has been delayed for more than 180 days. The Free Zone Area will control that third parties that provide the service are not linked to the user and that they develop this activity regularly.
- Merchandise display in Montevideo, only for users that are installed in free zones located outside the metropolitan area, in an area provided by the developer, with prior authorization by the Free Zones Department.
ANCILLARY ACTIVITIES
It will be possible to develop certain ancillary activities in the national territory (non-free zone), in a single fixed place, with prior authorization of the Free Zones Department.
COMPLEMENTARY ACTIVITIES
The users of the free zone located outside the metropolitan area will be able to develop the following activities, in a single place provided by the developer:
- Public relations.
- Management of ancillary documents.
- Invoicing.
- Collection of goods and services of non-delinquent portfolios.
FULL EXEMPTIONS
The users are exempted from any national tax, standing or to be created in the future, including any taxes whose implementation requires special exemptions, with respect to the activities developed in the free zone, provided that they are carried out within the law. These include:
- Tax on the Control of Public Limited Companies (ICOSA).
- Internal Specific Tax (IMESI).
- Wealth Tax (IP).
- Income Tax on Economic Activities (IRAE).
- Value Added Tax (IVA).
As previously stated, the Executive Power may enable the provision of other services from the free zones to the rest of the national territory. These activities will be regulated by the general tax regime, which may be established according to tax withholding regimes which are final, in accordance with what the Executive Power establishes.
STAFF
In order to maintain the quality of users of a free zone and the benefits and rights that this law gives them, the users of free zones will hire for the activities they need to carry out within the free zone a minimum of 75% (seventy-five percent) of staff who are Uruguayan citizens, natural or legal. On a transitional basis, this percentage can be reduced, with the authorization of the Free Zones Department. To this end, the reasons for the request must be expressed. The aforementioned office will submit a report to the Ministry of Economy and Finance, in charge of taking a decision. The following will be assessed by them: specific reasons of the activity of the company, situations of beginning or extension of activities, reasons of general interest and consideration of objectives set forth in this decree. Furthermore, the implementation of training plans so that users reach the minimum percentage required by the regulations may be necessary.
The same procedure must be done in the Free Zones Department by those users who develop activities related to services and intend to have a maximum percentage of foreign staff equivalent to 50% (fifty percent) for the entire term of the user agreement.
TERMS OF AGREEMENTS
The law establishes maximum terms for free zone user agreements:
- Direct users: maximum of 15 years to carry out industrial activities and 10 years for commercial activities or services.
- Indirect users: maximum of 5 years to carry out any type of activity.
Additionally, in the cases mentioned below longer terms for the agreements can be authorized:
- The users of free zones located outside the metropolitan area must meet one of the following conditions during the first 3 years:
- More than 50 employees.
- Investment greater than 20,000,000 Indexed Units (UI), which is equivalent to approximately USD 2,500,000[2].
- The users of free zones located within the metropolitan area must meet one of the following conditions during the first 2 years:
- More than 100 employees.
- Investment greater than 40,000,000 Indexed Units (UI), which is equivalent to approximately USD 5,000,000[3].
REVOCATION
The Free Zones Department may revoke the authorization of the user agreement, when it is understood that it does not comply with the established requirements and the commitments assumed in the investment project. Among others, it will be understood that there is default when:
- Jobs are not created in the area in an adequate proportion in relation to the activities developed.
- The activities are not carried out within the free zone.
- There is no fiscal address in the area.
DOWNLOAD FILES
LAW 15.921 – FREE ZONES – 17/DEC/1987
DECREE 454/988 – REGULATES LAW 15.921 – 08/JUL/1988
DECREE 920/988 – REGULATES LAW 15.921- 30/DEC/1988
LAW 19.276 – URUGUAYAN NEW CUSTOMS CODE (CAROU) – 19/SEP/2014
DECREE 97/015 – REGULATES LAW 19.276 – 20/MAR/2015
RESOLUTION 89/016 – STIPULATES CLOSURE OF THE FREE ZONE IN RIVERA – 01/MAR/2016
LAW 19.566 – MODIFICATION OF LAW 15.921 (FREE ZONES LAW) – 08/DEC/2017
DECREE 309/018 – REGULATES LAW 19.566 – 27/SEP/2018
RESOLUTION 231/019 OF THE TAX ADMINISTRATION DEPARTMENT (DGI) – 16/JAN/2019
[1] The metropolitan area is defined by Law 19.566 as the geographical area which lies within a 40-kilometre radius of the Center of Montevideo.
[2] Value corresponding to September, 2018.
[3] Value corresponding to September, 2018.