The Uruguay Free Zones (abbreviated “FZ”) are regions of the national territory designated by the Executive Power (Ministerio de Economía y Finanzas o MEF) for the development of specific industrial, commercial, or service activities. The critical draw and advantage are that users are immune from any national taxes related to the actions that take place in it.
The development and promotion of the Free Zones by the Uruguayan government has been proclaimed to be in the country’s interest, with the goals of promoting investments, diversification the productive framework, generating jobs, increasing national workforce capacities, increasing national added value, encouraging high-tech and innovative activities. In addition, the country wants to promote decentralisation of business sectors and regional development, and, in general, favoring the country’s insertion.
Uruguay now has eleven FZs with diverse specialities; several of them are located in or around the Montevideo metropolitan region.
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 WTC Free Zone are among them.
What activities are permitted in a Uruguay free zone?
Despite the fact that the Executive Power may be required to include activities that it believes are useful to the national economy or to state economic and social integration, the existing laws contemplate the following.
a. Commercial or industrial operations
The following industrial and commercial activities may be created in Free Zones: the selling of commodities or items and logistical operations.
The legislation compels them to enter the FZ where the activity is carried out or another FZ in order to claim tax exemptions (Both possibilities are included, regardless of whether it is within or beyond the national boundaries.)
Examples of logistics tasks are conditioning, sorting, classification, distillation, assembling, assemblies or assembling, software installation, and hardware setup.
Manufacturing establishments may also be installed and operated.
b. Services
The Law makes no restrictions, allowing the supply of any service. In this area, it should be emphasized that the services must be created inside the FZ itself for consumers or developers of free zones or third nations.
Certain services can be delivered within the national area as long as monopolies and governmental concessions are considered. In this respect, it is permissible to provide the following services (inside Uruguay): international call centers (excluding those whose single or primary target is the remainder of the national territory), mailbox boxes, distance education, and e-signature certificates.
Services provided within a FZ for the convenience of users of other FZs are similarly included. These may also be leased from free zone to non-free territorial boundaries to firms subject to IRAE (corporate income taxes), as long as they do not interfere with monopolies, state exclusivities, or public concessions.
c. Forbidden activities
The Law states that FZ users cannot undertake certain acts. Weapons, gunpowder, and ammunition are among them. Similarly, the act of “retail trading” is forbidden.
However, the exchange of products and services between users, as well as commercial operations or services targeted at addressing the needs of individuals while doing work activities inside them, are permissible. Restaurants in free zones are a good example.
What requirements must be met to operate in a Uruguay free zone ?
a. Exploitative
A FZ’s operator or developer might be the government or a private enterprise. It can be a natural or legal person in the latter instance, and it must offer the required and adequate infrastructure for the construction and operation of a free zone in return for a fee.
As a result, the permission is onerous and must be paid either once or on a regular basis to the State (the most used form).
In fact, private operators are frequently both the owners of the properties impacted by the FZ. However, in other circumstances, the operator does not own the whole region, but only the majority of the impacted registers, and has direct authority over the remaining registers that are affected by the FZ.
The application for a license to exploit and develop a FZ must be filed nearby the Executive Power (Ministerio de Economía y Finanzas o MEF), with an investment project demonstrating its economic viability and advantages.
Once the official request has been presented, the Executive Power’s examination of the case cannot take more than 45 days from the date of submission of the request, not including the time the file is under consideration.
In practice, the application should be accompanied by a face-to-face demonstration of the idea to government officials by corporate representatives.
It is also recommended to give supporting material for the introductory presentation and to encourage instances of interaction with authorities throughout the process. Within the scope of the permission for the deployment of the FZ, the Executive Authority may require the operator and users to provide assurances. Said guarantees are established to ensure the fee chosen and the performance of the duties committed.
b. User
Users are those (natural or legal) who have obtained the authority to carry out any of the actions specified in the legislation. A procedure must be completed well before the General Directorate of Commerce (Free Zone Area), a Ministry of Economy and Finance dependent, to get such quality.
It should be noted that there are two types of users: direct and indirect. The direct ones are those who engage in a contract to get the right to set up with whoever runs the Free Trade Zone, whether the government or an individual. In contrast, indirect ones are those that perform the lawful act with the help of others.
Contracts can be entered into by both legal entities in their position as “future users.” In reality, these are owned by legal entities that acquire one of the following corporate types: Limited Liability Corporations (SA), Limited Liability Companies (SRL), Simplified Stock Companies (SAS), and “branch offices of foreign companies.”
c. Application for authorization of user contracts.
For the General Directorate of Commerce – Free Zones Area to sanction the activity, the contract between the users (direct or indirect) and those who have the right to exploit the FZs must be presented.
The request must include the following items: the parties’ contract and the investment plan (including the business plan). Furthermore, the necessary information should be provided: substantial and supplementary activity to be performed, human resources to be utilized in FZ and details of employees impacted outside of it, and any other information deemed necessary by the Company.
d. Deadlines
The permit given by the General Directorate of Commerce (Free Zones Area) shall have a maximum duration of fifteen years for carrying out industrial operations and ten years for commercial services and activities, given that it is a direct user.
When dealing with an indirect user, the usual time frame is five years. It is crucial to highlight that the periods are renewed upon request to the competent authorities in both circumstances.
Despite the preceding, the Executive Power may allow contracts with durations longer than those. Still, as stated in the regulation, it must base its decision on the amount of fixed capital investment, the projected employment, or other factors that determine a contribution.
e. Workers: 75% employees of Uruguayan citizenship (at least).
Another criterion for the formation of a ZF user is that 75% of the whole workforce must be Uruguayan nationals, either natural or legal.
The proportion may be lowered in light of the unique characteristics of the task to be performed and for reasons of public interest.
However, it should be mentioned that when it comes to service operations, the number of Uruguayan nationals may drop to 50% if the nature of the company requires it.
What are the main advantages of operating in a Uruguay free zone?
a. Tax regime
The primary benefit of working in a free zone is that users are exempt from all national taxes.
There are exceptions: unique social security contributions and monetary legal advantages created in favor of non-state public law individuals of social security (example: University Professionals Fund donations).
b. Particularity of the foreign worker’s regime
The Law allows foreign workers who perform their jobs in the free trade area to indicate in writing their desire not to participate in the Uruguayan welfare system. The user is not obligated to make the required contributions when confronted with this premise.
c. Non-tax benefits
The legislation allows governmental agencies that offer supply or service inputs to free zone users to set promotional pricing. Similarly, monopolies of state services in the industrial and commercial domains will not govern in free zones.
Similarly, entry and departure from free zones for securities and domestic and foreign currencies would be free.
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