A Lawyer's Guide to Uruguay
InterAm Database
National Law Center for Inter-American Free Trade
LEX MUNDI
A LAWYER'S GUIDE TO URUGUAY
Prepared by:
Alvarado Tarabal
Guyer & Regulas
Montevideo - Uruguay
The information contained in this publication is given by way of general reference only and is not to be relied upon. No responsibility will be accepted by the authors or publishers for any inaccuracy or omission or statement which might prove to be misleading. You are advised to seek your own professional advice before proceeding to invest or do business in Uruguay.
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TABLE OF CONTENTS
I. THE COUNTRY AT A GLANCE
II. FORMS OF BUSINESS ORGANIZATION
1. Types of Companies
2. Corporations
3. Branches
4. Limited Liability Companies
5. Financial Investment Corporations (S.A.F.I.)
6. Free Trade Zone User Corporations
7. Accounting Principles
III. LABOR LIGISLATION
1. Employer Contributions
2. Benefits
3. Employee Withholdings
4. Unions
5. Foreign Personnel
6. Private Retirement Plans
IV. TAXES
1. Corporate Income Tax (Impuesto a la Renta de Industria y comercioiric)
2. Capital Tax (Impuesto Al Patrimonio -IP))
3. Value Added Tax (V.A.T.)
V. FOREIGN INVESTMENTS
1. General
2. Activities Permitted, Regulations
3. Activities Requiring Special Authorizations and Oversight (Banks, Insurance Companies, Oil Companies, Etc.)
4. Limites on Foriegn Participation in Companies
5. Remittance of Capital and Diviends
6. Types of Companies Permitted
7. Forms of Investment
VI. PROMOTION SYSTEMS
VII. EXPORTS AND IMPORTS
VIII. EXCHANGE CONTROLS
IX. TAX FREE ZONES
1. Legal Regulation
2. General Characteristics of the Current Legal Regime
3. Activities which may be performed in Tax-Free Zones
4. Operators and Users of Tax-Free Zones
5. Exemptions and Benefits Granted to Users of Tax-Free Zones
6. Benefits of a Non-Tax Nature
7. Restrictions and Obligations of Users
8. Control of the Activity fo the Users
9. Certificates of Origin
I. THE COUNTRY AT A GLANCE
LOCATION
The Republic of Uruguay lies between parallels 30º and 35º South Latitude and meridians 53º and 58º 30' West Longitude, along the north coast of the River Plate, the east coast of the Uruguay River (border with Argentina), and south of Brazil.
AREA
It covers an area of approximately 176,000 square kilometers of land, plus a wide stretch of the Atlantic Ocean, a large part of the River Plate, and a portion of the Antarctic territory.
POPULATION - SIZE
Uruguay has a white population of approximately 3,000,000 inhabitants who are almost totally of European descent (particularly Spanish and Italian).
The country has had no Indian or mestizo population for some 150 years. The black population, descendants of African slaves, accounts for about 35,000 people.
The population growth rate is 1.2% per year.
LITERACY
Uruguay's population has a high literacy rate (93%), and is highly concentrated in urban areas (83%).
LANGUAGE
Spanish.
CURRENCY
The local currency is the Uruguayan Peso ($), which has been in circulation since March 1, 1993 and is the equivalent of N$1,000 (one thousand New Pesos).
INSTITUTIONS
Uruguay is organized as a single, democratic republic. The current constitution, approved in 1966, establishes a presidential system of government, with three independent branches: the Executive, the Legislature and the Judiciary.
The Uruguayan electoral system is based on a simultaneous double vote, with the winner being the candidate who obtains the most votes in the political party obtaining the most votes. The President, who heads the Executive, is elected for a five-year term and cannot be reelected. The Executive power is exercised by a president, assisted by 11 Ministers. The Legislature is composed of the Senate (31 members) and the Chamber of Deputies (99 members), which together form the General Assembly. Its members are elected for five-year terms by popular vote, under a system of proportional representation. The Judiciary is presided over by the Supreme Court of Justice, consisting of five members elected by the Executive with the approval of the Legislature.
Uruguay declared its independence in 1825. The country has a long history of democracy, although it did have two periods of military government in this century, the last one from 1973 to 1985. Elections were held in November 1984, and democracy was fully restored as of March 1985.
There are currently four major political parties in Uruguay:
the Partido Nacional, the Partido Colorado, the Encuentro Progresista and the Nuevo Espacio. Each party is composed of several political factions, with different orientations but without significant ideological differences.
Uruguay is divided administratively into 19 departments, each with its own Municipal Government. Each department has a Mayor and a Departmental Council elected by popular vote.
ECONOMIC OVERVIEW
General Overview
Uruguay has traditionally been a meat and wool producing country. It now has a relatively open and diversified economy.
The most important economic sectors are:
- Financial and real estate services 25.7% of GDP
- Manufacturing 23.9%
- Commerce, Restaurants and Hotels 13.5%
- Agriculture, Livestock and Fishing 9.9%
In 1992 gross domestic product totalled US$ 11,400 million. Per capita gross domestic product for 1992 was US$ 3,041.
The country's geographic location as well as its total exchange freedom have made Uruguay a regional financial and tourist center. These factors, along with the small volume of the economy, make the country highly dependent on the Argentine and Brazilian economies. Thus, both its imports and exports depend fundamentally on those neighbors. More than 90% of tourists visiting Uruguay come from those countries as well. The participation of both Argentine and Brazilian investors in the country's financial markets is also very relevant.
Uruguay has had a long history of government participation in the economy, which together with other factors has contributed to high inflation and low growth rates. During the 1930-1970 period an import-substitution policy providing significant levels of protection for national industry prevailed. The government likewise took control of and directly provided services in important areas of the economy, including communications, railways, aviation and fuel.
In the mid-1970s the oil crisis worsened the already existing economic problems and the government initiated a series of reforms to reduce the state's role in the national economy, improve efficiency and curb inflation. The chief measure along this line, in addition to a major tax reform, was the implementation of total exchange freedom.
The measures adopted during those years (1975-1980) led to economic growth in the area of 4.5% per year. Nevertheless, this rapid growth came hand in hand with high inflation. In a 1978 effort to cut inflation, the Government established a pre-announced devaluation rate. Under this system the devaluation rate was set months in advance, several points below inflation, with a view to slowing it. That was not, however, what happened, chiefly due to the influence of policies adopted by Argentina and Brazil, along with the rising budget deficit and increasing internal demand produced by the feeling of prosperity deriving from the appreciation of domestic products. The over-valuation of Uruguayan currency, together with a series of negative external factors (worldwide recession, oil crisis, climbing international interest rates, etc.) deteriorated the country's economic situation and made the system unsustainable.
The end of the country's active crawling peg system known as the "tablita," in November 1982, brought with it numerous bankruptcies of companies and increased non-realizable assets for many banks. To solve this problem and strengthen the banking system, the Central Bank purchased numerous bank portfolios, with major losses for the Central Bank, thereby worsening the deterioration of public finances.
The financial crisis was followed by another big recession with a 16.2% drop in GDP during the 1982-1984 period. Moreover, public sector indebtedness, an unforeseen jump in international interest rates, and a general slowdown of the economy produced an increase in the volume of Uruguayan foreign debt. The situation started to turn around in 1985, with an increase in GDP that continued over the following years. In turn, in 1991 Uruguay managed to refinance its foreign debt within the framework of the Brady plan, which led to a considerable improvement of its situation in this regard.
By the end of 1992 almost 90% of private sector bank deposits were in foreign currency, 60% of which were from non-residents or off-shore activities.
Uruguay has become an important tourist center. Income from this sector has exceeded income from traditional meat and wool exports. This situation has made Uruguay increasingly dependent on Argentine economic development.
The current administration took office in March 1990 and has included among its basic objectives the reduction of inflation and the achievement of sustained economic growth. To reach these goals the administration has tried to cut the fiscal deficit, debureaucratize the State, promote privatization, liberalize foreign trade and foster regional integration.
As regards privatizations, in September 1990 a law was approved which permitted the transformation of certain government-owned companies into corporations and the selling off of the majority of their capital (51%) to the private sector.
A December 1992 referendum derogated some of the articles of the law, thus delaying the privatization process.
Nevertheless, various state-run companies have been transferred to the private sector (for example, an airline, a gas distribution company).
As regards regional integration, the government has continued negotiations geared to implementing MERCOSUR in 1995, and is at the same time fostering the reconversion of national industries so as to put them in a competitive position.
FINANCIAL SYSTEM
Financial intermediation in Uruguay is regulated by Law No. 15.322 of 1982 and its amendments. Under the financial intermediation law the Central Bank supervises and oversees the entire banking system.
There are different categories of financial intermediation entities:
a) Banks: there are 22 at present. Banks are financial intermediation companies that have a banking license allowing them to perform a broad spectrum of operations. Such activities include making and receiving loans, accepting deposits from the public in both local and foreign currency, in current or savings accounts, issue certificates of deposit, guarantee clients' debts, perform exchange transactions, enter into trusteeships, issue credit cards, etc.
b) Financial Companies ("Casas Financieras"): there are 11 at present. Financial companies are authorized to perform all types of transactions included in the concept of financial intermediation with the exception of those transactions reserved specifically to banks and investment banks. (They cannot accept deposits in current accounts or at sight or accept time deposits from residents).
c) Foreign Financial Service Enterprises ("Empresas de Intermediación Financiera Externa"): there are currently 6. These companies have the sole purpose of performing intermediation operations between the supply and demand for securities, currency or precious metals held outside the country.
d) Financial Services Cooperatives ("Cooperativas de Intermediación Financiera"): there are currently 8. These firms are organized as cooperatives and do business exclusively with their members.
e) Purchase Association Managers ("Empresas administradoras de Consorcios"): these are not banking institutions but companies involved only in the acquisition of certain goods or services on behalf of their members, through the contribution of funds by the latter, applied reciprocally or jointly.
f) Investment banks ("Bancos de Inversión"). A law approved at the end of 1990 permits operation of investment banks and establishes the transactions they can perform.
At present, in addition to the Bank of the Republic of Uruguay which is owned by the State, there are other State-run banks.
The rest of the banks are private and involve foreign capital.
All financial institutions must comply with certain requirements as to minimum net worth, credit limits, minimum reserves, etc.
II. FORMS OF BUSINESS ORGANIZATION
1. TYPES OF COMPANIES
Companies in Uruguay are most commonly organized either as corporations (with registered or bearer shares) or as branches of a foreign company.
Limited liability partnerships ("Sociedad de responsabilidad limitada") are also used (normally for very small companies).
There are other legal structures, less attractive to the foreign investor, such as capital and industry partnerships ("Sociedades de Capital e Industria"), limited partnership by shares ("Sociedad en comandita por por Acciones"), and general partnerships ("Sociedades Colectivas").
All the types of referred companies are regulated by the Law of Commercial Companies, Economic Interest Groups and Joint Ventures (Law No. 16.060). This law also ruled the Joint Ventures ("Consorcios"), which are resorted for public works of some magnitude; they are not legally organized as corporations and hence do not constitute legal entities, but simply association agreements.
Mixed companies involving public and private capital can be set up by contract provided state participation in the management of the company is guaranteed and such participation is approved by law.
We will make reference only to the main type of companies: corporations and limited liability partnerships.
2. CORPORATIONS
2.1 General
The capital of corporations is divided into bearer or registered shares of stock, and shareholder liability is limited to the amount of his paid in or subscribed capital. Registered shares are required for certain special activities (e.g., agriculture and livestock establishments; broadcasting corporations; road or air transportation).
Law 16.060 distinguishes two types of corporations according to the source from which capital is obtained: "open" and "close" corporations. "Open" corporations are those that: (i) attract public savings to subscribe or increase their capital, or (ii) their shares are traded on the stock exchange; or (iii) obtain funds through public issuance of negotiable obligations. "Close" corporations, on the other hand, are all those that do not have the foregoing characteristics. The main consequence of choosing one or the other is that the operations of "open" corporations are subject to tighter private and state oversight.
The law contains general principles and provisions regulating incorporation, management, etc., notwithstanding the specifications of the corporate bylaws.
The highest corporate authority is the Shareholders Meeting, which must meet at least once a year to approve the annual balance sheet and the distribution of earnings, as well as to appoint the Board of Directors or administrator.
Administration may be entrusted to a single administrator or a Board of Directors consisting of one or more persons appointed by the Shareholders Meeting.
In the case of "open" corporations the Board of Directors must meet at least once a month, whereas in close corporations it must obligatorily meet once a year to call the Shareholders Meeting (to submit the annual balance sheet, etc.). The Board may meet in Uruguay or abroad, at its discretion. Shareholders Meeting must take place in Uruguay.
2.2 Articles of incorporation
The law requires that the articles of incorporation set forth the basic features of the corporation (corporate purposes, duration, administration, etc.) and any other regulations so long as it does not violate legal provisions (e.g. procedure at Shareholders' Meetings, representation of the corporation, etc.).
2.3 Incorporation procedures
There are two procedures of incorporation, by a single manifestation of will or by public subscription.
2.3.1 Incorporation by a single manifestation of will
This is the traditional way in which companies are organized in Uruguay and requires a minimum of two founders (individuals or legal entities) who have to agree on the articles of incorporation and at the same time pay in at least 25% of the capital indicated therein, undertaking to subscribe, as a minimum, another 25% of such capital.
Under this organization procedure, the articles of incorporation are to be submitted to the competente authority ("Inspección General de Hacienda") and registered with the General public Register of Commerce. An extract of the articles of incorporation and of the approval proceedings is to be published (corporate name, capital stated in the articles of incorporation, corporate objective, duration, domicile and registration data) in the Oficial Gazette and in another newspaper, once only.
2.3.2 Incorporation by public subscription
This procedure calls for the preparation of a foundation schedule by the corporations's founders who are also called promoters. This schedule must set forth the names and domiciles of the promoters, the bases of the articles of incorporation, classes of shares, amount of capital, etc. The share subscription period may not exceed three months from the registration of the schedule with the Public Register of Commerce. The schedule requires approval by the competent authority ("Inspección General de Hacienda") and registration with the Public Register of Commerce.
Except for special cases (e.g. financial service enterprises), the corporation in process of incorporation can start doing business and make binding contracts even if it has not yet completed all the proceedings to obtain authorization to operate. In such an event, the founding shareholders are personally, jointly and severally liable for all business transacted until such time as the articles of incorporation are approved.
Incorporation entails payment of a 1% tax of authorized capital; this tax is also applicable to capital increases.
Except in special cases (e.g., financial intermediation companies), the company being formed can validly start up activities even though the procedures for authorization to operate have not been completed. The founding members are personally and severally liable for all activities undertaken prior to approval of the bylaws.
Incorporation procedures are subject to a tax of 1% on the authorized capital (similarly applicable to increases of capital).
2.4 Minimum initial capital
Authorized: $ 182.232 (This amount is updated annually by the Executive).
Subscribed: $ 91.116
Paid-in: $ 45.558
2.5 Shareholders
2.5.1 Following incorporation, the total shares may belong to one or several shareholders, without limitation.
2.5.2 There are no restrictions as to nationality or domicile of shareholders, except for specific activities (e.g., broadcasting or airline companies).
2.5.3 Shareholders may be individuals or legal entities and may in all cases (e.g., at Shareholders Meetings) be represented by third parties by means of letter, fax, telegram, etc.
2.5.4 Voting rights in relation to shareholdings can be freely regulated by the corporate bylaws, along with the creation of preferred or scrip shares.
2.5.5 Shareholder liability is limited to the capital they pay in or subscribe. Shareholders can thus not be held liable for debts (commercial or otherwise) contracted or generated by the corporation or by its Directors, agents or employees.
Nevertheless, shareholders having voted in favour of a resolution subsequently annulled for being contrary to the law, or the bylaws, or injurious to the interests to the corporation or to the shareholders' rights shall jointly and severally be liable for the consequences of such resolution vis-a-vis the corporation or third parties affected by the same.
2.6 Earnings distribution
The distribution of earnings can be provided for in the bylaws. The law nevertheless makes it mandatory to distribute at least 20% (twenty percent) of the net earnings of each business year to shareholders as a dividend, unless otherwise resolved by shareholders representing 75% of the paid-in capital. Distribution of dividends is likewise not required when earnings are to be allocated to replenish the obligatory legal reserve or to cover losses carried over from previous years.
2.6.1 Obligatory legal reserve. All commercial companies are required to establish a Legal Reserve, to which 5% of net earnings for each year are to be allocated until reaching 20% of the capital stock.
2.6.2 The distribution of provisional dividends is permitted in certain specific cases: when the company has freely available reserves or when a special balance sheet shows earnings in excess of the amount to be advanced. In such cases the company must obtain certificates indicating that it is up to date in the payment of taxes and social security contributions. An audited balance sheet is not required.
2.6.3 No legal deadline is established for distributions of earnings; such a date can be set by the bylaws, by the Shareholders Meeting, or be delegated to the Board of Directors. Once the distribution has been resolved, it must take place within 90 days.
2.6.4 The preparation of an inflation-adjusted balance sheet is not mandatory. For tax purposes only partial adjustments are made.
2.7 Controls
2.7.1 Companies must keep their records in accordance with generally accepted accounting rules and principles.
The following books are mandatory:
1) Journal, 2) Inventory Book, 3) Letter Copybook, 4) Minutes of Board Meetings, 5) Minutes of Shareholders Meetings, and 6) Stock Ledger and Shareholders Meeting Attendance Book. These records must be sealed by the Public Registry of Commerce. If the company has registered shares it must keep a Ledger of Registered Shares. The same applies for shares not represented by certificates. The law permits this possibility, in which case the company must keep record of such shares in a special book.
2.7.2 Auditors are not mandatory, except for financial intermediation companies and "open" corporations, in which the auditor or audit committee must verify the financial statements. Balance sheets submitted to public agencies must be certified by a Public Accountant.
2.7.3 General corporate oversight is performed by "Inspección General de Hacienda" and covers matters such as: a) lawfulness of bylaws; b) compliance with capital subscription and payment requirements; c) supervision of shareholders meetings; d) review of annual balance sheet; e) early liquidation, etc. Matters referred in c, d and e are exercised exclusively regarding "open" corporations.
3. BRANCHES
Companies established abroad are recognized in Uruguay and may undertake isolated acts or enter into agreements without any other prior administrative procedure or act. Nevertheless, should they decide to become involved in an on-going business they must organize or establish a branch in the country. Branches are regulated by provisions similar to those for local companies as regards organization, tax treatment, etc.
Unlike in the case of corporations, the Head Office is liable for all obligations assumed by the branch or the local representative.
The branch may remit earnings to its home office without any restrictions whatsoever (term, amount, etc.).
Accounts indicating the balances between branches and home offices or other branches are considered capital accounts.
Nevertheless, transactions arranged under the same commercial and financial conditions, either at sight or on time, as would prevail between legally and economically independent persons may be shown as asset or liability accounts for tax purposes.
Overall tax treatment for branches is similar to that of corporations, although there are certain special features (for example, verification of expenses incurred abroad, transactions with head office, etc.).
4. LIMITED LIABILITY COMPANIES
4.1 General
These are partnerships in which the liability of the partners (who can be individuals or legal entities) is limited to the capital they subscribe.
Tax liability in solidum shall fall upon the partners who under the agreement are responsible for the administration of the company (and in cases of negligence or dolus).
These companies must have a minimum of two and a maximum of fifty partners. They must have minimum capital of $ 4,051 and a maximum of $ 182,232 (updated annually by the Executive).
Each share can not represent an amount of capital less than $ 44, and they may not be represented by negotiable instruments. Restrictions to their transfer is established by law.
The maximum authority for such companies is the Meeting of Partners, which must hold session at least once a year to approve the annual balance sheet and the performance of the administrators. Companies having more than twenty partners are governed in the same manner as corporations and must therefore have an administrator or a board of directors.
Administrators may be partners or not, but they must be appointed in the partnership papers.
4.1.1 Partnership Agreement
The partnership agreement must contain the basic elements of the company (purpose, duration, administration, number and amount of shares, etc.), without prejudice to any other regulation not contrary to law.
4.1.2 Incorporation procedure
The partnership agreement signed by the members must be filed with the Public Registry of Commerce and published in summarized form in the Official Gazette.
In order that the partnership may start operating, each partner must pay in at least 50% of his share in the partnership capital (or 100% if his contribution is not monetary but in kind) and undertake to complete the amount within no more than two years.
4.2 Earnings distribution
4.2.1 No deadline is established by law for distribution of earnings.
4.2. The provisions applicable to corporations (2.6.3) apply here as well.
4.3 Controls
4.3.1 In addition to the certified books that are mandatory for all companies (Journal, Inventory, Letter Copybook), these companies must keep Books of Meetings of Partners, of Minutes of the Board (if there is one), and a Register of partners and transfers of shares.
4.3.2 Auditors are not mandatory.
4.3.3 Controllership is not mandatory.
5. FINANCIAL INVESTMENT CORPORATIONS (S.A.F.I.)
These corporations are stock companies whose main activity is to invest abroad (in securities, bonds, shares, debentures, drafts, real estate or movable assets) on their own behalf or that of third parties. They may also engage in commercial activities outside Uruguay, on their own behalf or that of third parties. They enjoy a special fiscal treatment being subject only to a tax at the rate of 0,3% per year on their capital and reserves as explained herein. Their activities within Uruguay are restricted as referred to under paragraph VI.
The procedures for incorporation, operation, control, etc. are similar to those for other corporations, with some special aspects: a) capital may be expressed in dollars; b) a minimum of 20% of the authorized capital must be subscribed and a minimum of 25% of the subscribed capital must be paid in; c) subscription and payment of capital may take place subsequent to the approval of the incorporation papers; d) incorporation is exempt from the 1% tax on authorized capital.
5.1 Activities
S.A.F.I.s may:
a) Perform, either directly or indirectly, on their own behalf or that of third parties or for third parties, investments in securities, bonds, shares, notes, debentures, movable or real estate, and to have invested abroad at least fifty one per cent of their own assets and/or on account of third parties (and in order to benefit from the fiscal advantages they also have to comply with what is referred to in VII below).
b) Perform the same activities as in 1) above and to have income generated abroad exceeding 50% of their total income.
c) As referred to above SAFIs may also carry out off-shore commercial activities on their own behalf or that of third parties. The inclusion of the commercial activities within the purpose of these companies was authorized by section 635 of law No. 16.170, dated December 28, 1990.
5.2 Limitations
SAFIs may not carry investments activities and/or hold assets in Uruguay. Any possible exceptions should be examined on a case by case basis.
The shares of these corporations may not be pledged nor submitted as guarantee or security of credits granted to their owners.
5.3 Tax treatment
S.A.F.I.s are subject exclusively to an annual tax of 0,3% on capital and reserves, provided their assets within the country be comprised solely by shares of other corporations of the same kind, by balances in current accounts totalling less than 10% of their assets and/or by national public debt, municipal and mortgage certificates totalling a nominal amount not exceeding 10% of their assets. S.A.F.I.s are exempted from any other taxes or contributions, whether on their income, capital or net worth.
The law provides that the amount of capital subject to tax shall be calculated on the capital issued in shares and debentures or notes plus reserves, plus any part of the liabilities and or funds managed on behalf of third parties, which exceeds an amount equal to double of the total capital issued in shares plus debentures and reserves.
Maintenance of an adequate assets-liabilities ratio allows for a reduction or regulation of the significance of the applicable tax (thus, in a very simplified example, a corporation may operate with an effectively paid-in capital of U$S 1.000.000 and pay a tax amounting to U$S 3.000; but, should one third of such capital be paid-in and the rest be received as loans from third parties or from their own shareholders, the tax would be reduced to approximately U$S 1.000).
Taxable amounts are determined at the end of the corporation's business year.
Foreign securities held by these companies shall be valued according to their purchase value if they have been acquired through a stock broker or a banking institution, or according to their nominal value in all other cases.
6. FREE TRADE ZONE USER CORPORATIONS
These are corporations whose sole purpose is to perform operations as users of free trade zones (See IX).
Here there are several differences from ordinary corporations in regard to subscription and payment of capital. A minimum of 50% of the authorized capital must be subscribed and at least 60% of the subscribed capital must be paid in money or property that can be assessed monetarily.
The procedures for incorporation, oversight and operation are similar to those for other corporations.
7. ACCOUNTING PRINCIPLES
7.1 Applicable Accounting Principles
The financial statements of companies must be in keeping with generally accepted accounting principles. This is established in law No. 16.060, which regulates all matters relative to the establishment and operation of commercial companies in the country.
Generally accepted accounting principles are understood to be all technical criteria previously established and known to users, employed as a guideline in the preparation and presentation of accounting information and whose purpose is to appropriately set forth the economic and financial situation of an entity.
Companies must apply the International Accounting Standards (IASs) considered mandatory. IASs 1 through 18, with the exception of 3, 6 and 15, save a few paragraphs of the former, have been declared obligatory.
Those situations not covered by the obligatory accounting standards shall be resolved based on International Accounting Standards and the most pertinent doctrine, with application of the criteria most generally used in Uruguay and best suited to the particular circumstances of the case in question.
7.2 Uniform Accounting Statements
The financial statements prepared by companies must comply with certain requirements as regards accounting terminology and presentation criteria.
This is established by a decree stipulating that the provisions established on this subject constitute generally accepted accounting standards and prevail over IASs in matters relative to the terms and presentation criteria to be used.
Balance sheets submitted to public agencies must be certified by a public accountant.
III. LABOR LEGISLATION
1. EMPLOYER CONTRIBUTIONS
There are three types of employer contributions:
a) a contribution allocated to the general financing of the state's social security system (including retirement pay, survivor pensions, unemployment benefits, family welfare, maternity benefits, funeral expenses, etc.).
b) a contribution allocated to the specific financing of worker health insurance.
c) a tax applicable to all compensation and benefits in cash or kind received by workers.
1.1 Rates
The general social security contribution is 14.5%.
The specific health insurance contribution is 5%.
The tax on compensation is 1%..
1.2 Base amount for calculation
Calculations of the above rates are generally based on the worker's gross salary (including amounts in cash plus benefits in kind assessable in money, commissions, overtime, productivity payments, etc.).
Housing benefits are assessed at the equivalent of one-half the minimum monthly salary (US$ 41.5), regardless of the actual amount.
Fixed per diem amounts are assessed at 50% of the amount actually paid to the worker.
1.3 Payment due date
Payments are due during the month following the one in which wages were generated.
2. BENEFITS
2.1 National Minimum Wage and Family Allowance
The State sets obligatory minimum monthly and daily wages for the private sector, which are periodically updated (currently equivalent to US$ 83 and US$ 3.32, respectively).
Since mid-1992, the Executive has stopped participating in private sector wage negotiations. As a result, the Wage Councils, tripartite bodies composed by the State, employers and workers whose purpose was to set wages, have ceased to meet.
Salaries are now set either through collective bargaining in unionized sectors or by individual agreement in non-unionized areas.
In addition to the national minimum salary, by decree the Executive administratively sets minimum wages for domestic and rural workers, at levels slightly higher than the national minimum.
The Social Security system also provides a supplementary payment to workers responsible for dependent minors or disabled individuals, called the "family benefit," which is paid bimonthly (currently equivalent to US$10 per month per dependent).
2.2 Compulsory yearly bonus
All employers must pay a bonus equivalent to one-twelfth of total compensation paid during the previous year (computed from 12/1 to 11/30).
This thirteenth salary must be paid between 12/1 and 12/24 of each year, but in recent years the authorities have provided for half of it to be paid in advance during the month of June (on account of the total amount).
The bonus is also subject to the contributions and tax indicated in point 1.
Other bonuses may been freely granted by employers and, to the extent that they are granted on a regular and on-going basis, they are also subject to the contributions and taxes mentioned in point 1 (if they are sporadic and extraordinary they are not subject to any assessment whatsoever).
2.3 Accident insurance
Professional accident insurance coverage is compulsory.
The premiums -to be paid by the employer- are fixed according to the tables prepared by the State Insurance Bank, taking into account the type of activity performed by the insured individual.
2.4 Vacation
All employees are entitled to twenty consecutive working days (including Saturdays) of paid annual vacation, as well as a special bonus (equivalent to 100% of the daily net wage multiplied by the total vacation days).
Employees having more than five years of service with the company are entitled to an additional vacation day for each four years of service.
Annual vacation can be divided into two periods of not less than 10 days by collective agreement with employees.
2.5 Severance Pay
All workers are entitled to severance pay (except in cases of dismissal due to notorious misconduct) consisting of the total compensation for a month's work for each year or fraction of service (with a maximum compensation of six months' pay) calculated based on real salary.
This amount must be paid within 10 days following dismissal.
Special compensation is provided for certain cases (e.g., pregnant women).
3. EMPLOYEE WITHHOLDINGS
Employees must also make the contributions indicated in point 1, and the employer is required to withhold and pay in the respective amounts.
3.1 Rate
The general social security contribution is 13%.
The specific contribution for health insurance is 3%.
The tax on compensation is 1.25% (for employees earning less than three national minimum salaries) or 2.25% (for those earning more than this amount).
3.2 Base amount for calculation
The base amount to which these rates apply is as indicated in 1.2.
3.3 Payment due date
As indicated in 1.3.
4. UNIONS
4.1 Relative importance
The public and private union movement is an organized force with real and effective importance.
4.2 Negotiating power
Unions generally have strong negotiating power (there are differences depending on the sector of activity).
4.3 Obligatory membership
Union membership is not obligatory.
5. FOREIGN PERSONNEL
5.1 Job restrictions on foreigners
In principle there are no limitations (the only requirements are permanent residence documentation and health certificate, which can be easily obtained) and there are no differences in labor or other treatment.
In some activities a certain percentage of workers must be Uruguayan or certain jobs must be filled by Uruguayans (e.g., in the fishing industry) in order to receive the tax benefits granted to such activities.
5.2 Visas
Citizens of most Western countries can enter the country freely without the need for visas.
Permanent resident status is granted fairly easily (evidence of good health, good conduct and means of support is required).
Anyone having entered the country legally (even as a tourist) can request permanent residence status and begin working immediately, even if the residence permit is still being processed (it takes approximately three months).
5.3 Compensation. Place of payment
There are no differences with local personnel. Compensation of foreign personnel must be in line with current minimum requirements.
Payment can be made abroad and in any currency.
5.4 Temporary import and export of personal effects
In principle there are no import or export restrictions on personal effects.
Once the temporary residence visa has been granted (even if permanent residence has not yet been approved), foreigners can bring in all personal effects, furniture, etc. (except motor vehicles).
5.5 Preferential social welfare contribution system
There is no such system. The general system is applied except to foreign personnel rendering services in the Free Zone, who can choose to not join the Uruguayan Social Security system.
6. PRIVATE RETIREMENT PLANS
6.1 It is not usual for companies to offer private retirement plans (only some foreign companies do so).
6.2 Private plans operate absolutely independent from the state social welfare system, which is obligatory.
6.3 These contributions are deductible from taxes under certain conditions.
IV. TAXES
We will make reference only to the main taxes now in force in Uruguay. Apart from them, there exist other specific taxes as the Specific International Tax ("IMESI") levied on the importations, first transfer or use of certain goods; Agricultural Income Tax (IRA) that levies agricultural and livestock activities; Tax on Commissions (IC) that applies to the income earned in the way of commissions, or income in the capacity as agent, commission merchant or consignee, mediators, broker or similar activities.
1. CORPORATE INCOME TAX (IMPUESTO A LA RENTA DE INDUSTRIA Y COMERCIO - IRIC)
1.1 General Concepts
The IRIC is levied annually on fiscally adjusted net income from Uruguayan sources, derived from profit-making activities carried out by firms (firms comprising any productive unit which combines capital and labour to produce an economic result, dealing in the circulation of goods or in the labour of others), at a rate of 30%.
Payments made to individuals or legal entities domiciled abroad, on account of dividends, royalties or fees for technical assistance, are also subject to a 30% withholding tax, as specified below.
1.2 Payments of dividends abroad - Withholding Income Tax (30%)
Payments or credits of dividends to individuals or legal entities are subject to a withholding tax of 30% whenever: a) they are levied in the beneficiary's country of residence and b) there is a fiscal credit for the tax paid in Uruguay.
Consequently, if these dividends are not taxed in the beneficiary's country or if, upon being taxed, the beneficiary has no fiscal credit, then the withholding tax will not be applied.
As regards to foreigners investing in a local company, the fact that the local company shall pay a 30% IRIC rate over its net income (from fiscally adjusted Uruguayan source) should be kept in mind, and if the non-resident investor receives dividends from that company, the same may in turn be liable or not for an additional 30% tax on its total amount (according to the fiscal treatment these dividends may have in the investor's own country of residence) as explained above.
1.3 Other payments abroad
Remittances or credits for royalties to persons abroad are subject to a 30% withholding in all cases.
Remittances or credits for technical assistance fees are subject to a 30% withholding income tax, except when this income is taxed on the beneficiary's country of residence and he does not receive tax credit for the tax paid in Uruguay, in which case it is exempted.
Remittances or credits for interests are not subject to tax (the deduction of such expenses by the local company is subject to certain limits).
2. CAPITAL TAX (IMPUESTO AL PATRIMONIO - IP)
General Concepts
The capital tax is an annual tax paid on properties, assets and rights economically located, placed or used within the country.
The taxable amount is determined by the difference between the taxed assets and the deductible liabilities, and the tax rate is of 2% for legal entities with bearer shares, and between 0,7% and 3% for individuals (this corresponds when the shareholders of a Uruguayan corporation with nominative shares are individuals).
Participations in corporations which are not evidenced in bearer shares are taxed according to their fiscal value within the capital of their respective owners. Such owners shall calculate and pay the tax at the rates which may be applicable (depending on whether they are individuals or legal entities).
3. VALUE ADDED TAX (V.A.T.)
3.1 This tax is levied on onerous operations dealing in the domestic circulation of goods, the rendering of services within national territory and the introduction of goods into the country, at a basic rate of 22% (certain goods and services are levied at a rate of 12%) and operates according to the tax against tax system.
3.2 Exportation of goods are not subject to this tax.
V. FOREIGN INVESTMENTS
1. GENERAL
Capital may enter and leave the country freely. Foreign investments may be made in Uruguay and be repatriated without any hindrances whatsoever and their treatment is the same as for local investments.
Notwithstanding that there is a special regime for foreign investments under the Foreign Investment Law by means of which an investment agreement can be negotiated and signed with the authorities, whereby a government guarantee is granted regarding repatriation of capital and earnings, as well as provision of the relevant foreign exchange.
In consideration for such guarantee, companies in which foreign capital has decision-making power are subject to restrictions regarding the obtainment of local and international credit.
Guarantees granted under the Foreign Investment Law are compatible with the benefits provided by the Industrial Promotion Law (see VI).
2. ACTIVITIES PERMITTED, REGULATIONS
With the exception of those activities under government monopolies (for example, certain types of insurance, oil imports and refining, alcohol manufacturing, etc.), foreign investment can be placed in any type of industrial or commercial activity.
3. ACTIVITIES REQUIRING SPECIAL AUTHORIZATIONS AND OVERSIGHT (BANKS, INSURANCE COMPANIES, OIL COMPANIES, ETC.)
Express and well-founded authorization by the executive is required for foreign investment in the following activities: electricity, hydrocarbons, basic petrochemicals, atomic energy, exploitation of strategic minerals, meat packing, financial intermediation, railways, telecommunications, radio, press, television, insurance companies and those endeavors entrusted by law to government corporations.
4. LIMITS ON FOREIGN PARTICIPATION IN COMPANIES
The participation of foreign capital is not limited and may reach 100% in any type of company and any type of activity or sector of the economy.
Personnel may also be entirely foreign. Nevertheless, some tax benefits and exemptions may depend on employment of certain percentages of Uruguayan personnel (e.g., fishing activities).
5. REMITTANCE OF CAPITAL AND DIVIDENDS
* Exchange rate.
* Applicable withholdings or taxes.
At present there are no exchange controls or other limitations on remittance of funds abroad.
In the event that administrative provisions should not allow the foreign investor free access to the financial market to obtain exchange for the remittance of capital or earnings, the Central Bank shall provide the relevant foreign exchange, at the exchange rate in effect at the close of the year in which the earnings accrued, provided same is requested within 60 days and the pertinent funds have been reserved in local currency. Upon expiration of such term the exchange rate shall be that in effect on the date of the remittance request, which is to be accompanied by the funds reserved in local currency. The conversion shall be made at the seller exchange rate in the Financial Market. This will only apply for the investments made under the Foreign Investment Law.
There are currently no taxes or withholdings on dividends or on remittance of specific capital for foreign investments, which are governed by the general rules (see chapter IV 1.2 and 1.3).
6. TYPES OF COMPANIES PERMITTED
Any legal form permitting identification and oversight (be it a company or not) may be used for the investment of foreign capital.
The most commonly used forms are a) creation of a local corporation, b) purchase of all or part of a share package, and c) establishment of a branch.
7. FORMS OF INVESTMENT
Under the Foreign Investment Law foreign capital may be in the form of foreign exchange, equipment, patents, technical processes, trademarks or other forms deemed acceptable by the Administration. Notwithstanding the possibility of expressly deciding to capitalize earnings, all earnings not remitted abroad within two years shall be considered formally capitalized as from the date of the respective business year.
VI. PROMOTION SYSTEMS
A general system has been established for promoting industrial activities, along with special promotion systems for specific activities and sectors.
1. The Industrial Promotion Law makes it possible to grant national interest status (ex officio or at the request of the interested parties) to any activity, specific project or company fulfilling objectives such as a) increasing and diversifying exports of processed goods incorporating the greatest possible value added; b) establishment of new industries and expansion or reform of existing industries, when same implies better use of raw materials and labor; c) technological research geared to exploitation of non-exploited local raw materials, training of technicians and workers, etc.
National interest status implies promotional benefits in terms of credits (to buy assets, cover establishment expenses, imports, raw materials, etc.) and in terms of taxes (total or partial exemption from taxes, assessments, contributions and rates or public prices, as well as total or partial exemption from taxes and duties on imports or in connection with same).
With the exception of certain generic benefits regarding imports of equipment, all other tax benefits must be requested by the interested parties and must be expressly granted or recognized by the authorities in each case.
2. Some activities and sectors have specific promotion systems (with varying benefits), such as fishing, merchant marine, national aviation, hydrocarbons, etc.).
a) Manufacturing and extraction industries granted National Interest status obtain a reduction of up to 25% on the Wealth Tax, based on their distance from Montevideo.
b) Companies performing extraction and transformation of marble, granite and semi-precious stones are exempt from all assessments on imports and from the Value-Added Tax on imports of machinery and equipment (which are also exempt from the Wealth Tax for 3 or 5 years, depending on the case).
c) Income from exploitation of planted forests classified for protection or production, as well as citrus plantations, are exempt from IRIC and the respective property is not computed for Wealth Tax purposes.
3. Since Uruguay has adopted the local source principle, income from abroad is not subject to IRIC, and activities undertaken outside national territory do not generate Value-Added Tax.
Notwithstanding the above, off-shore banking is expressly exempt from all tax obligations on its activities, business transactions, net worth or income.
Investments companies, under certain conditions, are also given specific tax treatment (see 2.1.1).
4. Free Zones are areas enclosed and isolated for the purpose of undertaking all types of industrial, commercial and service activities, with exemption from all current or future national taxes on the activities performed in same, as well as all assessments or imports of goods (see IX).
VII. EXPORTS AND IMPORTS
* Exports and imports are totally free from quota systems and legal limitations.
* Importers and exporters must register with Banco de la República in order to act as such. (There are no special requirements.)
* A drawback system exists for some exports.
* Permanent entry into the country of goods manufactured abroad, for own or third-party use, with the exception of those brought into free zones, are subject to a compound tariff. This rate, which ranges from 6% to 20%, is composed by the Single Customs Duty and the Import Surcharge.
* Certain goods are not subject to the compound tariff because they are negotiated through bilateral agreements with different countries. Preferences exist for the Mercosur countries, which in some cases are as much as 75% of the compound rate.
* A temporary entry system exists for goods such as: a) raw materials, b) recipients and shipping material, c) matrixes, molds and models to be incorporated in industrial processes geared to exports, d) display merchandise.
There are also temporary admission systems for certain activities or specific projects (for example, public works to be carried out by private companies, projects having national interest status, etc.).
VIII. EXCHANGE CONTROLS
At present there are no exchange controls, and the inflow and outflow of foreign exchange, precious metals and other assets is completely free.
Administrative authorities are empowered to establish such controls should they deem them advisable at any time.
Obligations in foreign currency are valid and commonplace in the local market and are expressly authorized by law; judicial collection can be sought in the currency agreed to by the parties.
IX. TAX FREE ZONES
1. LEGAL REGULATION
The legal regime in force for Tax-Free Zones consists basically of Law Nº 15.921 of December 17, 1987. However, certain provisions of a previous law - Nº 7.593 of June 20, 1923 - regulating Tax-Free Zones are still applicable.
The regulatory decree of Law 15.921 is recorded under Nº 454/988, dated July 8, 1988, and published in the Diario Oficial (Official Gazette) on July 14, 1988.
2. GENERAL CHARACTERISTICS OF THE CURRENT LEGAL REGIME
2.1 It is a general regime which governs all Tax-Free Zones existing in the country or to be installed in the future.
2.2 Tax-Free Zones may be installed anywhere in the Republic. It is no longer a legal requirement for them to be located near harbours, airports, international bridges, frontiers or main accessways. The only requirement is that the limits of the Free Zone areas should be clearly defined, marked and fenced in, so as to ensure their adequate separation from non-tax-free territory.
2.3 The areas intended to become Tax-Free Zones may be governmental or privately owned by individuals or legal entities, whether foreign or Uruguayan.
2.4 The operations which may be performed at Tax-Free Zones cover a wide range of activities, from the mere free deposit to the rendering of services, including financial and insurance services, handling, classification and selection, of the deposited goods, and the establishment of manufacturing industries and professional services.
2.5 Extensive tax benefits are granted to Tax-Free Zone users.
2.6 Tax-Free Zone user companies may not perform any industrial, commercial or service activities in non-Tax-Free territory.
3. ACTIVITIES WHICH MAY BE PERFORMED IN TAX-FREE ZONES
The law, upon generically establishing that industrial, commercial and service activities may be performed within the Free Zones, specifies certain activities, such as:
3.1 Marketing, deposit, storage, conditioning, selection, classification, fractioning, assembly, disassembly, handling or mixture of goods or raw materials of national or foreign origin.
3.2 Installation and operation of manufacturing enterprises.
3.3 Rendering of financial computer repair and maintenance, issuance and professional services and any other services which may be required to achieve a better performance of the activities installed and the sale of such services to third party countries.
Any other activity which at the discretion of the Executive Power may be deemed beneficial to national economy or for the economic and social integration of different countries may be carried out within the Free Zones.
4. OPERATORS AND USERS OF TAX-FREE ZONES
4.1 Operators
Operators of Tax-Free Zones are those who provide the user with the necessary infrastructure for the installation and operation of the activities to be performed within the Free Zone.
The Government, or any private parties whether individuals or legal entities, national or foreign, may be Free Zone operators.
Private operators are not covered by the exemptions and benefits of the law, but they may nevertheless be protected by any other promotional regime which may be applicable.
4.2 Users
Users are any individuals or legal entities who may acquire the right to perform any of the activities admitted by the law within Tax-Free Zones.
There are two types of users: direct and indirect users.
A direct user is the one who acquires the right to operate within Tax-Free Zones through an agreement entered into directly with the Operator, be it the Government or a private party; and an indirect user is the one who acquires the right to operate through an agreement entered into with a direct user.
Both need the approval of the Direction of Tax-Free Zones to enter into agreements and then register the same with the Free Zone Direction, and both also enjoy all the benefits which the law may determine.
The procedure to be qualified as a user is provided for by regulatory decree Nº 454/88 in its articles 23 and 24. We may distinguish on the one hand, the procedure to be followed to become a direct user of a Tax-Free Zone owned by the State and on the other hand the procedure to be followed to be a direct user of a Tax-Free Zone owned by a private party, or to be an indirect user (of State or privately-owned Tax-Free Zones), or to make assignments of user agreements.
In the first case (a direct user of a State-owned Tax-Free Zone), the applicant must file an application with the Direction of Tax-Free Zones, which shall be accompanied by an Investment Project and shall include any other requirements established by the Direction. (The attached Annex includes a guide with the elements to be included in any application in accordance with the current requirements of the Direction of Tax-Free Zones).
The purpose of the application is to acquire priority rights to the chosen areas. Such priority is onerous, the Direction setting the price and conditions. Should the application be denied, the deposited sum shall be immediately returned to the applicant; if it is accepted, such sum shall be considered as part of the security which the Executive Government may require from the users.
In the case of direct users of privately-owned Tax-Free Zones, indirect users, and assignees of user agreements, the procedure is simpler, the only requirement being to submit a draft of the agreement to the Direction of Tax-Free Zones who may require additional information before authorizing the assingment.
5. EXEMPTIONS AND BENEFITS GRANTED TO USERS OF TAX-FREE ZONES
Tax exemptions
The State guarantees the user, under its own responsibility for damages, that all tax exemptions as well as any other rights and benefits awarded by the law shall govern during the whole term of the agreement.
5.1 With respect to the activities performed by users in Tax-Free Zones, the law provides for a generic and total tax exemption covering all national contributions existing or future, including those which by law require a specific exemption.
a) Corporate Income Tax (IRIC). Users of Tax-Free Zones are exempted from payment of IRIC with respect to income proceeding from activities performed therein.
Dividends or profits credited or paid by users of Tax-Free Zones to individuals or legal entities domiciled abroad are also exempted from IRIC, provided that the same are not taxed at the country wherein they are domiciled or should they be taxed, no fiscal credit is acknowledged for the tax paid in the Republic.
Should the dividends or profits credited or paid to individuals or legal entities be taxed at their country of origin, and a fiscal credit be acknowledged for the tax paid in the Republic, said dividends or profits shall be subject to IRIC, by way of withholding at source the current rate is 30%.
In order to benefit from this last exemption, a certificate issued by the corresponding State authority shall have to be submitted on an annual basis (duly translated and legalized according to each case), attesting to the fact that the dividends or benefits are taxed at their country of origin and that no fiscal credit is acknowledged for the tax paid in the Republic. The above certificate may be substituted for a certificate issued by private auditor, attesting to the same facts.
b) Net Worth Tax (IP). Tax payers liable to IP, users of Tax-Free Zones, shall not include in their tax assessments the net worth involved in the performance of the Free Zone activities. Likewise, partners of personal partnerships, joint stock companies or special partnerships by shares with nominative capital shares, users of Tax-Free Zones, shall not include in their tax calculations their share participation in the net worth of such corporations.
c.) Value Added Tax (IVA). The circulation of goods and the rendering of services within Tax-Free Zones, as well as the introduction of goods from abroad into Tax-Free Zones, is exempted from payment of IVA.
The introduction of goods from tax-free territory into non-tax-free territory shall be considered imports to all effects.
d) Specific Domestic Tax (IMESI). The circulation of goods in Tax-Free Zones and the introduction of goods proceeding from abroad into the same, are exempted from payment of IMESI.
e) Insurance Companies' Income Tax. Insurance Companies operating in non-tax-free territory may enter into agreements with users of Tax-Free Zones for risk coverage of the same, or for the transport of goods from and into Tax-Free Zones. Under such hypothesis, the income provided by such insurance shall not be included in the calculations of the Insurance Companies' Income Tax.
f) Banking Institutions' Assets Tax (IMABA). Should the installation of a financial intermediation corporation within a Tax-Free Zone be authorized, the same shall be exempted from payment of IMABA.
g) Joint Stock Company Incorporation and Increase of Capital Tax. Should the user decide to adopt the form of a joint stock company, the law provides for an incorporation procedure different from the general one, which intends to speed up its formation.
The incorporation of a joint stock company, as well as the increase of its capital, are exempted from payment of the tax on Capital increases.
Should a joint stock company incorporated in accordance with the procedure provided for by law Nº 15.921 and its regulatory decree, no longer retain its quality of Tax-Free Zone user, and should it wish to change its purpose to operate in non Tax-Free territory, it shall have to follow the general procedure for the amendment of by-laws, paying the tax provided for the incorporation of such companies.
h) Special Social Security Contributions and Legal Contributions in Currency established in favour of Social Security Non-Governmental Public Law Entities (Non-tax Contributions). The generic exemption to all national contribution existing now or in the future provided for in law 15.921, in like manner as the previous regime, does not include Special Social Security Contributions nor non-tax Contributions (in favour of the Banks' Pension Fund, Professionals' Pension Fund and Notarial Retirement Fund).
Whenever the user may simultaneously employ both Uruguayan and foreign personnel, the latter may not be required to contribute to the social security system which would otherwise correspond (State or non-State). To these effects it would be necessary for the users to supply the Direction of Tax-Free Zones with a list of foreign personnel in its pay-roll, and for such employees, individually and under oath declare their decision to be excluded from the benefits of the Social Security system in force in the country.
5.2 The law further provides for a generic exemption to contributions on imports in order to facilitate the introduction of goods, services, merchandise, raw materials, etc., whatever their origin, into Tax-Free Zones. Such exemption includes all contributions or any other payment of equivalent effects on imports or to be applied in such situation, including those which may by law require a specific exemption.
The contributions involved in this exemption are Customs Taxes, Surcharges, Consular Duties, Parcel Movilization Duties, Specific Domestic Tax and Value Added Tax.
As opposed, goods, services, merchandise and raw materials from non-tax-free national territory, introduced into Tax-Free Zones, shall be entered according to the provisions in force corresponding to exports at such time.
Consequently:
- with respect to IVA, a zero-rate regime shall be applied, i.e. the exporter shall be granted a fiscal credit for IVA charged by his suppliers on the goods they may have incorporated into the exported goods. This way, the exported product is free from any tax burden it may have incorporated until its exportation;
- with respect to IMESI, an exemption to this tax governs all export operations expressly.
5.3 A generic exemption to all export taxes or any other instrument of equivalent effect, liens and surcharges existing or future, are also provided for, including those which by law require a specific exemption, for the exit of goods, services, merchandise and raw materials from Tax-Free Zones to foreign countries.
Should such goods or services be introduced into non-tax-free territories they shall be treated as imports.
6. BENEFITS OF A NON-TAX NATURE
Together with the tax benefits analyzed above, the law provides for a series of non-tax benefits.
6.1 For the setting up of share corporations whose purpose is to be a user of a Tax-Free Zone, a much simpler and rapid procedure than the general one is established.
6.2 Monopolies of State services over industrial or commercial activities such as those of ANCAP (fuels) shall not apply within Tax-Free Zones.
6.3 Government agencies providing inputs or services to users of Tax-Free Zones may establish special promotional fees, for example UTE (electricity), ANTEL (telecommunications) etc.
6.4 National components as mandatory integration requirement for the goods produced within Tax-Free Zones are also not applicable for the activities performed therein.
6.5 The prices charged by the National Port Authorities (A.N.P.) for the services effectively rendered, may not exceed the cost of the same.
6.6 Absolute freedom is provided for the inflow and outflow to or from tax-Free Zones of securities, national or foreign currency, precious metals, their possession, marketing, circulation and conversion or transfer.
Although this is the regime in force for the whole of the national territory, the express provision in favour of income originated in Tax-Free Zones is very important in the light of the provision which guarantees, under the State's liability for damages, the validity of the provisions which establish exemptions and benefits in favour of Free Zone users.
7. RESTRICTIONS AND OBLIGATIONS OF USERS
7.1 In order to retain the condition of users and consequently the exemptions, benefits, franchises and rights which the law may attribute, users must employ Uruguayan personnel, whether natural or legal citizens in a minimum of 75% of their pay-roll.
In special cases, and taking into account the characteristics of the activities to be performed, and for reasons of general interest, the Executive Power may authorize a reduction of the indicated percentage.
7.2 Users of Tax-Free Zones may not perform any type of industrial, commercial or service activity within non Tax-Free Zones. The prohibition covers any type of activity performed and not only activities identical or similar to those performed in Tax-Free Zones.
The way to avoid this prohibition is to operate in Tax-Free Zones and in non Tax-Free Zones through different corporations.
7.3 A preference is established in favour of the industry installed in non Tax-Free Zones, with respect to users of Tax-Free Zones, as to the use of export quotas granted by other countries to the Republic as regards to preferential treatments, as well as a preference in the allotment of unused quotas for exports to countries with quantitative restrictions in volume and value.
As a measure of protection of the industry installed in non tax-free territory, the regulatory decree establishes that Free Zone users may not participate in any countertrade agreements which could be arranged through the negotiating strength of the State.
7.4 Should the user be a legal entity, its purpose should be limited to Free Zone activities.
7.5 In the transportation of goods from or into Tax-Free Zones, public or private transportation lines should be used, with agents or representatives authorized by the National Direction of Tax-Free Zones and registered therein.
8. CONTROL OF THE ACTIVITY OF THE USERS
The control of the activities performed by the users of Tax-Free Zones corresponds to the Direction of Tax-Free Zones.
In case of irregularities or violations of any law, ruling or agreement, duly verified by the pertinent administrative proceedings the Executive Government may apply sanctions which may vary from a fine up to the loss of the benefits awarded by law, reiteration of the offences being an aggravating element.
Should the activity to be performed in Tax-Free Zones be subject to some kind of control by specific State bodies, the latter shall exercise their own powers with respect to the activities in Tax-Free Zones, in coordination with the National Direction of Tax-Free Zones. This is the case, for instance, of the control exercised by the Central Bank of Uruguay over financial institutions, or the Ministry of Public Health over medical and chemical industries.
9. CERTIFICATES OF ORIGIN
The Certificates of origin of all exports are issued by the Cámara de Industrias (Chamber of Industries), but in the case of products to be exported from Free Zones, such certificates shall be issued by the Ministry of Economy and Finance with the advice of Dirección de Zonas Francas (Direction of Free Zones).
It would be advisable to request the decision of the Chamber of Industries so as to positively know whether the final product which is to be manufactured shall be issued with the Certificate of Origin, to which effects information on the costs of the raw materials to be used and of the final product should be provided, together with any other complementary information which may be required.
Lex Mundi - Legal Guide Series
Copyright 1997 Inter-Am Database
