A little over a month ago, the 100th anniversary of the entry into force of the first law on free zones in Uruguay (Law No. 7,593) was celebrated, whose objective was to stimulate trade and industry in the port area through tax benefits and exemptions user taxes.

Said regulation underwent several subsequent modifications, until reaching the current regime dating from 1987 (Law No. 15,921) -with final modifications introduced in 2017- and which brought with it important innovations that boosted investments, highlighting the creation of private free zones and the establishment of a contractual regime for users.

What are free zones?

Under Uruguayan regulations, free zones are defined as areas within the national territory designated by the Executive Power (prior advice from the Free Zones Honorary Advisory Commission), publicly or privately owned, efficiently fenced and isolated, whose purpose is in allowing the development of various industrial, commercial or service activities, taking advantage of tax exemptions and other benefits granted by law.

The activities that can be carried out in free zones include, among others:

• Operations of commercialization, deposit, storage, conditioning, selection, classification, fractionation, assembly, disassembly, manipulation or mixture of goods or raw materials, both of foreign and national origin.
• Manufacturing facilities to promote manufacturing processes.
• Financial, computer, repair and maintenance services, as well as professional services that improve the operation of installed activities, as well as the possibility of selling these services to third countries.
• Other activities may also be considered that, according to the evaluation of the Executive Branch, are beneficial for the national economy or may contribute to economic and social integration.

Why settle in free zones?

Free zones in Uruguay have become centers of diversified economic activity. Although the logistics and distribution sector has been one of the main drivers of growth, it has allowed the development of important industries, such as manufacturing, information technology and financial services.

The free zone regime in Uruguay offers various benefits both for companies that operate within these delimited geographical areas and for the country as a whole. Among these are the following:

1. Tax benefits: One of the most outstanding advantages is the income tax exemption for companies that operate within the free zones. This means that companies can reinvest their earnings without having to pay typical profit taxes, increasing their ability to grow and expand.

2. Customs simplification: Companies established in free zones benefit from a simplified customs regime, which streamlines the processes of importing and exporting merchandise. This allows greater efficiency in the supply chain and reduces operational and logistics costs.

3. Free movement of capital: facilitates international financial transactions and investments. Companies can repatriate their profits and carry out financial operations without restrictions, which provides greater flexibility and security to foreign investors.

4. Access to skilled labor: Uruguay has an educated and trained workforce, which is attractive to companies looking to establish their operations in the country. This guarantees the availability of competitive labor, contributing to the success of companies and fostering the development of human capital.

5. Infrastructure and services: Free zones in Uruguay usually have modern infrastructure and access to quality services, including industrial parks, logistics areas, advanced telecommunications, and business support services. This creates a favorable environment for the efficient operation of companies and facilitates investment.

6. Regional development: Free zones have become centers of economic activity, attracting investment and generating employment.

7. Promotion of innovation and technology: The presence of companies in high-tech sectors within free zones stimulates innovation and knowledge transfer. This has a positive effect on the country's competitiveness and technological development.

8. Economic diversification: They have made it possible to diversify the Uruguayan economy, promoting industries such as manufacturing, financial services, technology and logistics.

9. Attraction of foreign investment: The free zone regime, by offering a favorable environment for business and investment, has attracted numerous foreign companies to establish their operations in Uruguay. An important point is that our country guarantees a stable and secure legal framework, which provides confidence to foreign investors when planning and structuring their future projects, enhanced by the lack of restrictions for the operation of foreign capital.

What are the requirements for installation?

Any company that intends to establish itself in a free zone must comply with certain requirements and procedures established by law, among which are:

• Authorization request accompanied by the investment project: Companies interested in operating in a free zone must submit an authorization request to the competent authority, accompanied by an investment project detailing the activities to be carried out, the expected investment amounts and the benefits that are expected to be obtained/generated, accrediting the economic and financial viability of the project.
• Employment commitment: the regulations require compliance with certain standards, establishing minimum percentages required for employment of nationals.
• Regulatory compliance: Companies must comply with the laws and regulations in force in Uruguay, including those related to international trade, customs and environmental protection. Likewise, only those activities that are specifically authorized by law may be carried out.
• Permanence period: It is important to take into account that, in some cases, a minimum permanence period is established to guarantee the sustainability of the investments.

Current context

Uruguay currently has 15 industrial, commercial and service free zones, authorized in different regions of the country.

According to a report published in April 2022 by the Center for the Study of Economic and Social Reality (Ceres - https://bit.ly/3QgNflE), in 2019 there were more than 1,000 companies authorized to operate in Free Zones, directly employing more than 15,000 people, a figure that doubles if indirect jobs are considered (thus representing 2% of the active population in Uruguay).

In the 2014-2019 period, tax exemptions granted to free zones averaged USD 280 million per year, estimating that the benefit generated by the companies reached almost USD 6 for every dollar exempted (totaling approximately USD 1,600 million per year), to which add the implementation of innovative business practices, technology transfer and the adoption of international quality standards.

Although the free zones in Uruguay have been a success in general terms, they also face challenges, including competition with other countries in the region that also offer similar regimes, as well as the need to maintain international standards of transparency and prevention against asset laundering.

Final considerations

In summary, the free zone regime in Uruguay has been an effective tool to promote investment, job creation and economic development. Tax benefits, customs simplification, access to skilled labor and adequate infrastructure make it an attractive alternative for companies seeking to expand in the region, contributing to economic and social development and maximizing resources.

It is essential that companies interested in setting up in a free zone in Uruguay receive adequate advice and comply with all the requirements and procedures established by the country's legislation. Each free zone may, in turn, have specific requirements, so it is advisable to consult with experts in the field to obtain adequate and precise assistance.