By Ana Hernández and Catalina Delgado
 

Uruguayan Free Trade Zones (hereinafter "FTZs") are clearly delimited and strategically located areas of the country where activities, whether industrial, commercial, or service-related, are granted special and highly favorable tax and customs regimes.
Worldwide, FTZs are considered a key instrument for boosting domestic economies. The exceptional tax benefits and quality infrastructure they offer attract foreign investment, diversify and expand the export market, and generate high-quality employment.
In Uruguay, the FTZ regime has been in effect for over 100 years. The first FTZ Law was approved in 1923 (Law No. 7,593), and since then, this regime has played a very important role in the national economy, experiencing exponential growth. Currently, it is centrally regulated by Law No. 15,921 (hereinafter, the "FTZ Law") and Decree No. 309/018. There are fourteen FTZs, distributed within and outside the country's metropolitan area, dedicated to providing services and promoting the development of various industries.

Main objectives of the FTZ Law:

• Promote Investment
• Diversify the productive matrix
• Generate employment
• Increase the capabilities of the national workforce
• Increase national added value
• Promote activities with high technological content and innovation
• Promote the decentralization of economic activities and regional development
• Favor the country's integration into the dynamics of international trade in goods and services, and international investment flows.

Activities included in the regime:

• Marketing of goods, warehousing, storage, packaging, selection, classification, fractionation, assembly, disassembly, handling, or mixing of merchandise or raw materials of foreign or domestic origin. In any case where goods enter the national territory, they may not remain in any warehouse, except those located within customs premises and for the maximum period established by regulations for their introduction into the respective free trade zone. (Article 36 of the Free Trade Zone Law)
• Installation and operation of manufacturing establishments.
• Provision of all types of services, both within the free trade zone (including users of other free trade zones) and from it to third countries.
• Other services that, in the judgment of the Executive Branch, are beneficial to the national economy or to the economic and social integration of the States.

FTZ  Users may not carry out industrial, commercial or service activities in non-free national territory, except for the exceptions expressly indicated in current regulations.

 

Exceptions

1. Provision of services to taxpayers subject to IRAE (Art. 2 of the FTZ Law and Art. 10 of Decree 309/018)

FTZ users may provide services from the free zone itself to non-free zone national territory to taxpayers subject to IRAE, provided that the FTZ users meet the following conditions:

- Prior submission of an investment project detailing this activity;
- The user must provide the same service abroad;
- The services must be linked to the generation of income subject to IRAE;
- Monopolies, state exclusivity rights, or public concessions must always be respected.

2. Provision of services to national territory (art. 2-TER ZF Law and art. 11 dec. 309/018):

A) International call centers, excluding those whose sole or primary destination is the rest of the national territory.
B) Email addresses.
C) Distance learning.
D) Issuance of electronic signature certificates.

These services will receive the same tax treatment as services provided from abroad, both in terms of the provider and the deductibility of the service by the borrower.

3. Exceptional, auxiliary and complementary activities (art. 15-17 Decree 309/018):

FTZ users may not carry out activities outside the FTZs, except for the exceptional, auxiliary, and complementary activities established by law, upon request for authorization from the FTZs Department and notification to the DGI ("Dirección General Impositiva" - Directorate General for Taxation).
- Exceptional activities: a) the collection of overdue debts (through third parties) and b) the display of merchandise, by users located in FTZs with location disadvantages.
- Auxiliary activities provided they are carried out in a fixed location.
- Complementary activities: Users of FTZs located outside the Metropolitan Area may carry out the following activities in a single location provided by the developer: a) public relations, b) management of auxiliary documentation, c) invoicing, and d) collection of goods and services from non-overdue debts.

FTZs in Uruguay have been instrumental in attracting investment and promoting the country's economic development. After reviewing the main objectives of the regulation and the activities included in the regime, in the next installment we will analyze the role of users, their tax benefits, and the obligations they face.