Regulation in Uruguay.
1. What is a free zone?
The Free Zones (hereinafter also "FZ") are the areas of the national territory determined by the Executive Power to develop all kinds of industrial, commercial or service activities. The main attraction and advantage is determined by the fact that users are exempt from any national taxes regarding the activities that take place in it.
The promotion and development of the FZ regime has been declared of national interest, with the objectives of promoting investments, diversifying the productive matrix, generating employment, increasing the capacities of the national workforce, increasing national added value, promoting activities of high technological content and innovation, promoting the decentralization of economic activities and regional development and, in general, favor the insertion of the country in the dynamics of international trade in goods and services, and international investment flows.
Uruguay currently has eleven FZs with various specializations, many of them in or near the metropolitan area of Montevideo. These are: Aguada Park, Science Park, Colonia Free Zone, Colonia Suiza Free Zone, Florida Free Zone, Libertad Free Zone, Nueva Palmira Free Zone, Punta Pereira Free Zone, UPM Fray Bentos, WTC Free Zone and Zonamérica.
2. What activities can be carried out in a free zone?
Despite the possibility that the Executive Power has to include activities that in its opinion are beneficial for the national economy or for the economic and social integration of the States, the current regulations contemplate the following.
a. Commercial or industrial activities
The commercial and industrial activities that may be developed in the Free Zones are: sale of goods or merchandise and logistics activities.
To develop the firstIn order to obtain tax exemptions, the law requires that they enter the FZ in which the activity is carried out or to another FZ (regardless of whether it is inside or outside the national territory, both hypotheses are included).
Logistics activities are understood to be: conditioning, selection, classification, fractionation, assembly, assemblies or assemblies, software installation, hardware configuration, among others.
The installation and operation of manufacturing establishments is also allowed.
The law does not establish any limitation, admitting the provision of all kinds of services. In this category, it should be noted that, on the one hand, the services must be developed within the FZ itself, to users or developers of free zones or also to third countries.
There are certain services that can be provided within the national territory, as long as monopolies and / or public concessions are considered. In this sense, it is allowed to provide (within Uruguay) the services of: international call center (except those whose sole or main destination is the rest of the national territory), email boxes, distance education and electronic signature certificates .
The provision of services within a FZ for the benefit of users of other FZs are also included. These may also be lent from the free zone to non-free national territory, to companies that are taxpayers taxed by IRAE, as long as they do not affect monopolies, state exclusivities or public concessionss.
c. Forbidden activities
The Law provides that certain activities cannot be carried out by the users of the FZ. These include the introduction of weapons, gunpowder and ammunition. Similarly, the conduct of "retail trade" is prohibited.
However, the provision of goods and services between users, commercial activities or services destined to satisfy the needs of the personnel in the opportunity of carrying out work activity within them is allowed. Example: restaurants within the free zone.
3. What requirements must be met to operate in a ZF?
The operator or developer of a FZ can be the State itself or a private party. In the latter case, it can be a natural or legal person and must provide the necessary and sufficient infrastructure for the installation and operation of a free zone, in exchange for a price.
The authorization is, therefore, onerous and can be paid in a single instance or with payment of a periodic fee to the State (the most used form).
In practice, it is usual for private operators to be both the owners of the properties affected to the area provided as FZ. In some cases, however, the operator does not own the entire area but rather the majority of the affected registers, and has direct control over the rest of the registers affected to the FZ.
The application for authorization for the exploitation and development of a FZ must be submitted to the Executive Power (MEF), accompanied by an investment project that demonstrates its economic viability and the benefits it will bring.
Once the formal request has been submitted, the term for the due investigation of the matter by the Executive Power may not exceed 45 days from the date of presentation of the request, not counting the terms in which the file is in view.
In practice, the application should be preceded by a face-to-face presentation of the project by company representatives to government authorities.
It is also advisable to provide supporting documentation for the previous presentation, and to promote instances of exchange with authorities during the process.Within the framework of the authorization for the installation of the FZ, the Executive Power may demand the constitution of guarantees by the operator, as well as by the users. Said guarantees are set with the objective of guaranteeing the fee that is determined, as well as the fulfillment of the obligations assumed.
Users are those persons (natural or legal) who obtain the right to carry out any of the activities provided for in the regulations (that is, commercial, industrial or service activities). In order to obtain such quality, a procedure must be carried out before the General Directorate of Commerce (Free Zones Area), a dependency of the Ministry of Economy and Finance.
It is important to note that there are two categories of users: direct and indirect. The direct ones are those who enter into a contract through which they acquire their right to operate with whoever operates the Free Trade Zone, regardless of whether it is the state or an individual. On the other hand, indirect ones are those that carry out the legal act with the direct user.
It is possible that both natural and legal persons enter into contracts in their capacity as "future users". Reality indicates that these are held through legal entities, which in fact acquire one of the following corporate types: Limited Liability Companies (SA), Limited Liability Companies (SRL), Simplified Stock Companies (SAS) and “branches of foreign companies ”.
c. Application for authorization of user contracts.
The contract between the users (direct / indirect) and those who have the right to exploit the FZs must be submitted to the General Directorate of Commerce - Free Zones Area, in order for the aforementioned body to authorize the activity.
The request must contain: contract between the parties and investment project (including business plan). Additionally, the following information must be provided: substantive and complementary activity to be carried out, human resources to be employed in FZ and details of the personnel affected outside of it and all other information that the Company deems relevant.
The authorization granted by the General Directorate of Commerce (Free Zones Area) will have a maximum term of fifteen years for carrying out industrial activities and ten years for commercial activities and services, provided that it is a direct user.
On the other hand, when facing an indirect user, the expected period is a maximum of five years to carry out any activity. It is important to note that in both cases these are renewable terms, upon request to the competent body.
Notwithstanding the foregoing, the Executive Power may authorize contracts for terms greater than those provided, having to base its resolution based on the amount of investment in fixed assets, the employment that is estimated to be generated or other reasons that determine a contribution and as established in regulation.
e. Workers: 75% employees of Uruguayan nationality (at least).
Another requirement for the constitution of a ZF user is that the Law requires that 75% of the total staff employed must be Uruguayan citizens, natural or legal.
The percentage may be reduced in consideration of the special characteristics of the activity to be carried out and reasons of general interest.
On the other hand, it should be noted that when it comes to service activities, the percentage of Uruguayan citizens may drop to 50% when the nature of the business so requires.
4. What are the main advantages of operating in a free zone?
a. Tax regime
The main advantage of operating in a free zone is that users, in principle, are exempt from any national tax.
There are exceptions: special social security contributions and legal benefits of a pecuniary nature established in favor of non-state public law persons of social security (example: contributions to the University Professionals Fund).
b. Particularity of the foreign workers regime
The Law provides, in favor of foreign workers who carry out their duties in the free trade zone, the possibility to express in writing the option of not availing themselves of the Uruguayan social security system. Faced with this hypothesis, the user would not be obliged to make the corresponding contributions.
c. Non-tax benefits
The law provides that public bodies that provide services or supply inputs to users of free zones may establish promotional rates. In the same way, the monopolies of the services of the industrial and commercial domain of the state will not rule in the free zones. Example: fuels.
In the same way, the entry and exit to free zones of securities, national and foreign currency will be free.