Synopsis

Uruguay lies on the Atlantic coast of South America bordered to the north by Brazil and to the south by Argentina. It has a land area of approximately 175,000km² and a population of around 3.3 million who are largely of Spanish origin but there are significant sectors of the population who are of French, German, Italian and English background and an increasing, but notable Japanese and Korean community.

Uruguay is a republic presided over by an executive of twelve democratically elected ministers and a President and a legislative branch of government composed of the Senate and the House of Representatives. Uruguay has established itself as a regional bastion of democratic stability and this coupled with attractive tax breaks and lack of exchange control has led to the country often being referred to as “the Switzerland of South America”.

The legal system is based on civil written law passed by the parliament with a written constitution being the ultimate source of law. Justice is exercised by judges and the Courts of Justice with the ultimate court of appeal being the Supreme Court of Justice.

Communications are good with regular direct flights from the capital – Montevideo – to most South American and European countries and to North America. Telecommunication services are expensive but modern and efficient.

In April 1991 Uruguay, Argentina, Brazil and Paraguay signed a treaty for the creation of Mercosur, the purpose of which was to create economic integration in a similar way to the European Union. The treaty came into effect in January 1995 and provides that goods originating in Mercosur member countries can be circulated at zero tariff apart from certain specified products which will retain tariff protection under the year 2001. Chile joined in 1996. Goods emanating from non Mercosur countries are subject to a common external tariff which was increased by 3% in 1997. Uruguay is the administrative centre of the Mercosur customs union and has ambitions to become a “mini-Brussels” for the grouping. Uruguay has become an important entry point to Mercosur for non members.

Uruguay has a slightly unusual system of taxation. Individuals are not subject to tax but corporations would normally pay tax at a rate of 35%. However tax exemptions are granted to certain types of Uruguayan companies making Uruguay an important base for tax planning.

There are two types of Uruguayan company which will be of interest to investors and tax planners:-

THE URUGUAYAN SOCIEDAD ANONIMA FINANCIERA DE INVERSION (SAFI)

The Uruguayan SAFI is a type of Uruguayan offshore company which is exempt from all forms of taxation on profit. SAFIs do pay an annual licence fee to the government. This is calculated with reference to the assets and liabilities and referred to below.

SAFIs cannot trade or own real estate within Uruguay but otherwise are subject to few restrictions on their activities and little in the way of bureaucracy. Because of their ease of use and the fact that Uruguay is not immediately perceived as a tax haven jurisdiction, SAFIs can be extremely useful vehicles through which to conduct trading and investment activities worldwide.

THE URUGUAYAN SOCIEDAD ANONIMA USUARIA DE ZONA FRANCA (SAZF)

Uruguay has created free trade zones in a number of different locations within Uruguay. Presently free trade zones have been established in Colonia, Florida, Nueva Helvecia, Nueva Palmira, Rio Negro, Rivera, San José and Montevideo. Some of these areas are in private ownership others are owned by the government. In certain cases ownership rests with the government but all operations are run by private enterprise.

Companies established within the free zone are exempt from all forms of taxation except that there is a 30% withholding tax on dividends paid to non residents.

75% of the employees of an SAZF must be Uruguayan (although this percentage may be reduced upon special application) and social security contributions must be made on behalf of these employees. Other than this the SAZF is subject to few restrictions.

The free zones were created in 1988 but international companies were initially slow to recognise their advantage. Now multi-national companies are relocating to the free zones in increasing numbers and companies based there include PepsiCo, Merrill Lynch and Banco Frances.

Uruguayan companies have the following characteristics:-

 

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Last reviewed: Saturday, July 01, 2006

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