The current investment promotion system is outlined in Law 16,906, which declares that the promotion and protection of investments made by domestic and foreign investors in the country is an issue of national interest.
This law classifies two groups of tax benefits:
· Specific investment benefits
Beneficiaries of fiscal benefits include taxpayers of Corporate Income Tax and Agriculture-Livestock Goods Sales Tax that carry out industrial or agriculture-livestock activities.
The investment law establishes the following automatic benefits:
- Exemption from Wealth Tax of moveable goods directly used in production and equipment for electronic data processing.
- Exemption from Value Added Tax (VAT) and the Excise Tax for imported goods and return of VAT included in local purchases of moveable goods for production and equipment for electronic data processing.
Additionally, the Executive Branch may exempt Wealth Tax from the following fixed asset goods:
- Fixed improvements for manufacturing and agriculture-livestock activities.
- Intangible goods such as brands, patents, industrial models, privileges, copyrights, goodwill, trade names and concessions granted for prospecting, crops, extraction and exploitation of natural resources.
- Other goods, procedures, inventions or creations that incorporate technological innovation and facilitate technology transfers.
Companies in any activity sector that present an investment project that is in turn promoted by the Executive Branch may access additional benefits. These stimulus measures are included in the new regulations of the investment promotion system (Decree 455/007) and the General Operating Criteria defined by the Application Commission (COMAP).
Benefits for companies whose investments are promoted by the Executive Branch are as follows:
Wealth Tax
- Moveable fixed asset goods: exemption from Wealth Tax on fixed asset moveable goods that cannot be exempted under other benefits. The period of the exemption is extended to the entire useful life of these goods.
- Civil works projects: exemption from Wealth Tax on civil works projects for up to eight years if located in Montevideo and up to 10 years if located outside the capital.
Import taxes and fees
Exemption from import taxes and fees for moveable fixed asset goods that cannot be exempted under other benefit systems and that are declared non-competitive to national industry by the Industry Bureau at the Ministry of Industry, Energy and Mining.
Value Added Tax (VAT)
Return of Value Added Tax for local acquisition (duly documented) of materials and services used for civil works projects.
Fees and salaries in priority technological development areas
Calculate the amounts corresponding to salaries and fees for the project's scientific and technological development in priority areas that establish the conditions set by articles 49, 52 and 55 of Decree 150/007 for 1.5 times the payment of Corporate Income Tax with a maximum being equal to the amount of the tax that does not benefit from investment exemptions established in the system.
Corporate Income Tax
Exemption from Corporate Income Tax for an amount and maximum term that will be applied to the objectives and indicators matrix according to the type and size of the project. The term shall be computed starting in the fiscal year where taxable income is obtained (including this year), as long as four periods have not passed since the promotional declaration. In this case, the maximum term will be increased by four years and shall be computed from the fiscal year when the declaration is released.
In accordance with Decree 455/007, eligible investments to obtain benefits include the acquisition of the following fixed asset goods:
- Moveable goods directly involved in the company's activity (excluding non-utility vehicles and moveable goods for residences).
- Fixed improvements (excluding those for residences).
- Intangible goods determined by the Executive Branch.
In addition, past investments made in the fiscal year when the project was presented are considered eligible as well as those made in the six month period prior to the presentation of the request.
To determine the Corporate Income Tax exemption amount, the project must first be classified according to the investment amount in Indexed Units (UI). The classification table is as follows:
Project classification Size Size Small Projects Less than 3.5 Less than 0.35 Medium Range 1 Between 3.5 and 14 Between 0.35 and 1.40 Medium Range 2 Between 14 and 70 Between 1.4 and 7 Large Range 1 Between 70 and 140 Between 7 and 14 Large Range 2 Between 140 and 500 Between 14 and 50 Large Range 3 Between 500 and 7,000 Between 50 and 700 Very Large Projects More than 7,000 More than 700
(in million UI)
(in million US$)
The exemption amount is determined on the tax to be paid, not on taxable income. The exempted tax shall be equivalent to a percentage of the amount invested in fixed or intangible assets included in the promotional declaration, whose maximum amount depends on the investment classification in accordance with the following table:
Project Corporate Income Tax exemption (% of investment) Small Between 51% and 60% Medium Range 1 Up to 70% Medium Range 2 Up to 80% Large Range 1 Up to 90% Large Range 2 Up to 90% Large Range 3 Up to 100% Very Large Projects Up to 100%
In the particular case of Corporate Income Tax exemptions, the granting of benefits is subject to the score obtained in the objectives and indicators matrix developed by COMAP and based on information supplied by the investor.
In the case of medium, large or very large projects, the indicators included in the matrix are as follows:
· Employment creation
· Decentralization
· Increase in exports
· Increase in national added value
· Use of clean technologies
· Increase in research and development
· Impact of the project on the economy
Each indicator is scored with a value from zero to 10 and a final overall value is then obtained. To calculate the exemption and time period score, the values are in accordance with the project's classification.
Regarding small projects, for the Corporate Income Tax exemption benefit calculation, only one indicator is reported by the investor among the following:
· Employment creation
· Increase in exports
· Use of clean technologies
· Increase in research, development and innovation
It should be noted that for medium and large projects, the score may be low in some indicators. As such, the exemption amount may be less than 50% of the investment. Under these circumstances and to determine the Corporate Income Tax exemption amount, the matrix corresponding to the category of the matrix for small projects may be selected, with more demanding criteria if the employment creation indicator is selected.
Four copies of the request must be presented to the Private Sector Support Unit containing all information required by COMAP.
The investment project is sent to COMAP, which determines the ministry and organization that corresponds to the evaluation in accordance with the nature and activity of the project. After the project is evaluated by the corresponding ministry, COMAP establishes recommendations for the case.
The evaluation period from the time the project is received by COMAP varies according to classification. The periods COMAP has to establish rulings are as follows:
· Small projects: 30 work days (may be extended if more information is required).
· Medium-sized projects: 45 work days (may be extended if more information is required).
· Large projects: 60 work days (may be extended if more information is required).
In the case that the time period expires without a ruling by COMAP, it shall be understood that COMAP has recommended that the Executive Branch grant the benefits established for the project.
Once COMAP makes its ruling (or when there is a default approval), the Executive Branch has an undetermined time period to sign the resolution that grants the benefits to the company.
After the investment project receives promotional status, COMAP will monitor the project. The company must present accounting statements with an audit report for all projects and a sworn declaration with information for the analysis of compliance with indicators for benefit application.
Note: In the case of investment projects of significant economic relevance involving amounts equal or superior to U.I. 7 billion (approximately US$ 750 million as at December 2010), Decree 477/08 establishes the possibility of making a petition to the Executive Branch in order to obtain higher tax benefits than the ones granted by Decree 455/07. In order to apply, the concerned party has to address in written form the Secretary of the Presidency of the Republic, who will evaluate the investment project with the related ministries and will prepare a Project of Investment Contract for the consideration of the Executive Branch.
