Uruguay's Free Trade Zones: key role in the attraction of investment

Tax Director at PwC Uruguay presents the key role of Uruguayan Free Zone regime in the attraction of investment and it main recent amendments.
Publication date: 21/06/2018

Overview of Tax benefits and requests

  • Free Zone Users (FZU): Almost full tax exemption (Corporate Income Tax-IRAE, Net Wealth Tax-IP, Value Added Tax – VAT and several withholding taxes) and customs duties exemption
  • Free Zone Employees: Foreign employees may opt out of the Uruguayan social security system and, with regard to personal income tax, opt to be subject to Non-Residents Income Tax (IRNR) at a 12% flat rate instead of Individual Tax (IRPF)
  • Permitted activities: Commercial, industrial and service activities of any type developed within the FZ. Certain auxiliary activities could be performed outside the FZ.
  • Employees: FZU user must hire a minimum of 75% of natural or legal Uruguayan citizens, (3 Uruguayan citizens per foreign employee). The Government could authorize different ratios.
  • Other requests:
    • FZU contract signed with FZ operator or another existing user
    • Business plan with minimum substance requirements (create direct or indirect employment in the FZ and carry out the activity in facilities provided by the FZ operator or the user)
    • FZ Area (Ministry of Economy and Finance) authorization request
    • Informative returns (Financial Statements; Purchases and sales of goods and services; Free Zone Survey and its submission to the FZ Area; Withholding Tax Returns (IRAE, IRNR, IP, VAT)


Main recent amendments (Law N°19,566, in force March 8th, 2018)

  • Objectives: Maintaining the objective of promoting investment, generating high quality employment and contributing to regional development.
  • Services: All types of services rendered abroad (not restricted by local regulations), can now also be rendered from FZ to CIT taxpayers companies located in non-FZ national territory, covered by the broad exemption established by the law in favor of FZ users. This is a relevant change with respect to the previous situation, in which only specific services were allowed to be rendered to Uruguayan non-FZ territory.
  • Personnel -Uruguayan citizens: The 3 to 1 rule is maintained, where a minimum of 75% of staff must be Uruguayan citizens (legal or natural) in order to maintain the FZ user quality and the benefits and rights granted to them. The relevant modification is that, for services activities, this minimum could be reduced by the Executive Power, under certain conditions, to 50%.
  • Intellectual property rights (IP) and other intangible assets: Income derived from the exploitation of these will be exempt provided they come from R & D activities carried out within the FZ. When the aforementioned goods are under the scope of IP protection and registration regulations, the income derived from them shall be exempt exclusively for the amount corresponding to the ratio of expenses or direct costs incurred in said assets increased by 30%, over total costs and expenses incurred to develop them.
  • Thematic zones of services: The EP may authorize the installation outside the metropolitan area of these zones for the provision of audiovisual, leisure and entertainment services (except for gambling). CIT and VAT exemption will be applied exclusively in relation to the services provided to final consumers with no fiscal residence in the national territory.

Additionally, the new provisions clarify certain points that were once the object of discussion, establishing: i) that activities to be developed outside national territory must be necessary or complementary to carry out the activities foreseen in the contract and business plan, ii) that auxiliary activities may be carried out exceptionally outside FZ and iii) a definition of commercial and logistics activities for the purposes of this law.

Likewise, certain formalities that must be fulfilled by FZ users are introduced such as maximum term limit for FZ users agreements, provisions on liability for tax obligations that correspond to CIT non-FZ taxpayers derived from adjustments to be made in accordance with the Transfer Pricing regulations, and other provisions motivated by the intention to promote decentralization, that grants tax benefits in favor of those who develop FZs outside the metropolitan area.

Regulation by the Executive Power (EP) establishing the terms and conditions in which the new Law will be applied is expected.


Summarizing, the new provisions do not significantly modify the benefits of the Uruguayan FZ regime, which it could become even more attractive with the authorization to provide services from the FZ to Uruguayan CIT taxpayers. However, it would also be advisable that companies operating under the Uruguayan FZ regime carefully analyze eventual tax or regulatory impact of the new measures on their operations.

Eduardo Rodríguez

Tax Director - PwC Uruguay