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10.1. Specific Incentives

The main incentives in Uruguay are provided under the investment law and through free zones. The following outlines the two regimes:

Investment Law

Incentives under the investment law are classified into two groups, automatic incentives, and discretionary incentives. Automatic incentives are provided for investments in certain manufacturing and agricultural activities. Discretionary incentives may be provided for any industry if approved.

Effective 7 October 2020, Uruguay published amendments to the incentive regime provided under the investment law, including an expanded scope of eligible sectors and relaxed minimum asset value investment conditions.

Further, Uruguay published Decree No. 248/021, which amends the incentive regime provided under the investment law to include investment activities carried out by companies holding public concessions for the construction, remodeling, expansion, maintenance, and operation of national and international airports. This regime is available for applications submitted from 6 August 2021. However, the companies that have already applied for incentives prior to 6 August 2021 may request that the application be adapted to this regime within 60 days.

Automatic incentives include:

  • Exemption from net worth tax for moveable assets directly used in production and equipment used for electronic data processing;
  • Exemption from value-added tax (VAT) and excise tax on the importation of such assets and equipment, and VAT reimbursement if purchased locally; and
  • Exemption from net worth tax on bovine and ovine breeders and dairy cattle.

Discretionary incentives include:

  • Corporate income tax exemption/reduction in the range of 20% to 100% of the amount invested, for a minimum period of 4 years (3 years until 6 October 2020), based on the nature and size of a project;
  • The corporate income tax exemption may not exceed 90% of the tax due in a fiscal year (60% in case of existing companies and 80% in case of new companies until 6 October 2020);
  • VAT and corporate income tax exemptions on the importation of fixed assets required for the project;
  • Exemption from net worth tax for moveable assets for a period of 8 years for construction work in Montevideo and for a period of 10 years in the rest of the country;
  • VAT reimbursement for goods and services used for civil construction work purchased locally;
  • Increased corporate income tax deductions for fees and salaries related to technological developments. Investment projects submitted between 1 April 2020 and 31 March 2021 are eligible for a 20% increase in corporate income tax exemption, determined by the indicator matrix, provided that at least 75% of the total committed investment is made by 31 December 2021;
  • Investments made between 1 April 2020 and 31 March 2021 will be computed at 150% of the amount invested for the purposes of computing the corporate income tax exemption; and
  • Investments made between 1 April 2021 and 30 September 2021 will be computed at 130% of the amount invested for the purposes of computing the corporate income tax exemption.

The above incentives are available for a maximum period of four years; however, taxpayers may request a suspension for up to two years. Further, in respect of assets used in investment projects on which favorable tax treatment was granted, disposal of such assets before the end of the useful life or within 10 years will attract taxation of the benefits claimed earlier, subject to certain exceptions.

For small taxpayers, corporate income tax exemptions are increased on investments in certain goods from 40% to 60% and on investments in construction from 20% to 30%.

Effective 30 October 2020, Uruguay introduced new rules in respect of cases where tax exemptions are approved for multiple investment projects. Where a taxpayer has been granted exemption benefits for multiple projects in the same fiscal year, the exemption amount is limited to the lesser of:

  • The sum of the exemption calculated for each investment project considered individually; and
  • The amount of the exemption provided for the investment project that has been granted the highest percentage exemption limit.

The rules further provide that the net income benefitting from the exemption incentives under the investment law may not be eligible for any other benefits or incentives.

Free Trade Zones

Free trade zones (FTZ) in Uruguay can be government-run or private and provide the following benefits for a business established within the zone:

  • Exemption from corporate income tax;
  • Exemption from dividends tax on distributions to non-resident shareholders;
  • Customs duties exemptions on imports and exports to and from the zone; and
  • Effective 8 March 2018, an income tax exemption is introduced for income derived from the use of the intellectual property and other intangible goods, provided that property/goods result from research and development activities within the FTZ and certain other conditions are met.

FTZ enterprises may not conduct any business activities in Uruguay outside the zones, except for certain software development services, IT consulting, and training. Employees of FTZ enterprises are required to work within the FTZ for the enterprises to be eligible for tax benefits. In response to the COVID-19 pandemic, as a temporary measure, Uruguay allowed employees of FTZ enterprises to work remotely (telework) without losing the tax benefits. On 30 September 2022, Uruguay issued a Decree to relax the FTZ condition permanently by allowing employees to telework from their private dwellings in Uruguay, provided the following conditions are met:

  • FTZ enterprises must not open offices outside the FTZ; and
  • At least 90% of the employees must be physically present within the enterprise's office in the FTZ. The physical presence must constitute at least 60% of the working time of the employees each month, with a minimum of 1,000 hours.

Reinvestment Incentive

Tax deduction incentive is provided for income reinvestment in certain fixed assets. The incentive benefit allows taxpayers to deduct 20% or 40% of the reinvested amount (depending on the type of asset) for corporate tax purposes. Effective 30 October 2014, only taxpayers whose income in the previous tax year does not exceed 10 million indexed units (Unidad Indexada, multiple of pesos adjusted for inflation) are eligible for the incentive.

Shared Service Centre Incentives

Effective 4 September 2014, Uruguay introduced incentives for shared service centers established in the country. The benefits include:

  • 5-year corporate income tax (IRAE) exemption on 70% of the shared service center’s income; and
  • 5-year net worth tax exemption on assets used by the shared service center to perform its services.

In order to qualify for the exemptions, the following conditions must be met:

  • The shared service center must be an entity belonging to a multinational group and must exclusively provide any of the following eligible services (regardless of the place of use of services) to its related parties, resident, or residing in at least 12 countries:
    • advisory services, including those of a technical nature, in the fields of management, administration, consultancy, translation, engineering, etc.;
    • data processing;
    • management and administration services, including strategic planning, business development, advertising, etc.;
    • logistics and storage;
    • financial administration; and
    • research and development support activities;
  • At least 100 employment positions must be created within the first 3 years of operation and must be maintained for the following 2 years, 75% of which must be for citizens of Uruguay. Jobs related transfers from local related entities to Shared Service Centers will not be considered;
  • An amount equal to at least 5 million indexed units (Unidad Indexada, multiple of pesos adjusted for inflation) must be invested in technical training for Uruguayan employees in the first 3 years of operation;
  • Revenue from services provided to resident related parties in Uruguay must not exceed 5% of annual revenue. Irrespective of the percentage, revenue from services to resident-related parties are not eligible for the incentive; and
  • For shared service entities located in Uruguay free trade zones (FTZ), services may be provided to related parties resident in Uruguay outside the FTZ, provided the revenue from the services does not exceed 5% of annual revenue.

The 5-year exemption can be extended a further 5 years when the following conditions are met:

  • At least 300 employment positions are created within the first 5 years of operation and maintained during the exemption period; and
  • An amount equal to at least 20 million indexed units is invested in technical training for Uruguayan employees in the first 6 years of operation.

The exploitation of intellectual property is expressly excluded from qualifying services. It is clarified that on the provision of services to resident entities, the prices and conditions must be adjusted to the normal market practices between independent companies and be reasonably priced in comparison with the prices agreed with related entities abroad.

Incentives for Software Industry

Income from software products and related services is exempt from corporate income tax. Previously, the goods and services were required to be used abroad for the exemption to apply, which has been eliminated effectively from 1 January 2018. The exemption is in the proportion of direct software development expenses to total direct expenses.

The income derived from investigation and development activities, as well as software production, is exempted from corporate income tax when the goods and services produced are registered under the intellectual property laws, irrespective of their use entirely/ partially within or outside Uruguay. If the goods and services are used entirely abroad, the exemption is restricted proportionally to the expenses incurred in the development of the goods, increased by 30%.

Effective 1 January 2018, companies may deduct 60% of the costs incurred for software development services and related services, where the income is exempted for the provider. It is also clarified that in the case of expenses incurred by the companies whose income is partially exempted on the basis of the determination of a quotient, the deduction of the expenses is limited to the percentage corresponding to the non-exempt income. The percentage of exemption is required to be stated in the respective purchase documentation (invoice).

It is further clarified that the ownership of assets resulting from software development eligible for the exemption is attributed exclusively to the undertaking that carried out such development, as long as it has the exclusive right to use and exploit the asset.

The taxpayer is required to submit supporting documentation to claim the exemption, including a record of the registration number of the corresponding asset along with the percentage of exemption determined.

Incentives for Micro and Small Enterprises located in the Border Areas

On 21 October 2021 Uruguay introduced the following tax exemptions for micro and small enterprises located in the border areas vide Law 19.993, subject to meeting certain conditions:

  • A 100% exemption from employer's retirement contributions for companies including company owners, partners, and dependent employees working at the qualifying location;
  • Exemption from the payment of the single tax under the monotributo or monotributo social MIDES regimes, except for the contribution to the National Health Fund, if applicable;
  • Exemption from minimum monthly VAT payment obligations for qualifying micro-enterprises;
  • Exemption from making a monthly advance of corporate income tax (IRAE) payments. The amount which would have been paid as corporate income tax, would now be available as a tax credit to the taxpayer, however, the taxpayer would not have the right to claim a refund; and
  • Exemption from making corresponding net wealth tax payments. The amount which would have been paid as wealth tax would now be available as a tax credit to the taxpayer, however, the taxpayer would not have the right to claim a refund.

The aforesaid exemptions apply to tax obligations accrued in a 12-month period beginning from a date to be determined by the authorities, which is to be established within one year from the date of publication of the aforesaid Law.

Other Incentives

Uruguay’s 2020-2024 budget measures introduced a tax credit for taxpayers making qualifying donations to the National Resources Fund for approved high-priced medicines to the extent of 75% of the donations, and the remaining 25% is considered as tax-deductible.

COVID-19 Emergency Measures

In response to the COVID-19 pandemic, Uruguay has introduced an incentive regime for investment in building construction and urbanization, which include:

  • Corporate tax exemption for a period up to 10 years in the form of a tax credit calculated on the basis of percentage of total investment using rates ranging from 5% to 40% (15% to 40% until 2 December 2020) depending on the size of the investment project. In any year, the tax exemption must not exceed 90% of the tax otherwise payable;
  • Net wealth tax exemption on the constructed property for a period of 8 years if in Montevideo and 10 years in other areas;
  • VAT credit and import tax exemption on equipment, machines, materials, and services for the construction works and movable assets destined for common use areas; and
  • Refund of credit certificates in respect of VAT included in the purchase of goods and services used for construction projects.

The incentive regime is available for the construction of buildings for office space and homes and urbanization involving the development of rural or suburban areas, with all necessary infrastructure in order to build homes and complementary spaces having a minimum investment of 20 million indexed units, i.e., Unidad Indexada which are multiple of pesos adjusted for inflation (60 million indexed units until 2 December 2020). With respect to housing projects, the new incentive regime modifies and extends the scope of the incentives that were available under the erstwhile regime of 2016.  

Further, Uruguay published Decree No.225/021, which provides that the percentage of minimum area of a project required to be dedicated to common use will be decided by the Enforcement Commission (COMAP) based on the amount of investment made in a project. Previously, a fixed percentage was applied, whereby the scheme required that at least 10% of the area was dedicated to common use for projects with investments of more than 60 million indexed units, and at least 5% of the area was dedicated to common use for projects with investments ranging from 20 million to 60 million indexed units.

Applications for the incentive regime, including details of the proposed project, must be submitted by 31 December 2023 (extended from 31 December 2022). Investments for approved projects must be completed by 30 September 2026 (extended from 30 April 2025). For housing projects, if the application had been filed under the erstwhile regime of 2016, the project must be completed by 31 December 2023 (extended from 31 December 2022).