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This law underwent several subsequent modifications, until it reached the current regime dating back to 1987 (Law No. 15,921) - with final modifications introduced in 2017 - which brought significant innovations that boosted investments, highlighting the creation of private free zones and the establishment of a contractual regime for users.

What are free trade zones?

Under Uruguayan regulations, free trade zones are defined as areas within the national territory designated by the Executive Branch (following advice from the Honorary Advisory Commission on Free Trade Zones), whether public or private, enclosed and efficiently isolated, whose purpose is to allow the development of various industrial, commercial, or service activities, taking advantage of the tax exemptions and other benefits granted by law.

Activities that can be carried out in free trade zones include, among others:

1. Marketing, storage, conditioning, selection, classification, fractionation, assembly, disassembly, handling, or mixing of goods or raw materials, whether of foreign or national origin.

2. Factory facilities to drive manufacturing processes.

3. Financial, computer, repair and maintenance services, as well as professional services that improve the operation of the installed activities, and the possibility of selling those services to third countries.

4. Other activities that, according to the evaluation of the Executive Branch, are beneficial for the national economy or can contribute to economic and social integration.

Why establish in free trade zones?

Free trade zones in Uruguay have become centers of diversified economic activity. While the logistics and distribution sector has been one of the main drivers of growth, significant industries have also been allowed to develop, such as manufacturing, information technology, and financial services.

The free trade zone regime in Uruguay offers various benefits for companies operating within these delimited geographical areas and for the country as a whole. These include:

1. Tax benefits: One of the most outstanding advantages is the exemption from income taxes for companies operating within free trade zones. This means that companies can reinvest their profits without having to pay typical taxes on profits, increasing their capacity for growth and expansion.

2. Customs simplification: Companies established in free trade zones benefit from a simplified customs regime, which streamlines the processes of importing and exporting goods. This allows for greater efficiency in the supply chain and reduces operational and logistical costs.

3. Free movement of capital: facilitates international investments and financial transactions. Companies can repatriate their profits and carry out financial operations without restrictions, providing greater flexibility and security to foreign investors.

4. Access to skilled labor: Uruguay has an educated and trained workforce, which is attractive to companies looking to establish operations in the country. This guarantees the availability of competitive labor, contributing to the success of companies and promoting the development of human capital.

5. Infrastructure and services: Free trade zones in Uruguay often have modern infrastructure and access to quality services, including industrial parks, logistics areas, advanced telecommunications, and business support services. This creates a conducive environment for efficient business operation and facilitates investment.

6. Regional development: Free trade zones have become centers of economic activity, attracting investment and generating employment.

7. Promotion of innovation and technology: The presence of companies in high-tech sectors within free trade zones stimulates innovation and knowledge transfer. This has a positive effect on competitiveness and technological development in the country.

8. Economic diversification: They have allowed for the diversification of the Uruguayan economy, promoting industries such as manufacturing, financial services, technology, and logistics.

9. Attraction of foreign investment: The free trade zone regime, by offering a favorable environment for business and investment, has attracted numerous foreign companies to establish their operations in Uruguay. Noteworthy is that our country guarantees a stable and secure legal framework, providing confidence to foreign investors when planning and structuring their future projects, enhanced by the absence of restrictions on the operation of foreign capital.

What are the requirements for installation?

Any company wishing to establish itself in a free trade zone must meet certain requirements and procedures established by law, including:

i. Authorization request accompanied by the investment project: Companies interested in operating in a free trade zone must submit an authorization request to the competent authority, accompanied by an investment project detailing the activities to be carried out, the planned investment amounts, and the benefits expected to be obtained/generated, accrediting the economic and financial viability of the project.

ii. Employment commitment: The regulations require compliance with certain standards, establishing minimum percentages of employment for nationals.

iii. Regulatory compliance: Companies must comply with the laws and regulations in force in Uruguay, including those related to international trade, customs, and environmental protection. Likewise, only activities specifically authorized by law may be carried out.

iv. Duration of stay: It is important to note that, in some cases, a minimum stay period is established to ensure the sustainability of investments.

Current context

Uruguay currently has 15 industrial, commercial, and service free trade zones authorized in different regions of the country. According to a report published in April 2022 by the Center for Studies of Economic and Social Reality (Ceres - https://bit.ly/3QgNflE), in 2019 there were more than 1,000 companies authorized to operate in Free Trade Zones, directly employing over 15,000 people, a figure that doubles when considering indirect jobs (representing 2% of the active population in Uruguay).

In the period 2014-2019, tax exemptions granted to free trade zones averaged USD 280 million annually, estimating that the benefit generated by companies reached almost USD 6 for every dollar exempted (totaling approximately USD 1,600 million annually), in addition to the implementation of innovative business practices, technology transfer, and the adoption of international quality standards.

Although free trade zones in Uruguay have been successful overall, they also face challenges, including competition with other countries in the region that also offer similar regimes, as well as the need to maintain international standards of transparency and prevention against money laundering.

Final considerations

In summary, the free trade zone regime in Uruguay has been an effective tool for promoting investment, job creation, and economic development. The tax benefits, customs simplification, access to skilled labor, and adequate infrastructure make it an attractive alternative for companies looking to expand in the region, contributing to economic and social development and maximizing resources.

It is essential that companies interested in establishing themselves in a free trade zone in Uruguay seek appropriate advice and comply with all requirements and procedures established by the country's legislation. Each free trade zone may have specific requirements, so it is advisable to consult with experts in the field to obtain proper and accurate assistance.

Montevideo, August 1, 2023.