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January 11, 2018

Uruguay enacts changes to Free Trade Zone regime

FTZ users should review the provisions of the new law as they might be eligible for benefits that were previously not available.

On December 8, 2017, Uruguay's Executive Power enacted Law No. 19,566, introducing changes to Law No. 15,921, which established the Free Trade Zone (FTZ) regime. The changes are effective March 8, 2018.


The FTZ regime changes were originally proposed by the Executive Power and amendments were later introduced by the Chamber of Representatives, including some articles that were separated from the Accountability bill approved last September. On November 29, 2017, the Uruguayan Chamber of Senators passed the bill. On December 8, 2017, the bill was enacted by the Executive Power.

New law

The new law allows services rendered to third countries from the FTZ to also be rendered from the FTZ to corporate income taxpayers inside Uruguayan, non-FTZ, territory.

Users of an FTZ, however, will not be able to perform industrial, service and commercial activities (with the exception of: debt collections performed by third parties, and exhibition activities (e.g., fairs, public displays) performed by users installed in FTZs with "localization disadvantages") inside Uruguayan territory.

Duly authorized FTZ users located outside the metropolitan area (the geographical area comprehended is a radius of 40 km from the center of the Uruguayan capital, Montevideo) will be able to develop certain "non-substantial activities" (i.e., complementary activities, such as public relations, documentation handling, invoicing and collections) in Uruguayan non-FTZ territory. The activities must be conducted inside specific administrative offices provided by the FTZ developers.

FTZ users will be allowed to develop activities within the Uruguayan territory for goods situated abroad or in transit through national territory (which do not originate or have a destination in the national territory) or services, as long as they are rendered or used outside of Uruguayan territory.

Retail commerce and service activities are still not permitted inside the FTZ, but the new law allows such activities between users and providers and between users. Commercial and service activities to final consumers who are employees of the FTZ will be allowed as well.

The new law adds compliance regulations for: (1) the revocation of the users' agreement; (2) information to be included in the users' request; and (3) the maximum period of users' agreements, with maximums of up to 15 years for industrial activities, 10 years for commercial and services activities, and five years for indirect FTZ user agreements.

The new law states that the requirement for 75% of an FTZ user's employees to be Uruguayan could be reduced with authorization of the Executive Power under certain circumstances. When granting the authorization, the Executive Power could additionally require the users to implement training programs with the purpose of reaching the minimum quota of Uruguayan citizens. For service activities, the Executive Power could reduce the minimum employment requirement to 50% when the nature of the business deems it necessary.

Income from the use of intellectual property and other intangible goods would be exempt from income tax, as long as the goods result from research and development activities within the FTZ and other requirements are met.

Every two years, FTZ users will be required to submit an affidavit with the FTZ territory that includes information on the user's compliance with the business plan previously approved.

FTZ providers outside of the metropolitan areas will be tax-exempt, except for corporate income tax purposes, Social Security contributions and legal benefits of pecuniary nature established in favor of non-state public social security persons (e.g., certain retirement and pension funds).

The new law allows the Executive Power to authorize the use of thematic service zones — which will be FTZs — outside the metropolitan area, to provide audiovisual, amusement and entertainment services (different from gambling) and complementary activities. Corporate income tax and value added tax exemptions will only apply to services rendered to non-Uruguayan tax resident final consumers.

It will also allow businesses in thematic service zones that perform audiovisual services to make films outside of the zones under conditions to be determined by the Executive Power, as long as the cost does not exceed 25% of the total annual cost of the business providing the service.

In light of the new regulations, current FTZ users will be able to maintain the benefits and exemptions granted before the effective date of this law, and no limitations will apply to them as a result of the changes.

FTZ users will be jointly liable for tax obligations arising from transfer pricing regulations as a result of services provided to non-FTZ related parties.


Contact Information
For additional information concerning this Alert, please contact:
EY Uruguay
Martha Roca598 2 902 3147
Rodrigo Barrios598 2 902 3147
Latin American Business Center, New York
Ana Mingramm(212) 773-9190;
Enrique Perez Grovas(212) 773-1594;
Pablo Wejcman(212) 773-5129;
Latin American Business Center, Europe
Jose Padilla+44 20 7760 9253;

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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