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Uruguay

Executive Summary

The Government of Uruguay recognizes the important role foreign investment plays in economic development and offers a stable investment climate that does not discriminate against foreign investors. Uruguay’s legal system treats foreign and national investments equally, most investments are allowed without prior authorization, and investors can freely transfer the capital and profits from their investments abroad. International investors can choose between arbitration and the judicial system to settle disputes. Local courts recognize and enforce foreign arbitral awards.

The World Bank’s 2020 “Doing Business” Index placed Uruguay fourth out of twelve countries in South America. In 2020, Transparency International ranked Uruguay as the most transparent country in Latin America and the Caribbean, and the second most transparent in the Western Hemisphere. U.S. firms have not identified corruption as an obstacle to investment. Uruguay is a stable democracy, one of only four in the Western Hemisphere and ranked 15th in the world, according to the Economist Intelligence Unit. As of April 2021, Standard & Poor’s and Moody’s rate Uruguay one step above the investment grade threshold with a stable outlook.

Domestic and foreign investment rose substantially from 2004-2014 following Uruguay´s economic boom, but has dropped significantly since 2015 despite tax incentives for investors passed in mid-2018 and late 2020. About 120 U.S. firms operate locally and are invested among a wide array of sectors, including forestry, tourism and hotels, services, and telecommunications. In 2019, the United States was the largest foreign investor in Uruguay, reflecting its longstanding presence in the country. Uruguay has bilateral investment treaties with over 30 countries, including the United States. The United States does not have a double-taxation treaty with Uruguay. Both countries have a Trade and Investment Framework Agreement in place, and have signed agreements on open skies, trade facilitation, customs mutual assistance, promotion of small and medium enterprises, and social security totalization.

Over the past decade, Uruguay strengthened bilateral trade, investment, and political ties with China, its principal trading partner. In 2018, Uruguay was the first country in the Southern Cone to join China’s Belt and Road Initiative. Uruguay formally joined the Asian Infrastructure Investment Bank in 2020. In recent years, China has signaled openness to a free trade agreement either with Uruguay bilaterally or with Mercosur.

A 2018 survey by Uruguay’s Ministry of Economy and Finance showed that about half of foreign investors were satisfied or very satisfied with Uruguay´s investment climate, principally due to its rule of law, low political risk, macroeconomic stability, strategic location, and investment incentives. Almost all investors were satisfied or highly satisfied with Uruguay’s 11 free trade zones and free ports. However, roughly one-fourth of investors were dissatisfied with at least one aspect of doing business locally, expressing concerns about high labor costs and taxes, high energy costs, as well as unions and labor conflicts.

Uruguay is a founding member of Mercosur, the Southern Cone Common Market created in 1991 that is headquartered in Montevideo and also comprises Argentina, Brazil, and Paraguay. (Note: Venezuela joined the bloc in June 2012 and was suspended in December 2016.) Uruguay has separate trade agreements with Bolivia, Chile, Colombia, Ecuador, and Peru, all of which are also Mercosur associate members. The current administration is lobbying Mercosur to relax its requirement for members to negotiate as a bloc, and allow Uruguay to embark on trade negotiations independently. Uruguay and Mexico have a comprehensive trade agreement in place since 2004, and in 2018, Uruguay extended its existing free trade agreement with Chile to increase trade in goods and services.

Uruguay’s strategic location (in the center of Mercosur’s wealthiest and most populated area), and its special import regimes (such as free zones and free ports) make it a well-situated distribution center for U.S. goods into the region. Several U.S. firms warehouse their products in Uruguay’s tax-free areas and service their regional clients effectively. With a small market of high-income consumers, Uruguay can also be a good test market for U.S. products. The U.S.-Uruguay IT services trade is a significant recent growth area.

Table 1: International Rankings and Statistics
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 21 of 179 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report “Ease of Doing Business” 2020 101 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 69 of 129 https://www.globalinnovationindex.org/ dex 
U.S. FDI in Partner Country ($M USD, stock positions) 2019 999 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 16,230 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=UY 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies towards Foreign Direct Investment

Uruguay recognizes the important role foreign investment plays in economic development and offers a stable investment climate that does not discriminate against foreign investors. Uruguay’s legal system treats foreign and national investments equally, most investments are allowed without prior authorization, and investors can freely transfer abroad the capital and profits from their investments . Investors can choose between arbitration and the judicial system to settle disputes. The judiciary is independent and professional.

Foreign investors are not required to meet any specific performance requirements. Moreover, foreign investors are not subject to discriminatory or excessively onerous visa, residence, or work permit requirements. The government does not require that nationals own shares or that the share of foreign equity be reduced over time, and does not impose conditions on investment permits. Uruguay normally treats foreign investors as nationals in public sector tenders. Uruguayan law permits investors to participate in any stage of the tender process.

Uruguay’s export and investment promotion agency, Uruguay XXI (http://www.uruguayxxi.gub.uy), provides information on Uruguay’s business climate and investment incentives, at both a national and a sectoral level. The agency also has several programs to promote the internationalization of local firms and regularly participates in trade missions.

There is no formal business roundtable or ombudsman responsible for regular dialogue between government officials and investors. Uruguay levies value-added and non-resident income taxes on foreign-based digital services, while locally-based digital services are generally tax exempt. Tax rates vary depending on whether the company provides audiovisual transmissions or intermediation services, and on the geographical locations of the company and consumers of the service.

Limits on Foreign Control and Right to Private Ownership and Establishment

Aside from the few limited sectors involving national security and limited legal government monopolies in which foreign investment is not permitted, Uruguay practices neither de jure nor de facto discrimination toward investment by source or origin, with national and foreign investors treated equally.

In general, Uruguay does not require specific authorization for firms to set up operations, import and export, make deposits and banking transactions in any particular currency, or obtain credit. Screening mechanisms do not apply to foreign or national investments, and investors do not need special government authorization for access to capital markets or to foreign exchange.

Other Investment Policy Reviews

The World Trade Organization published its Trade Policy Review of Uruguay, which included a detailed description of the country’s trade and investment regimes in 2018 and is available at https://www.wto.org/english/tratop_e/tpr_e/tp474_e.htm.

In July 2020, after a two-year examination process, Uruguay joined the Organization for Economic Cooperation and Development’s (OECD) Investment Committee. While Uruguay is not a member of the OECD, it has gradually endorsed several principles and joined some of its institutions. Uruguay is a member of the OECD Development Center and its Global Forum on Transparency and Exchange of Information for Tax Purposes, and it participates in its Program for International Student Assessment (PISA). The Partido Nacional administration that took office in March 2020 has not yet taken a position regarding potential OECD membership.

Uruguay is a member of the UN Conference on Trade and Development (UNCTAD), but the organization has not yet conducted an Investment Policy Review on the country.

Business Facilitation

In 2020, Uruguay was ranked 66th in the World Bank’s “starting a business” sub-indicator (against its overall aggregate ranking of 101st for the ease of doing business). Domestic and foreign businesses can register operations in approximately seven days without a notary at http://empresas.gub.uy. Uruguay receives high marks in electronic government. The UN’s 2018 Electronic Government Development and Electronic Participation indexes (latest edition available) ranked Uruguay third in the entire Western Hemisphere (after the United States and Canada).

Recently, U.S. industrial small- to medium-sized enterprises (SMEs), in chemical production for example, describe the Uruguayan market as difficult for new foreign entrants. Those SMEs pointed to legacy business relationships and loyalties, along with a cultural resistance by distributors and clients to trusting new producers.

Outward Investment

The government does not promote nor restrict domestic investment abroad.

2. Bilateral Investment Agreements and Taxation Treaties

In November 2005, Uruguay and the United States signed a Bilateral Investment Treaty (BIT) to promote and protect reciprocal investments. The BIT, which entered into force on November 1, 2006, grants national and most-favored-nation treatment to investments and investors sourced in each country. The agreement also includes detailed provisions on compensation for expropriation, and a precise procedure for settling bilateral investment disputes. The annexes include sector-specific measures not covered by the agreement and specific sectors or activities that governments may restrict further. The BIT is available at https://ustr.gov/trade-agreements/bilateral-investment-treaties/bit-documents.

Besides the United States, Uruguay has Bilateral Investment Agreements in force with 30 countries from different regions. The full list is available at https://investmentpolicyhub.unctad.org/IIA/.

In 2016, Uruguay passed a fiscal transparency law. In 2017, it began implementing an automatic exchange of tax information with the countries with which it has established Tax Information Exchange Agreements (TIEAs). In February 2020, Uruguay deposited its instrument of ratification for the OECD’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.

Uruguay and the United States do not have double taxation or tax information agreements in place. The OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes indicates that Uruguay has exchange-of-information relationships with 35 jurisdictions through 21 double-taxation agreements and 16 Tax Information Exchange Agreements. The full list is available at https://eoi-tax.com/jurisdictions/Uruguay.

A social security totalization agreement with the United States has been in effect since November 2018. The agreement eliminates dual social security taxation and helps workers who have split their careers between the United States and Uruguay to meet the minimum eligibility requirements (years worked) more quickly by adding together years worked in both countries to qualify for benefits (https://www.ssa.gov/international/Agreement_Texts/uruguay.html)

Investment Climate Statements
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