Overseas Business Risk - Uruguay

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Information on how UK companies can control risks when doing business in Uruguay.

1. General overview

Uruguay is a country with a positive background for political, democratic and social stability and macroeconomic solidity. It has strong institutions and performs well on all major transparency and ease of doing business indexes.

In recent years, Uruguay’s economy has become more resilient, its exports more diversified and GDP has grown at an average of 1.52% in the last decade. Uruguay is a founding member of the MERCOSUR regional bloc (Brazil, Argentina, Paraguay and Uruguay), which negotiated a Free Trade Agreement with the EU on June 2019 (yet still pending signature). The Uruguayan government is keen to look beyond its traditional trading partners in the immediate neighbourhood and open up new markets.

The main challenges in the short term are the fiscal deficit and financing public investment. To ensure continued economic growth in the medium to long term, Uruguay must address the quality of education, the relative size of the public sector (significant in a population of just 3.5 million), labour regulation and infrastructure gaps.

2. Political

Uruguay’s political party system is one of the most institutionalised in the world. Citizens choose their government in free and fair elections every 5 years based on universal, equal and compulsory suffrage.

After 15 years and 3 consecutive terms for the left wing Frente Amplio party coalition, the centre-right opposition National party led by Luis Lacalle Pou won the 2019 elections with a majority in Congress for his multi-party coalition. Initial willingness to carry out important reforms led to the approval of an Urgent Consideration Bill in July 2020. It included economic and political reforms, as well as relevant changes in social security, education, health, agriculture, among other sectors.

In 2022, the Economist Intelligence Unit’s Democracy Index ranked Uruguay 13th out of 167 countries , with a score of 8.65 out of 10 (its highest ever). This score ranks first in Latin America and deems Uruguay a “full democracy”.

During 2013, Uruguay was in the international spotlight for the legalisation of same-sex marriage, the approval of the continent’s most liberal abortion law, and becoming the first nation in the world to legalise and regulate the production, sale and consumption of marijuana.

The Uruguayan government works hard to endorse Organisation for Economic Cooperation and Development (OECD) standards. This includes signing several tax information exchange agreements, modification of the bearer shares system (Law 18,930 from 2012) and relaxation of banking secrecy provisions through the Law of International Tax Transparency, Prevention of Money Laundering and Financing of Terrorism. In October 2015, Uruguay became a member of the Development Centre of the OECD. This centre functions as a link between the OECD and developing countries, seeking to promote dialogue on several issues, such as the contribution of the private sector. In 2018 Uruguay graduated from the Development Assistance Committee (DAC) list of eligible countries to receive official development assistance (ODA) from donor countries, due to having reached USD 17.165 per capita income for more than 3 years.

In March 2021, Uruguay became associate member of the OECD’s Investment committee.

3. Economic

Uruguay is a country with a high Human Development Index (HDI), ranked 55th out of 189 countries in 2020, according to the United Nations (UN). Based on the World Bank’s per capita income measures, Uruguay became a high-income country in July 2013. The inflation rate for 2021 was 7.96%, and had been of 9.41% and 8.8% in 2020 and 2019 respectively.

In the past 10 years, Uruguay’s economy has become more resilient and its exports more diversified. According to the World Economic Forum (WEF), it is the 3rd most competitive economy in Latin America and the Caribbean. Its GDP was around USD 53.63 billion in 2020.

Commodities dominate Uruguay’s exports, principally beef (representing 21% of total exports in 2021) , cellulose (14% of total exports) and soy (8% of exports).

Main British exports to Uruguay in the last decade include spirits (19% average, mostly Scotch whisky), medicaments (17%), tractors (6%), motor cars, heavy machinery, reagents and coffee/tea preparations.

According to the United Nations’World Risk Report 2021, Uruguay ranks 27th out of 181 countries (where number one is the most exposed and vulnerable). This ranking reflects the countries´ exposure and response to potential natural disasters.

Uruguay has great potential for growth in the renewable energy sector. Its wind, solar, and biomass resources are major providers of electric capability. The country sources about 98% of its electricity from alternative sources, and is one of the first in the region to promote large-scale electric vehicle mobility.

Regarding the country’s energy matrix, in 2010 the government encouraged considerable investments in renewable energies (principally wind) to diversify the energy mix and improve Uruguay’s energy security. Nowadays, Uruguay’s wind energy capacity represents 30% of the country’s total electricity generation. It is one of the world leaders in wind power production, along with Denmark, Ireland, and Germany.

In addition, the solar sector is also relevant in Uruguay since they passed Law No. 18.585 on Solar Energy in 2009. It declares research, development and training in the use of solar energy to be of national interest. Moreover, investments in manufacture, implementation and effective use of solar energy can be exempted from taxes.

4. Foreign Direct Investment

A favourable environment for investment and good economic performance over the last decade have contributed to Uruguay being a reliable investment destination. With a 1.52% annual average GDP growth in the last decade, the strong economic expansion has been characterised by a noticeable increase in the rate of investment of the economy. This is due to greater investment by the private sector, strongly driven by the inflow of foreign direct investment, which is also a driver for innovation. Standard & Poors maintained Uruguay’s credit rating as BBB for foreign currency and A-2 for local currency. The perspective remains stable, reflecting Uruguay’s sovereign sustained and balanced growth and the economy’s solid external position, despite high general government deficits and dollarization levels.

The country has worked actively to maintain the characteristics that have made it attractive to investors: macroeconomic stability, attractive regulatory framework, transparency and institutional quality. Uruguay does not impose any type of restriction for the repatriation of utilities, notwithstanding 60% of the profits of foreign companies are usually reinvested.

The main origins of foreign investment are from countries of the Southern Cone, the United States and Europe. In the same way as it has worked to diversify and open new markets for its exports, Uruguay is keen to attract FDI from the rest of the world, rather than just the immediate region.

The Finnish company UPM made a US$3 billion-dollar investment in 2019 into a second wood pulp plant in Uruguay. A second plant is expected to increase the chain’s outputs and contribute another 5.5% to GDP in 2022.

Uruguay was ranked 101st onease of doing businessby the World Bank in 2020, performing particularly well in Starting a Business and Resolving Insolvency. However, it ranked around 150th in Dealing with Construction Permits and Protecting Minority Investors, and there are some challenges in the labour market regarding hiring and firing practices (including significant taxation) and restraint flexibility in setting wages. It ranked 54th in 2019 forcompetitivenessaccording to the World Economic Forum (WEF), and 34th foreconomic freedom(moderately free) in 2022. Regarding competitiveness, and according to the indicators used by the WEF, Uruguay is above the Latin American and Caribbean average scores in institutions, infrastructure, health, primary and higher education, goods market efficiency and technological readiness. Uruguay ranks 14th regarding the adoption of Information and Communication Technologies, the highest in Latin America.

According to the results of the latest survey (2018) conducted by Uruguay XXI (the government trade and investment agency), the decisive factors for foreign investors in choosing Uruguay were Legal Certainty and Macroeconomic Stability. Other factors include tax incentives and its strategic location. The managers surveyed expressed a high level of satisfaction with the business climate (76%) and 49% of them reinvested their profits in the country. Those surveyed also noted the slowness and complexity of other bureaucratic processes and procedures as a challenge to doing business in Uruguay.

Although having gone through the COVID-19 pandemic, Uruguay still has conditions to be an attractive destination for FDI. These are structural factors such as clear business rules, macroeconomic stability, financial and trade openness, an attractive set of investment incentives, adequate infrastructure, qualified human capital and agreements to avoid double taxation with countries in the region to promote trade in services and grow as a hub.

5. Treaties

• Uruguay has a Bilateral Investment Treaty (BIT) with the United Kingdom, which came into force in 1997. It aims to promote and protect reciprocal investments between the 2 countries. Uruguay has bilateral investment treaties with over 30 countries. These treaties guarantee foreign investors certain principles such as most-favoured-nation clause, fair and equitable treatment provisions, and clauses linked to expropriation and non-restriction on transfers. They also contain provisions relating to the settlement of disputes, including the possibility of an international tribunal appealed by an investor who has a claim against the State
• Tax Information Exchange Agreement between the UK and Uruguayentered into force in 2016
• in 2016, the Uruguay-UK Tax Treaty: double taxationconvention, entered into force. Information about the Benefits of the UK-Uruguay double taxation agreement

6. Investment / trade facilitation

Ranking above the average in Latin America regardinggovernance indicators, and ranking first in the region in most of them, provides the investor a secure environment to invest. Uruguay’s strategic location, top-level logistics infrastructure and state of the art telecommunications technology makes it ideal as a regional and logistical hub through which the investor could access a market of 400 million people in South America.

The country also offers a comprehensive regulatory framework to promote investment. This includes tax benefits and single taxation system throughout the country, free repatriation of capital and profits - through a flexible financial system and a free exchange market- and non-discrimination between the local and foreign investors.

• Law 16,906 on Investment Promotion and Protection, which entitles the foreign investors the same benefits as national investors and does not require prior authorization to settle in Uruguay
• investment projects presented and promoted by the Executive Branch, can be exempt (between 20% and 100%) of Income Tax on Economic Activities (IRAE)
• in 2012, Public-Private-Partnership (PPP) law was approved (to address infrastructure shortage: projects varied from highways, infrastructure for education purposes, a prison and railway reconstruction lines

6.1 Free trade zone (FTZ)

The promotion and development of the Uruguayan free zone regime has been declared of national interest, being first regulated in 1987. There are currently 11 free-trade zones in which commercialization of goods and services is carried out within the country and with third countries. Several recognized multinational companies have chosen Uruguay and they operate in the following industries: agrifood, pharma and life sciences, ICT, business services, forestry and timber, creative industries and infrastructure, among others. In 2021, Uruguay announced plans to create a further free trade zone in the department of Maldonado.

FTZ are regulated by law 15,921, law 19,566 (2018 update) and Decrees 454/988 and 309/018.

Overview of tax benefits

• permitted activities: commercial, industrial and service activities of any type developed within the FTZ. Certain auxiliary activities can be performed outside the FTZ
• 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
• 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). 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

6.2 Other FTZ services in Uruguay

• free ports and airports regimes: refers to port and airport bonded spaces, offering special fiscal and customs regimes. It includes the free circulation of goods, not requiring any authorizations and the exemption of any customs duties, taxes or fees to the entered merchandise or goods
• temporary admission: this regime allows imports, duty free, for raw material, supplies, parts and pieces, equipment or materials (even software support or IT related) to be used to manufacture goods that will be exported later, either in the condition they were imported, or after being transformed, manufactured or repaired
• bonded warehouses: is the customs regime through which the goods enter or are kept in a space under private management without payment of taxes - except for appropriate fees - for later inclusion in a different customs regime, their re-loading or re-exportations. Within these warehouses, foreign goods stored in transit may be unloaded and loaded again any time, free of import or export taxes and any domestic tax. Furthermore, they may be stored there for 24 months (non-extendable) and the MERCOSUR Certificates of Origin are withheld for up to 180 days, provided the goods are modified at the warehouse

Solid and reliable institutionalism

• Uruguay XXI: Uruguayan government agency to promote trade and investment. It provides free support and advice to foreign investors
• Private Sector Support Unit (UnASeP): under the Ministry of Economy and Finance (MEF), this central unit provides support to the investor, national or foreign
• National Development Agency (ANDE): Promote the productive development of the country through the design and implementation of programs and instruments for the improvement of business and territorial competitiveness, with emphasis on MSMEs and articulation between interested public and private actors
• National Research and Innovation Agency (ANII) government entity that promotes research and the application of new knowledge to the productive and social reality of the country
• Customs Code (CAROU): regulation introducing various innovations in the customs area, including the figure of the Authorized Economic Operator

7. State-owned companies

The State plays an important role in the economy, where several areas are monopolised by the government, such as landline telephony and internet services (ANTEL), importing and refining oil (ANCAP), electric power (UTE), water sanitation (OSE) and workers’ compensation insurance (through BSE). In order to service the State and to participate in public tenders, companies must register in a specific list called RUPE (please contact British Embassy to know more).

8. Business and Human Rights

The Constitution of Uruguaystates that all people have the right to equality before the law, not recognising another distinction between them but that of the talents or the virtues.

The law also provides for freedom of speech and press, academic freedom, freedom of peaceful assembly and association, freedom of religion, freedom of movement, foreign travel, emigration and repatriation, including the protection of refugees.

Uruguay has ratified all the main international human rights treaties, and the 8 core International Labour Organisation (ILO) conventions. It has also ratified all 4 Governance Conventions, which are the most important rules in relation to the operation of the international labour standards system. Finally, the vast majority of the Technical Conventions are also in force.

Gender equality: Uruguay has ratified all international commitments regarding gender equality and women’s rights. Women are represented in many high-profile positions in Uruguay, including politics, but further advances in this area are still needed. In the 2019 general elections, Beatriz Argimón was elected Vice President, becoming the first woman to hold the position.

Despite economic growth and improvement in poverty and unemployment indexes, Uruguay still faces the challenge of structural gender inequalities in strategic areas for development. The gaps in place have an effect especially on rural women and Afro-descendants.Law 19,122was passed in 2013, aiming to favour the participation of Afro-descendants in the educational and labour areas.

Sexual Orientation and Gender Identity (SOGI): Uruguay bans SOGI discrimination and guarantees transgender rights. It was the 12th country in the world to legalise same-sex marriage nationwide. In its Penal Code, the provisions related to hate crimes include SOGI as a criterion since 2003 (Law 17,677, Articles 1 and 2). Transgender people possess the right to change their official sex and name (Law 18,620, 2009). The Marriage Equality Law legalised same-sex marriage in 2013, in addition to raising the legal age of marriage to 16.(Law 19,075).

In 2018, it passed a law recognising and protecting the rights of transgender people. The law aimed to guarantee the access of transgender people to quality jobs and healthcare services. Though this law faced criticism in Parliament, an attempt to derogate it in 2019 via referendum failed.

The trade union movement is significant in Uruguay. The main grouping, the Inter-union Plenary of Workers – National Workers Convention (PIT-CNT) has more than 400,000 affiliates.

9. Bribery and corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or as Scottish partnership to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case, it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

Corruption has not been identified as an obstacle to investment. In 2020 Uruguay ranked 18th of 180 countries in Transparency International’s corruption perception index(CPI), an improvement of its 2020 ranking of 21st. Uruguay scored 73/100 on the CPI, compared to 71/100 in 2020. It was the second best positioned country of the Americas, just behind Canada (13th). It is ahead of France (23rd), the US and Chile (both 27th), Costa Rica (39th) and China (66th).

Uruguay has several laws to prevent bribery and other corruption practices. Laws 17,835, 18,494 and 19,355 were passed as a framework against money laundering and terrorism finance. Criminal law is applied in cases of this nature.

The government office that combats public sector corruption is the Transparency and Public Ethics Committee(JUTEP).

10. Terrorism threat

For information on terrorism threats, please consult the Terrorism section of our FCDO travel Advicefor Uruguay.

11. Protective security/ organised crime

Organised crime presents no direct threat to UK business in Uruguay.

For more information, please consult our FCDO travel Advice.

12. Intellectual Property

IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, then you should consider registering your IP rights in your export markets.

The regulation of Intellectual Property rights in Uruguay is subject to international treaties such as the Paris Convention (industrial property), the Berne Convention (copyrights) and the Protocol of Harmonization of Norms (industrial property) in the framework of MERCOSUR. These treaties are complemented by local regulation covering industrial property and copyright matters. The national division in charge of intellectual property affairs and registrations is known as DNPI. Intellectual Property rights are also subject to protection under Uruguayan criminal law.

Uruguay is a member of the World Intellectual Property Organization (WIPO), and in its country profile further information can be found.

Also, we suggest reading the information provided on our Intellectual Property page.

More information can be found at the Uruguayan’s National Intellectual Property Directorate (DNPI).

13. UK Export Finance

The government can provide finance or credit insurance specifically to support UK exports to Uruguay throughUK Export Finance– the UK’s export credit agency. For up-to-date country specific information on the support available please seeUK Export Finance’s country cover policy and indicators.