Uruguay, a small country located in South America with a population of only 3.5 million people, known for its beautiful coasts, passion for soccer and excellent wines. The country’s economy was based almost exclusively on agricultural-livestock production, but in recent years, although these areas remain relevant, the country has sought to develop as a center of high value-added services, with a strong focus on IT industry.
Country overview
Located on the shores of the Rio de la Plata (River Plate) and the Atlantic Ocean, Uruguay is sandwiched between its much larger neighbours Brazil and Argentina – Uruguay’s partners with Paraguay in the south American trading bloc Mercosur. Uruguay offers a calm, safe, business-friendly environment that is attractive to overseas investors looking to set up in South America.
Political, economic, and social stability
Uruguay has developed and maintained a strong political system based on democracy and the separation of powers. Also, Uruguay’s legal system offers a robust framework that remains consistent even with changes in government. Add to this a stable economy, and the incentives for people and businesses to come to Uruguay are many.
Strategic location
Uruguay is founded on mostly European immigration. This means an important cultural affinity exists with most global economies. With an infrastructure built for world-class IT telecommunications and connectivity, and a time zone aligned with North America, Uruguay is an ideal business partner and location.
High-quality people
The pool of talent in Uruguay is highly skilled and specialised, especially in the IT field. On offer are not just technical skills but also languages – as well as their native Spanish, more than 80% of IT professionals are fluent in English and 30% in Portuguese.
Uruguay’s education system is free and delivers excellent academic results, while its one-laptop-per-child initiative (Plan Ceibal) introduces every child to technology from primary school age.
Ease of doing business
There are many factors that make Uruguay an attractive country to conduct business. Starting a business is simple, quick and cheap, and a single tax system applies to the whole country. Local and foreign investors are treated equally with easy access to visas and residency. There is a free exchange of money and unrestricted repatriation of capital.
The technology value proposition
The software industry is a fundamental pillar of Uruguay’s economic development. Promoted by Uruguay XXI – Uruguay’s national investment agency, Uruguay’s technology value proposition is founded on:
- experience of the Uruguayan IT industry in developing world-class solutions
- the existence of a technological and entrepreneurial ecosystem that focuses on start-ups as well as mergers and acquisitions
- its status as an ideal test bed for developing innovations such as the one-laptop-per-child initiative, fully implemented 5G network and a COVID-19 test-and-trace application
- the quality of its science, technology, engineering and mathematics (STEM) talent
- a favourable regulatory framework, including 100% income tax exemption
- a modern technological infrastructure including world-class data centres, fibre-optic broadband and long-term evolution (LTE) coverage.
Taxation
The Uruguayan corporate tax system consists of the following taxes:
- corporate income tax at 25% of net income
- non-resident income tax of between 3% and 12% depending on the type of income
- net-worth tax of 1.5% of net assets held in Uruguay
- VAT at a basic rate of 22% (a reduced rate of 10% applies to certain supplies); exports are zero-rated
- Dividend tax of 7%.
Tax benefits for the software industry
To attract software development businesses to Uruguay, the government has introduced various tax incentives.
Software development services
Software development benefits from a 100% exemption from corporate income tax provided the business incurs at least 50% of its associate costs in Uruguay. Dividends arising from these activities are also exempt from taxes.
Software production
Software production receives a tax exemption based on the ratio of direct development costs to total costs, with the condition that the business registers the asset in the Intellectual Property Register of Uruguay.
Other tax incentives
Beyond those incentives specifically designed for the software industry, other, more general, tax incentives exist to benefit business activity in Uruguay.
- VAT reimbursement for exporters – businesses can obtain tax certificates for VAT on local purchases that they can use to offset taxes and social security contributions
- Trading – taxable income from intermediation activity is calculated as 3% of net margin, giving rise to an effective income tax rate of 0.75% (25% x 3%)
- Investment law – investment projects attract significant tax benefits on income tax, net=worth tax, and VAT, based on an index of requirements relating to new employment, decentralisation, exports, and research and development
- Free trade zones – focused on exports, 100% exemption from all taxes for industrial, commercial and service businesses with no restrictions.
Author: Federico Moares
