Guidance

Overseas business risk: Uruguay

Updated 14 June 2023

1. General overview

Uruguay is a politically stable country with a strong democratic tradition and institutions. It is positioned at the top of the Democracy, Political Stability and Transparency rankings in Latin America.

In recent years, Uruguay’s economy has become more resilient and its exports more diversified. The country’s GDP has increased at an average of 1.52% in the last decade, including a post-pandemic growth of 5% in 2022. Uruguay is a founding member of the MERCOSUR regional bloc (alongside Brazil, Argentina and Paraguay), which represents 60% of Latin America’s GDP. The Uruguayan government is looking beyond its traditional trading partners in the immediate neighbourhood and keen to open up new markets.

The main challenges in the short term are fiscal deficit and financing public investment. To ensure continued economic growth in the medium to long term, Uruguay must address the lack of job opportunities, 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 held 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”, with strong institutions and transparency standards. 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.

In 2023, the Uruguayan parliament approved a social security reform with the objective of giving sustainability to a system that is under high pressure, due to an increasingly elder population. The government also implemented an education reform to update and boost the educational system.

As from April 2023, the capital city of Montevideo entered a crisis due to drinkable water supply shortages. This follows a long-lasting drought that depleted the city’s main reservoirs. The government is adopting exceptional measures to try to assure drinkable water to Montevideo population (50% of Uruguay’s population).

Uruguay will have general elections in October 2024. The new government will take office in March 2025.

3. Economic

Uruguay is a country with a high Human Development Index (HDI), ranked 58th out of 189 countries in 2021, 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 2022 was 8.29%; previously 7.96% and 9.41% in 2021 and 2020 respectively, according to the National Institute of Statistics

Uruguayan tax system includes indirect and direct taxes which apply the source principle. Therefore, Uruguay taxes all incomes originating within its borders, no matter whether they accrue to residents or non-residents. In 2023, the Uruguayan government approved tax reductions by increasing deductions from the Individual Tax (IRPF), and by increasing the non-taxable minimum of the Social Security Assistance Tax (IASS). Since 2013, 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 62 billion in 2022.

Commodities dominate Uruguay’s exports, principally beef (representing 19% of total exports in 2022), soybeans (14% of exports), and cellulose (13% of total exports) (Uruguay XXI, Annual Report 2022).

British exports to Uruguay amounted £53 million in 2022. Main exports to Uruguay in the last decade include spirits (19% average, mostly Scotch whisky), pharmaceuticals (17%), tractors (6%), motor cars, heavy machinery, reagents and coffee/tea preparations. According to the United Nations’ World Risk Report 2022, Uruguay ranks 83rd 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 This is part of Uruguay’s energy transition plan which currently finds itself in its second stage. As for now, its main objectives include the deepening of the key factors mentioned above, like the further development of renewable energy sources, the decarbonisation of the principal sectors of the economy, and the search for innovative transport ideas.

Following the energy transition plan, green hydrogen has become a priority to the Uruguayan government, who has set up a three-phase roadmap (H2U Roadmap) for the establishment of institutional lines and work for the growth of hydrogen and its derivatives. This is currently in its first stage with aims to develop the regulation scheme and attract pilot and first export-scale projects. In 2010, the government encouraged considerable investments in renewable energies (principally wind) to diversify the energy matrix and improve Uruguay’s energy security. Uruguay’s wind energy capacity now represents 31% of the country’s total electricity generation. It is one of the world leaders in wind power production, along with Denmark, Ireland, and Germany.

Additionally, the solar sector is developing and . 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 has contributed to Uruguay being a reliable investment destination. With 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. Standard & Poor’s increased Uruguay’s credit rating to 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 dollarisation levels.

The country has worked actively to maintain the characteristics that have made it appealing to investors: macroeconomic stability, attractive regulatory framework, transparency, institutional quality and financial and trade openness. It offers an attractive set of investment incentives, adequate infrastructure, qualified human capital and agreements to avoid double taxation (including the UK). 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 Southern Cone countries, 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 permanently contribute 2% to GDP.

Uruguay was ranked 101st on ease of doing business by 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. There are some challenges in the labour market regarding hiring and firing practices (including significant taxation) and restraint flexibility in setting wages.

In 2019, it ranked 54th for competitiveness according to the World Economic Forum (WEF), and 27th for economic freedom (mostly free) in 2023. 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 35th in UN E-Government ranking 2022, just behind Canada and the United States in the Americas.

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 as a challenge to doing business in Uruguay.

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 Uruguay (2016).

Uruguay-UK Tax Treaty: double taxation convention (2016) for the granting of information about the Benefits of the UK-Uruguay double taxation agreement.

6.  Investment / trade facilitation

Ranking above average in Latin America regarding governance indicators, and ranking first in the region in most of them, Uruguay provides a secure environment to invest. Uruguay’s strategic location, top-level logistics infrastructure and state of the art telecommunications technology have positioned it 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 a single taxation system, free repatriation of capital and profits and non-discrimination between local and foreign investors.

Law 16,906 on Investment Promotion and Protection entitles foreign investors the same benefits as national investors and does not require prior authorisation to settle in Uruguay.

Investment projects presented to and promoted by the executive branch, can be exempt of up to 100% of Income Tax on Economic Activities (IRAE).

In 2012, public-private-partnership (PPP) law was approved to address infrastructure shortage: projects vary from highways, education infrastructure, 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 12 free-trade zones in which commercialisation of goods and services is carried out within the country and with third countries. Several recognised multinational companies benefit from this regime. They mainly operate in the following industries: agrifood, pharma/life sciences, ICT, business services, forestry and timber, creative industries and infrastructure. In 2022, Uruguay approved the creation of a new free trade zone, which will be located 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 within FTZ

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, regarding personal income tax, opt to be subject to non-residents income tax (IRNR) at a 12% flat rate instead of Individual Tax (IRPF). FZU users must hire a minimum of 75% of natural or legal Uruguayan citizens, (three Uruguayan citizens per foreign employee), although the Government could authorise 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 authorisations and the exemption of any customs duties, taxes or fees to the entered merchandise or goods.

Temporary admission: this regime allows duty free imports of raw material, supplies, spare parts, equipment or materials (including software support or IT related) to be used to manufacture goods that will be later exported.

Bonded warehouses: 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 up to 24 months.

Solid and reliable institutionalism

Uruguay XXI: Is a 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): Promotes 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: 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 (contact the British Embassy to find out more).

8. Business and human rights

The Constitution of Uruguay states that all people have the right to equality before the law, not recognising another distinction between them but that of their talents or their 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 19,122 was 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 2022 Uruguay ranked 14th of 180 countries in Transparency International’s corruption perception index (CPI), an improvement of its 2021 ranking of 18th. It was the best positioned country of the Americas, alongside Canada. It is ahead of France (21st), the US (24th), Chile (27th), Costa Rica (48th) and China (65th).

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, consult the terrorism section of our FCDO travel advice for Uruguay.

11. Protective security and organised crime

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

For more information, view FCDO travel advice for Uruguay.

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.

You can read the information provided on our intellectual property](https://www.gov.uk/intellectual-property-an-overview) page.

More information is the Uruguayan’s National Intellectual Property Directorate (DNPI) website.

13. UK Export Finance

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

14. Contact

Contact the UK Department for Business and Trade for more information and advice on opportunities for doing business in Uruguay.

You can email us at: UKTrade.Uruguay@fcdo.gov.uk