A foreign investment statute with the rank of law has existed in Uruguay since 1974 but has fallen into disuse as foreign investors opt to resort to national legislation.

Decree Law No. 14,179 of March 28, 1974 and its Regulatory Decree No. 808/974 of October 10, 1974 constitute the legal framework regulating the foreign investment regime in Uruguay.

The rules in effect range from constitutional provisions on property, expropriation, labor, etc., to decree-laws, and even administrative rules, including the provisions of the Central Bank of Uruguay.

Constitutional rank: Constitution of the Republic, Articles 6, 7, 32, 33, 36, 53, 85, 168, 231, 232, 239, 275.

Decree-Law No. 14,179 and amendments

Decree No. 808/974

Provisions of the Central Bank of Uruguay

Decree Law No. 14,179 of March 28, 1974 and its Regulatory Decree No. 808/974 of October 10, 1974 define foreign investment by establishing that it is interpreted as being all capital originating abroad with rights to repatriation and transfer of related profits, irrespective of its share in the enterprise. Foreign capital may take any form, notably foreign exchange, machinery, patents, technical processes, trademarks, or any other form considered of interest by the Government.

Article 10 of Decree 808/974 establishes that, once the relevant investment contract is signed, the Central Bank of Uruguay shall proceed to register the authorized foreign investment in a special registry it has for that purpose. Prior to this, the foreign investor must verify to the Central Bank of Uruguay that the capital contribution from abroad was indeed made in whatever form and on whatever date it was executed. Investment performance and any remittances must also be registered.

Pursuant to the law under reference, only individuals and corporations domiciled abroad may resort to this regime.

Pursuant to the law under reference, only individuals and corporations domiciled abroad may resort to this regime

The applicable rules consider an enterprise with foreign investment to be one in which capital originating abroad constitutes over 50% of the voting capital.

There are no express provisions in this regard.

There are no limitations of any kind, neither are there nationality restrictions.

There are no terms for the remittance of earnings.

The constitutional and legal provisions referred to above guarantee economic freedom in the country and the nonexistence of discrimination. Hence, the premise is that there is no discrimination between nationals and foreigners.

The constitutional and legal provisions referred to above guarantee economic freedom in the country and the nonexistence of discrimination. Hence, the premise that there is no discrimination between nationals and foreigners.

The rules referred to state that foreign investment is authorized in all areas related to economic and social development, provided that such investment is compatible with the "national interest." That notwithstanding, investment in the following activities requires the express authorization of the executive branch: electricity, hydrocarbons, basic petrochemicals, atomic energy, exploitation of strategic minerals, agriculture and livestock, cold storage industry, financial intermediation, railways, telecommunications, radio, press, television, and those activities assigned by law to state enterprises.

The above list may be expanded by a resolution of the executive branch acting through the Council of Ministers.

Though some activities in which there has been foreign investment are known, the fact that foreign investors may choose to operate under national legislation, as explained earlier, means that there are no complete official data on the scope of foreign investment, which can be freely made in any sector except those reserved by the state.

The express authorization of the executive branch is required in activities related to electricity, hydrocarbons, basic petrochemicals, atomic energy, exploitation of strategic minerals, agriculture and livestock, cold storage industry, financial intermediation, telecommunications, radio, press, television, and those entrusted by law to state enterprises.

The legislation has determined the scope of application of the rules without taking into account the principle of international reciprocity.

If a foreign investor opts for the special regime, these requirements do exist and are found in the procedures that must be completed.

Under the foreign investment law, the foreign investor must request authorization from the Ministry of Economy and Finance to place the investment, providing the information required by the Foreign Investment Advisory Unit operating in the Planning and Budget Office.

If the executive branch approves the recommendation of the Advisory Unit to authorize or refuse to authorize the request, it issues a resolution to that effect, of which the investor is notified.

The Advisory Unit is responsible for drafting projects and investment contracts for subsequent discussion with investors. Once the final contract is signed, the foreign investor must register it in the Special Registry of the Central Bank of Uruguay.

Foreign investments may cover all areas related to economic and social development, provided that said investments are compatible with the national interest; some areas being reserved to the State.

The treatment given to foreign investment and foreign investors is in accordance with the laws on national treatment.

According to Article 32 of the Constitutional Charter of Uruguay, "no one may be deprived of the right to property except in cases of public necessity or public utility, established by a law, provided that fair and prior compensation is received from the National Treasury."

Also, Article 231 of the Constitution makes reference to the matter, establishing that "laws passed by an absolute majority of all the members of each house may provide for expropriations in accordance with economic plans and programs proposed by the executive branch, by offering fair compensation, in accordance with the standards set forth in Article 32."

Article 232 of the Constitution states that "said compensation need not be ex-ante, but in such cases the law must expressly constitute the necessary resources to ensure full payment thereof within the time limit set, which shall not exceed 10 years. The expropriating entity may not take possession of the property without having effectively paid in advance at least one fourth of the full compensatory amount. Small owners, as defined by law, shall always receive full compensation prior to the takeover of the property."

Article 33 of the Constitution of the Republic establishes: "Intellectual work, copyright, inventor’s or artist’s rights, shall be recognized and protected by law."

It must be remembered that foreign investors usually opt for the national regime, under which there are no limitations.

By authorizing foreign investment, the State guarantees the remittance of profits and the transfer of capital, under the terms and in the proportions agreed to contractually.

It is established that invested capital may not be remitted prior to the end of the third year counting from the date of signature of the investment contract. Capital eligible for transfer abroad is understood to be capital initially authorized and brought into the country, plus capitalized net profits, less capital already transferred and less net losses, all denominated in the original investment currency.

Remittances abroad must always be imputed first to profits accrued by the enterprise, and the surplus to invested capital. Any profits not transferred abroad within two years is officially considered to be capitalized as of the date on which they were generated.

There is a single exchange market in Uruguay.

The taxes levied on foreign investment are the same as those levied on national investment, which include:

a) IRIC: Industrial and Commercial Income Tax

b) IRA: Agricultural Income Tax

c) IP: Wealth Tax

d) VAT: Value Added Tax

e) ISFI: Investment Finance Corporation Tax

f) ITI: Property Conveyance Tax

g) IC: Commission Tax

h) ICACSA: Incorporation and Capital Increase Tax on Joint Stock Companies.

There are no special tax rules that directly refer to foreign investment.

Though Uruguay has signed agreements to avoid double taxation, it has not done so with countries in the Americas.

It should be recalled that even though rules exist, they are generally not used by foreign investors but, as requested, an explanation is given for each point as to how national legislation treats particular situations, even if foreign investors opt not to resort to that regime.

Enterprises with foreign capital are not entitled to use medium and long-term domestic credit, and exceptionally they may be allowed to use short-term credit. Short-term credit is deemed to be credit with terms not exceeding one year.

To use foreign credit, enterprises with foreign capital must have received a favorable report from the Foreign Investment Advisory Unit and, in order to use official international credit, they must also have the express authorization of the executive branch.

The law requires that foreign investors receive authorization from the Advisory Unit to contract external financial loans and that the loans meet the standards set by the Central Bank of Uruguay, the institution responsible for providing the foreign exchange to ensure the convertibility and transferability of the principal and interest of these loans.

Furthermore, Decree Law 14,178 (Industrial Promotion Law) of March 28, 1974 establishes a system of tax exemptions for projects to set up or expand industrial plants, and similarly in tourism, or fishing, and in any areas declared to be of national interest by the executive branch.

In addition to tax exemptions, when national interest is declared various direct credit assistance measures can be implemented.

Among the various benefits provided in the law, the following are noteworthy:

a) Exemption of any tax (including VAT) levied at the time of import on the equipment necessary for implementing a project, provided that it is not in competition with national industry. Regarding imports of competitive equipment, surcharges are waived at the option of the executive branch, on a case-by-case basis (Decree of 7/23/1986).

b) Authorization for all equipment incorporated after December 31, 1988 to be amortized over three years.

c) Channeling saving: this benefit envisages the exemption of income tax on capital contributions to finance projects declared to be in the national interest, whether they come from other enterprises (Art. 90 of Decree Law No. 14,178, Decree No. 663/79 and amendments of 12/5/1986) or from the reserves of the same enterprise (Decree Law No. 15,548 of 5/8/1984).

d) Total or partial exemption from all types of taxes, rates, and contributions, and discounted rates or prices, with respect to services provided by the State.

e) Partial exemption from obligations to make provisional employer contributions for the labor component of goods produced for export.

f) Exemption from any tax levied on corporate income, and the distribution or allocation thereof, provided that this comes from the portion of the transfer declared to be in the national interest.

Loan assistance from the Development Investment Financing Fund and provides for long-term credit of up to 10 years, to be reported in U.S. dollars or readjustable pesos.

Foreign investment in Uruguay not only has the same procedural resources as local investment, but it is given preferential treatment.

In principle, foreign investors may resort to all the jurisdictional procedures that the law acknowledges for local investors since the law does not discriminate between nationals and foreigners.

However, by virtue of investment protection agreements signed by Uruguay, when a dispute arises between the State and a foreign investor, the latter must resort to the local jurisdiction and that jurisdiction must rule on the case within 18 months of filing.

Law No. 16,110 of April 25, 1990 regulates a special, shorter legal procedure for foreign investors under bilateral investment protection treaties (BITs).

This procedure is carried out at a single level of the judicial system, before the civil appeal courts. This gives the foreign investor the advantage of speedy process and judgment by jury in a court ranked at the next highest level below the Supreme Court of Justice.

Besides this, and based on the Investment Protection Agreement signed by the Mercosur states parties, Uruguay has accepted that foreign investors may have direct access to international arbitration without first having to exhaust domestic recourse. In that regard, Uruguay has taken the broader approach adopted by most Latin American countries in the last three years.

This trend includes the as yet non-ratified agreements with Sweden, Portugal, Malaysia, and Chile.

The Treaty of Washington of 1965 establishing ICSID has not yet been approved by Uruguay. The corresponding draft law is being studied by the legislature.

The international arbitration forums recognized by the country are those established in the investment protection agreements it has signed.

The countries of the Hemisphere with which Uruguay has signed international reciprocal investment protection agreements are: Argentina, Brazil, Paraguay and Chile. Canada, the United States, Ecuador, as well as the Protocal of Colonia which protects and promotes the investment among the member countries of MERCOSUR.

In Uruguay, foreign investment is handled by specially appointed offices, as mentioned earlier in each of the answers. These are:

a) Ministry of Economy and Finance

b) Central Bank of Uruguay

The functions of each office were explicitly described above and so will not be repeated here.