The current investment promotion system is outlined in law 16,906, which declares that the promotion and protection of investments made by domestic and foreign investors in the country is an issue of national interest.

This law classifies two groups of tax benefits: those of a general nature for investment and benefits for specific investments.

General investment benefits

Beneficiaries of fiscal benefits include taxpayers of IRAE and agriculture-livestock goods sales tax (Impuesto a la Enajenación de Bienes Agropecuarios or IMEBA in Spanish) that carry out industrial or agriculture-livestock activities.

The investment law establishes the following automatic benefits:

• Exemption from Equity Tax (Impuesto al Patrimonio or IP in Spanish) of moveable goods directly used in production and equipment for electronic data processing.
• Exemption from Value Added Tax (IVA) and the specific internal tax (Impuesto Específico Interno or IMESI in Spanish) for imported goods and return of IVA included in local purchases of moveable goods for production and equipment for electronic data processing.

Additionally, the Executive Branch may exempt IP tax from the following fixed asset goods:

• Fixed improvements for manufacturing and agriculture-livestock activities.
• Intangible goods such as brands, patents, industrial models, privileges, copyrights, goodwill, trade names and concessions granted for prospecting, crops, extraction and exploitation of natural resources.
• Other goods, procedures, inventions or creations that incorporate technological innovation and facilitate technology transfers.

Specific investment benefits

Companies in any activity sector that present an investment project that is in turn promoted by the Executive Branch may access additional benefits. These stimulus measures are included in the new regulations of the investment promotion system (decree 455/007) and the General Operating Criteria defined by the Application Commission (COMAP).
Benefits for companies whose investments are promoted by the Executive Branch are as follows:

Equity Tax (IP)
Moveable fixed asset goods: exemption from IP on fixed asset moveable goods that cannot be exempted under other benefits. The period of the exemption is extended to the entire useful life of these goods.
Civil works projects: exemption from IP on civil works projects for up to eight years if located in Montevideo and up to 10 years if located outside the capital.

Import taxes and fees 
Exemption from import taxes and fees for moveable fixed asset goods that cannot be exempted under other benefit systems and that are declared non-competitive to national industry by the Industry Bureau at the Ministry of Industry, Energy and Mining.

Value Added Tax (IVA)
Return of value added tax (IVA) for local acquisition (duly documented) of materials and services used for civil works projects.

Fees and salaries in priority technological development areas.
Calculate the amounts corresponding to salaries and fees for the project's scientific and technological development in priority areas that establish the conditions set by articles 49, 52 and 55 of decree 150/007 for 1.5 times the payment of IRAE with a maximum being equal to the amount of the tax that does not benefit from investment exemptions established in the system.

Economic Activity Profit Tax (IRAE)
Exemption from Economic Activity Profit Tax (IRAE) for an amount and maximum term that will be applied to the objectives and indicators matrix according to the type and size of the project. The term shall be computed starting in the fiscal year where taxable income is obtained (including this year), as long as four periods have not passed since the promotional declaration. In this case, the maximum term will be increased by four years and shall be computed from the fiscal year when the declaration is released.
In accordance with decree 455/007, eligible investments to obtain benefits include the acquisition of the following fixed asset goods:

• Moveable goods directly involved in the company's activity (excluding non-utility vehicles and moveable goods for residences).
• Fixed improvements (excluding those for residences).
• Intangible goods determined by the Executive Branch.

In addition, past investments made in the fiscal year when the project was presented are considered eligible as well as those made in the six month period prior to the presentation of the request.

To determine the IRAE exemption amount, the project must first be classified according to the investment amount in Indexed Units (UI). The classification table is as follows:
 

Samll Projects	Less than 3,5 million UI
Range 1	3,5 - 14 million UI
Medium Projects                                         Range 2	14 - 70 million UI
Range 1	70 - 140 million UI
Large Projects                                            Range 2	140 - 500 million UI
Range 3	500 - 700 million UI
Very Large Projects	More than 700 millones UI

The exemption amount is determined on the tax to be paid, not on taxable income. The exempted tax shall be equivalent to a percentage of the amount invested in fixed or intangible assets included in the promotional declaration, whose maximum amount depends on the investment classification in accordance with the following table:

Projects	IRAE Exempt. (% of inverst).
Small	51% - 60%
Medium  - T1	Up to 70%
Medium  - T2	Up to 80%
Large  -   T1	Up to 90%
Large  -   T2	Up to 90%
Large  -   T3	Up to 100%
Very Large	Up to 100%

In the particular case of IRAE exemptions, the granting of benefits is subject to the score obtained in the objectives and indicators matrix developed by COMAP and based on information supplied by the investor.

In the case of medium, large or very large projects, the indicators included in the matrix are as follows:

• Employment creation
• Decentralization
• Increase in exports
• Increase in national added value
• Use of clean technologies
• Increase in research and development
• Impact of the project on the economy

Each indicator is scored with a value from zero to 10 and a final overall value is then obtained. To calculate the exemption and time period score, the values are in accordance with the project's classification.

Regarding small projects, for the IRAE exemption benefit calculation, only one indicator is reported by the investor among the following:

• Employment creation
• Increase in exports
• Use of clean technologies
• Increase in research, development and innovation

It should be noted that for medium and large projects, the score may be low in some indicators. As such, the exemption amount may be less than 50% of the investment. Under these circumstances and to determine the IRAE exemption amount, the matrix corresponding to the category of the matrix for small projects may be selected, with more demanding criteria if the employment creation indicator is selected.

Four copies of the request must be presented to the Private Sector Support Unit containing all information required by COMAP.

The investment project is sent to COMAP, which determines the ministry and organization that corresponds to the evaluation in accordance with the nature and activity of the project. After the project is evaluated by the corresponding ministry, COMAP establishes recommendations for the case.

The evaluation period from the time the project is received by COMAP varies according to classification. The periods COMAP has to establish rulings are as follows:

• Small projects: 30 work days (may be extended if more information is required).
• Medium-sized projects: 45 work days (may be extended if more information is required).
• Large projects: 60 work days (may be extended if more information is required).

In the case that the time period expires without a ruling by COMAP, it shall be understood that COMAP has recommended that the Executive Branch grant the benefits established for the project.

Once COMAP makes its ruling (or when there is a default approval), the Executive Branch has an undetermined time period to sign the resolution that grants the benefits to the company.

After the investment project receives promotional status, COMAP will monitor the project. The company must present accounting statements with an audit report for all projects and a sworn declaration with information for the analysis of compliance with indicators for benefit application.

Supply imports for export industries are included in a system that permits tariff-free importing. With this system, manufacturers can enter, tariff-free, raw materials, supplies, parts and intermediate products used to manufacture products to be later exported. Also covered under this system are products that are consumed in the production process without being incorporated in the finished exported product, as well as containers and packing material.
To operate under this system, prior authorization must be obtained and final products must be exported within a period of 18 months.

Since the early 19th century, Montevideo has been known as a port city. Its residents have had a strong vocation to port activities and have built an infrastructure to make the port a distribution center for the country and the region.
Port law number 16,246 (May 1992) and its later regulations have enabled Montevideo to become South America's first Atlantic coast termianl to operate under the Free Port system. This system is also applied to the Fray Bentos, Nueva Palmira, Colonia, Sauce and La Paloma commercial ports.

The Free Port system offers the free circulation of merchandise in ports and port terminals throughout the country without the need for authorizations or formal paperwork. During its stay in the customs port area, merchandise is exempt  from all import taxes and fees.

To receive these benefits, activities that are performed in the ports must be warehousing, repackaging, re-labeling, classification, grouping, ungrouping, consolidation, manipulation or fractioning (that does not modify the nature of the merchandise). In addition, there are no limits for the length of stay of merchandise in the port, nor for the volume of stored goods. The destination of merchandise that enters the ports may be changed freely. In no case is merchandise subject to restrictions, limitations, permits or prior reports.

In addition to the aforementioned customs benefits, goods may circulate and services may be rendered to them in the customs area free of value added tax (IVA). Likewise, merchandise stored in the free port system is not included in the IP equity tax calculation.

In addition to port areas, the law has authorized the creation of "extra-port terminals." These terminals offer increased space and more agile foreign trade operations.

The Free Port system is one of the pillars Uruguay features as a logistics platform in Mercosur and as a distribution center for in-transit merchandise.

Free Zone promotion and development aiming at fomenting investment, exports, employment and international economic integration have been declared by law to be of national interest.

Free Zones may be government-run or private. In both cases, they must be authorized and monitored by the Free Zone Area at the General Trade Bureau of the Ministry of Economy. Currently, Free Zones exist in the cities of Colonia, Nueva Palmira, Montevideo, Florida, Rivera, Río Negro, Nueva Helvecia and Libertad.

Free Zones are ideal for the following activities:

• Sales, storage, preparation, classification, fractioning, mixing, assembly and disassembly of merchandise or raw materials of international or domestic origin.
• Installation and operation of factories.
• Rendering of all types of services, both within the Free Zone as well as to other countries.
• Free Zone users may also render the following services to domestic non-free zone areas of the country: e-mail, distance education, electronic signature certificate issuance and international call centers (except in cases where the only or main destination is national territory).
• Likewise, logistics support services and IT consulting and training services may be carried out from a Free Zone to non-free zone territory (although in this case, activities are subject to the general tax system).

A significant difference between Uruguayan Free Zones and their foreign counterparts is that in Uruguay, Free Zones are not only customs enclaves, but also grant users broad national tax exemptions. Free Zone users enjoy the following tax benefits (when 75% of personnel are Uruguayan citizens):

• Exemption from all current and future national taxes, including the Economic Activities Income Tax (IRAE).
• Dividend payments by the Free Zone user to shareholders domiciled abroad are not subject to tax retentions in Uruguay.
• Entry and departure of goods and services are exempt from all taxes and any other equivalent instrument.

The aforementioned exemptions do not cover social security contributions, except for foreign personnel, who may opt to not contribute to the Uruguayan social security system.
Another attraction of the Free Zone system is the exemption from IRAE for the following income obtained by non-resident entities, even when they are not considered Free Zone users:

• Income from activities carried out on foreign merchandise in transit or stored at the Free Zones when the merchandise is not from or for national customs territory.
• Income from aforementioned merchandise when destined for national customs territory, as long as said operations do not exceed 5% of the total amount of sales in the period for in-transit or stored merchandise.

From a customs standpoint, goods entered into Free Zones from the national territory are considered exports, and the departure of goods from Free Zones abroad is completely tax free.
The introduction of goods from a Free Zone to non-free zone national territory is considered importing and is subject to corresponding tariffs. Meanwhile, merchandise from Uruguayan Free Zones that enters Mercosur member countries are subject to the common external tariff that is in effect for goods from countries outside Mercosur.
It should also be noted that the State's commercial and industrial monopolies are not in effect in Free Zones.

This system, regulated by articles 19 through 34 of the Central Bank of Uruguay's Compilation of Operations Regulations, includes the possibility of pre-financing (acquisition or production of merchandise for traditional or non-traditional export) and post-financing (placement of merchandise abroad until collection time) of export goods through an automatic system.

All exports are eligible, with the exception of certain agriculture-livestock raw materials, including raw wool, live cattle, dried and salted leather, wet-blue, etc.

To establish financing, the exporter must work through a commercial bank, requesting financing in U.S. dollars for the export from the Central Bank of Uruguay, who automatically authorizes the request. At the same time, the exporter must make a deposit in the Central Bank, which debits 30% or 10% of the financing (at the option of the exporter) from the checking account of the exporter.

The financing term cannot exceed 180, 270 or 360 days (at the option of the exporter) and interest paid by the Central Bank will be established on the total amount of financing. The interest rate is determined based on a fixed component depending on the term and the percentage debited from the exporter's account, plus a variable component determined by the six-month LIBOR rate at the close of the last day of the month prior to the financing date. 

Financing may be cancelled under one of the following situations:

• Within 30 calendar days of having received the money from the export operation. The deposit made at the Central Bank is returned (10% or 30%), plus accumulated interest on the total amount of financing.
• At the maturity of the term selected by the exporter, in the case the funds from the export have not been received. The deposit made at the Central Bank is returned (10% or 30%), plus accumulated interest on the total amount of financing.

There is a tax return system in place where the exporter can recover internal taxes that make up part of the cost of the exported product. The amount to be returned is determined by the Executive Branch and is normally a percentage of the amount exported.