11 December 2010

Starting a business in Uruguay

Starting a business in Uruguay is growing in popularity among large international companies and individuals. The purpose of this article is to explain why Uruguay is becoming a popular business destination and give examples of the types of businesses in which English speaking expats are becoming involved. It also includes tips and a list of helpful resources for starting a business in Uruguay.

If you would have asked me two years ago if I thought starting a small business in Uruguay made sense, I would have said no. Until recently the attraction to Uruguay for English speaking expats has primarily been the country’s quality of life and real estate investment opportunities, not employment or direct business activities.

But a lot has changed in the world over the last few years. The region is experiencing solid economic growth, large amounts of capital are being invested, and people with ambition and talent are taking notice. Today, I would say starting a business in Uruguay would be a challenging, but potentially very rewarding endeavor.

Reasons to consider starting a business in Uruguay


Uruguay has a growing economy

  • Uruguay’s economy has been growing at an average annual rate of 6% for the last six-and-a-half years. (There was no recession in Uruguay during the 2008 and 2009 financial crisis.)
  • South America, as a region, is anticipating 10 years of economic growth based on demographics and current economic trajectories. 
  • At this time (December 2010), Uruguay has the highest percentage increase of Foreign Direct Investment of any country in Latin America.  
  • Uruguay’s exports are rapidly expanding in value and are on their way to hitting an all time record.
Government stability and predictability 
  • Uruguay is rated as having the highest level of political and social stability in Latin America. 
  • Uruguay and Chile are tied for having the most government transparency in Latin America. 
  • More so than any other country in the region, the rules governing business are serious and predictable, and the court system is objective and fair. 
Uruguay has good commercial infrastructure
  • Uruguay has the most reliable electrical system in Latin America.
  • Uruguay is said to have the best road system in Latin America. 
  • The country has a completely digital telecommunications network. 
  • The Port of Montevideo is the most modern in the region.
Uruguay has high “quality of life” standards
  • The Legatum Institute, which rates countries level of prosperity based on a combination of economic and quality of life factors, ranks Uruguay as having the highest level of prosperity in Latin America.
  • Mercer Human Resource Consulting rates Montevideo as the major South American city with the highest quality of living in South America.
  • Uruguay’s Punta del Este is South America’s most popular beach resort.
Uruguay is the seat of Mercosur (Southern Common Market)
  • Uruguay is the seat of Mercosur, a common market set up to promote free trade and facilitate the free exchange of goods, people, and money between Brazil, Argentina, Paraguay, and Uruguay. While Uruguay, itself, has a small population, it is a good strategic location for setting up a regional base.
  • The original four Mercosur countries have an annual GDP equal to 2 trillion US dollars.
Uruguay offers tax incentives to attract targeted businesses
  • Uruguay’s executive branch extends a variety of tax exemptions to specific industries to encourage targeted foreign direct investment. The purpose of these incentives is to encourage the production of good paying local jobs. Uruguay ranks in the top 20 countries for creating the most domestic jobs for each dollar of foreign direct investment. 
  • Uruguay has a number of free trade zones located throughout the country including a free trade port.
Examples of the types of businesses that expats have started in Uruguay

Offering a personal service in Uruguayan

Some English speaking immigrants make a living in Uruguay by providing a personal service. As an example, I know one who is a Montevideo attorney. I know another who is a Montevideo tour guide, and others who are property managers.

Food and retail businesses

Some English speakers coming to Uruguay have joined the local economy by operating a restaurant or retail shop.

Construction and remodeling
Some English speaking immigrants to Uruguay have found a business niche in residential construction and refurbishing. (Building and refurbishing can be a complementary way to add value to your own real estate investments.)

One English speaking immigrant to Uruguay has launched a regional residential development company, which has introduced thermal concrete construction blocks to build more energy efficient and affordable housing for workers.

Agriculture
Uruguay has many established agricultural industries. There are business opportunities in agricultural production, agriculture support businesses, processing agricultural goods, storage, and shipping. A couple of crops that seem to be of particular interest to newcomers are wine grapes and olives.

IT companies

Several expats and international companies have started IT businesses in Uruguay, or have formed partnerships with Uruguayan IT companies. It is my understanding that the Uruguay executive branch is providing an income tax exemption for most types of IT companies, making Uruguay a great place for a startup. 

Tips for starting a business in Uruguay
  • Do not make assumptions about the market or any aspect of business operations in Uruguay based on your experience from another country and culture. Starting a business anywhere can be a challenging undertaking. Starting a business in a new country can be especially challenging because the market, government requirements, labor attitudes, and the way business is conducted will be different.
  • If you will be using hired labor or working with the Uruguayan public, wait to become culturally acclimated or hire a trustworthy partner who is bi-cultural before forming a business plan.
  • If you don’t speak Spanish, now is a good time to start learning. 
  • Do research to determine if there is a genuine and sufficient demand for the product or service you are considering offering in Uruguay.
  • Prepare a complete business plan considering every aspect of your business operation to determine if your business idea is profitable in Uruguay.
  • Start small and let your business acclimate before expanding it.

Note: It is possible to achieve business success by taking a good idea from another place and bringing it to Uruguay if - a) you also have an intimate understanding of how business is done in Uruguay, and - b) the business idea is customized to fit the realities of Uruguay.





Useful websites for starting a business in Uruguay

Uruguay XXI
Uruguay XXI is Uruguay’s investment and export promotion agency, which provides free support to foreign investors considering starting a business in Uruguay. It provides custom economic reports and provides information about the tax and legal aspects of doing business in Uruguay. It also has the ability to arrange meetings with government authorities, industrial players, sources of capital, and potential partners.

The agency's website has information about Uruguay business structures, import and export procedures, trade agreements, Uruguay’s tax regime, and various incentives offered to locate a business in Uruguay.

You can also download a free 104 page PDF Uruguay “Business Guide” from the Uruguay XXI home page. The agency’s report is loaded with helpful information for anyone considering investing or starting a business in Uruguay. Available for download at: http://www.uruguayxxi.gub.uy/innovaportal/v/106/3/innova.front/home

Uruguay XXI also has a free 11 page PDF guide titled, “Useful information for export promotion and foreign investment attraction in Uruguay” available for download at: http://www.uruguayxxi.gub.uy/innovaportal/v/321/2/innova.front/benefits

This link goes to a page on the Uruguay XXI website with Industry Specific tax benefits

Free Trade Zones in Uruguay 
This website, produced by Uruguay’s Ministry of Economy and Finance, provides information about Uruguay’s free trade zones, including specific tax benefits, procedures, and free zone locations in Uruguay.

The Free Trade Zone website has a free PDF report with the types of businesses located in various free trade zones in Uruguay. (The report is not up-to-date, but is helpful for general reference.) Available for download at: http://www.zfrancas.gub.uy/english/statistics/PreliminaryReport2ndCensus.pdf

Free downloadable PDF reports useful for Starting a business in Uruguay 


Doing Business in Uruguay – 48 page PDF
Prepared by PricewaterhouseCoopers

This report includes sections about Uruguay's respect for judicial security, high standard of human capital, frame for investments, tax regime, investment incentives, accounting and auditing regulations. Available for download at: http://uruguay.polpred.com/upload/pdf/pwc-doingbusiness-uy.pdf?PHPSESSID=a1eal5gl37htr8h1i46l718qn7

Doing Business in Uruguay – 54 page PDF
Prepared by PKF Accountants and Business Advisors

Includes a country overview, business structures, accounting and auditing, protection of intellectual and industrial property, social security regulations, as well as hints for the business investor. Available for download at:
http://pkf.com/site/webdav/site/pkf/users/monica_sawh/public/Doing%20business%20in%20Uruguay.pdf

Doing Business in Uruguay, A Country Commercial Guide for US Companies – 56 page PDF
Prepared by the US Commercial Service

This publication includes chapters on selling US products and services in Uruguay, provides information about leading sectors for US exports, trade regulations and standards, trade and project financing. Available for download at: http://montevideo.usembassy.gov/usaweb/paginas/Pdf/FY06_Country_Commercial_Guide.pdf

Doing Business in Uruguay Guide - 20 page PDF
Prepared by UHY Cr. Hugo Gubba & Asociados, Public Accountants, Auditors, tax assessors

This short guide touches upon the main points of foreign investment, setting up a business, labor, taxation, and accounting. Available for download at:
http://www.uhy.com/media/PDFs/doing_business_guides/Doing%20Business%20in%20Uruguay.pdf

Doing Business in Uruguay - 34 page PDF
Prepared by Baker Tilley International

Includes chapters on business entities, trusts, taxation, financing and investment, employment regulations and social security, and taxes. Available for download at: http://www.bakertillyinternational.com/media/36906/doing_business_in_uruguay-30apr09.pdf

Doing Business 2011 Uruguay, Making a difference for Entrepreneurs – 78 page PDF
A co-publication of the World Bank and the International Finance Corporation

This publication provides a comparative ranking of Uruguay’s ease of doing business in regard to government regulation. Uruguay’s government, while fair, has a lot of red tape. The good news is the trend is toward government requirements becoming easier and not more cumbersome.

The sections of this publication include the overall ease of doing business in Uruguay, starting a business in Uruguay, dealing with construction permits, registering property, getting credit, trading across borders, enforcing contracts, and closing a business. Available for download at:
http://www.doingbusiness.org/~/media/fpdkm/doing%20business/documents/profiles/country/db11/ury.pdf

6 comments:

Christina said...

Great article--very helpful. I would add that if someone is thinking of exporting a product, they should consider import taxes of their destination country. For example, Uruguay and the United States don't have an open-trade agreement and duty can be as high as 16%! Likewise, think about how you will ship out of Uruguay. Shipping is by far the most expensive part of our small company, Textura. If you aren't exporting at a scale that could fill a container (or part of one), it can get pricey.

Thanks!

Paradise Uruguay said...

Christina, That is helpful first hand information. Thank you.

mark teuten said...

A very interesting and well researched article! As one of the people who may be alluded to above, I have to say that you have found an awful lot of information from lots of different sources.
For small businesses they should be aware that setting up a company and then the monthly fixed costs of keeping it going, even with no or very little activity are comparatively high - social security taxes have to be paid even if the company does not trade and are likely to be around U$S150 per month. General bureaucracy can also be a pain, but on the plus side the amount of investment needed to get a business going in Uruguay is generally negligble in comparison to other countries.

Paradise Uruguay said...

Thank you Mark Teuten. That is good to know. Mr. Teuten is an expat from England who has a law firm in Montevideo. Mr. Teuten’s firm is a leader in intellectual property issues. His firm also provides services with residency proceedings, business formation, and real estate. (Mr Teuten and his assistant-counsel, Maria Victoria, handled my residency proceedings.) Mark Teuten has also provided us with updates on legislative and legal issues impacting foreign residents in Uruguay.   Teuten Lawyers

Anonymous said...

Say, you got a good article. Much thanks again. Wonderful.

Tiago Tex Pine said...

I would like to know more about labor laws and taxes for software development companies. Do you know if I can find information that specific in English? Or Portuguese?