Introduction
Uruguay has developed a robust democratic system, in which the three main parties have alternated in power, always with a firm commitment to maintaining a business-friendly environment and transparency in the rules of the game. Moreover, it currently stands out as one of the countries with the greatest equality and the highest per capita income in Latin America and the Caribbean.
In 2019, the Uruguayan economy experienced 0.2% growth, marking 17 consecutive years of sustainable growth, the longest streak of expansion in its history. Despite moderate growth, the country has proven resilient in the face of regional turbulence thanks to its macroeconomic stability, sound economic policies, export diversification, reduced vulnerability in its banking sector and solid reserves, all of which have allowed it to maintain stability in a more challenging global and regional context.
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Reasons why it is convenient to invest in Uruguay
– Uruguay is the only Mercosur member to have achieved Investor Grade, which demonstrates the confidence generated by its institutional framework and the management of its economic policy.
– It presents attractive regimes for investors, as established by the Investment Promotion and Protection Law No. 16,906, guaranteeing that foreign investment is treated in the same way as domestic investment, without restrictions on the repatriation of capital or on the transfer of profits, dividends and interest.
– A favorable investment environment, together with good economic performance, is the reason for the significant Foreign Direct Investment (FDI) inflows received in the last decade. Between 2008 and 2018, Uruguay positioned itself as one of the main FDI destinations in the region, accounting for 3.5% of its GDP.
– Uruguay guarantees total freedom in the purchase and sale of foreign currency without the need for prior authorization for the movement of foreign currency, as well as the absence of restrictions on the flow of capital and the transfer of profits, dividends and interest.
– The country also offers special regimes for the installation of companies in Industrial Parks and Free Trade Zones, offering various benefits to investors. Manufacturing constitutes 11.7% of the economy, and the industrial sector has grown at an average rate of 1.6% between 2013 and 2018.
– With access to an expanded market of more than 400 million people, Uruguay enjoys free access to the Argentine and Brazilian markets for automotive products, with regimes of origin that allow tariff-free exports to both countries. Under one of these agreements, new models need only 25% minimum regional content in the first year, rising to 40% after the third year. Despite the quantitative limitations, there is still considerable scope for companies interested in exporting to Argentina and Brazil.
– Special agreements at the regional level have proven to be successful, setting positive precedents for the continued growth of the sector. In 2003, Uruguay signed a Free Trade Agreement with Mexico, which allows Uruguayan automotive products to be imported into that country without the imposition of tariffs, which represents a significant benefit for vehicle assemblers through the exemption of the Global Tariff Rate for SKD and CKD kits for vehicle assembly.
– Uruguay has vast experience in vehicle assembly and auto parts production. Several vehicle assembly plants and auto parts manufacturers, including both domestic and foreign investments, have been established in the country.
– With more than 30 companies in operation, many of them with international quality certifications, the Uruguayan automotive sector is distinguished by the presence of notable companies such as PSA, Joyson Safety Systems, Yazaki, Affinia, Bader, Faurecia, Fischer, and JBS. These companies not only supply the regional market, but also the global market, operating from their industrial facilities in Uruguay.
Uruguayan exports in the automotive sector
In 2019, Uruguay’s automotive sector achieved exports worth US$297 million, with around 20 companies contributing to this export segment. Of this total, vehicle exports accounted for US$116 million, with more than 8,300 vehicles shipped abroad.
Brazil emerged as the main destination for these exports, while Argentina played a more limited role, receiving 100 units of Peugeot and 100 units of Citroën.
The main focus of exports was on auto parts, which accounted for 61% of total exports, totaling US$182 million. In this area, Argentina and Brazil were also the main destination markets, accounting for 87.8% of total auto parts sales.
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Eighty-eight percent of Uruguay’s auto parts exports go to South American countries, a phenomenon attributable to the economies of scale achieved by companies established in the country.
Brazil is the largest market for these products, accounting for 44% of exports, followed closely by Argentina, which receives 43%. Among the most important markets outside the region are Macedonia, Germany and Mexico, where the main exports are mold-cut leather for upholstery.
Export refunds
A 10% reimbursement on the FOB value of vehicle and auto parts exports is offered through credit certificates issued by the Government.
These certificates can be used to cover customs duties (allowing a reduction of up to 13 points in the TGA for vehicle imports), to pay taxes collected by the DGI, or to satisfy commitments with the BPS, and there is the possibility of transferring this right to third parties. This reimbursement is not cumulative with the “Tax refund” for merchandise exports.
Benefits for vehicle manufacturers
The automotive assembly plants that carry out their assembly processes within the country enjoy an exemption in the payment of the Global Tariff Rate, both for imports from outside and inside the zone, applicable to the acquisition of CKD Kits (set of completely disassembled parts) and SKD Kits (set of partially disassembled parts) that are destined to the manufacture of vehicles.
Mercosur trade agreements
Under current legislation in the member countries of Mercosur, tariffs on automobiles and light vehicles are 23% in Uruguay and 35% in Argentina and Brazil.
In Uruguay, trucks are subject to a 23% tariff, diesel buses at 6% and gasoline buses at 23%. Auto parts face tariffs ranging from 14% to 18%, while road and general agricultural machinery is in the 0% to 2% range. However, as previously mentioned, assemblers enjoy certain advantages.
With regard to auto parts (with the exception of assemblies and subassemblies that conform to the ICR), Uruguay has the capacity to export to Argentina and Brazil without quantitative restrictions, provided that they adhere to the General Rule of Origin established by Mercosur.
Mercosur – Mexico trade agreement
In 2002, a special agreement was established with Mexico focused on the automotive sector, facilitating the export of auto parts and vehicles to Mexico without the imposition of tariffs. This agreement offers highly beneficial conditions of origin for Uruguay, especially for newly created products.
Mercosur – European Union trade agreement
In June 2019, Mercosur and the European Union unveiled a “preliminary agreement” on the Strategic Partnership Agreement between the two blocs. Regarding vehicles, this agreement establishes that exports from Mercosur to the European Union will be completely exempt from tariffs for a period of up to 10 years after the implementation of the agreement, varying according to the type of vehicle.
For auto parts, full tariff exemption will be achieved over a period of up to 7 years, depending on the specific product.
As regards exports from the European Union to Mercosur, vehicles will enjoy full liberalization over a 15-year period, including a 7-year grace period without tariff reduction, during which an annual quota of 50,000 cars is established for the EU, with a sub-quota of 1,750 vehicles per year destined for Uruguay.
The applied tariff within this quota is 50% of the Mercosur base tariff. On the other hand, the total elimination of tariffs for auto parts will take place after 10 or 15 years, depending on the type of product.
Investments in the Sector
Foreign Direct Investment (FDI) in Uruguay has experienced remarkable growth in recent years, supported by an attractive investment environment and a solid performance of the economy.
Specifically in the automotive sector, even before the creation of Mercosur, leading international companies such as General Motors, Ford, Fiat, among others, already operated vehicle assembly plants in the country. Later on, Asian firms also began to establish vehicle production operations in Uruguay, expanding their experience in internationalization from this geographical location.
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This scenario has led to an increase in foreign investment in the auto parts subsector, benefiting from Uruguay’s competitive advantages for exports.
The country already had a history of exporting specialized components, such as leather seats for luxury vehicles, metal structures for seats, electrical wiring systems, brake components, among others, to regional and global automotive suppliers.
