Uruguay Incorporation Features

Uruguay – SAFI Sociedad Anonima Financiera de Inversiones

Incorporation and Annual Fees

Uruguay Is the Only Low Tax Offshore Jurisdiction In South America

Important Remark

Since SAFI’s will be eliminated in 2007 (and existing ones will have to transform themselves to SA’s by 2010), we recommend SA’s instead of SAFI’s.

They have the same use as SAFI’s (and in fact, for many years, most clients have required SA’s instead) because they can act BOTH onshore and offshore, and still, the taxes are the same (a SA used for offshore activity may even have less taxes… it has a set flat tax, the ICOSA, of USD 350 per year, and pays no tax on capital etc which a SAFI may have).

An offshore jurisdiction that is not generally recognised as a tax haven jurisdiction, which is now becoming increasingly popular. Ideal for investment into Latin America.

business men climbing a graph with one confident business man on topbusiness men climbing a graph with one confident business man on top
introduction

Offshore Corporations

Much in the same way as countries such as Holland, Uruguay offers offshore corporations to serve various needs – as low-tax holding companies, as a way to protect assets and income or as vehicles for sophisticated secured operations, to name a few examples which are covered below.

Uruguay’s offshore corporations, regulated by Law 11,073 of 1948, have a beneficial tax treatment and provide anonymity for their shareholders, elements that allow for an efficient protection of assets and income.

Known as “SAFI – SOCIEDAD ANONIMA FINANCIERA DE INVERSIONES”, for the Spanish acronym for “Financial Investment Corporations”, these offshore corporations:

  • Have a low incorporation / acquisition cost.
  • Require minimal integration of capital.
  • Guarantee anonymity for shareholders.
  • Have a very favourable tax treatment.
  • Are considered a very reliable vehicle internationally.
  • Can operate freely.

The Range of Permitted Activities Of the Uruguayan Offshore Corporations

SAFIs’ corporate purpose is broad. The law allows them to “invest in securities, bonds, shares, notes, debentures, treasury notes or bills, any type of property or good, including real estate”.

The investment / ownership can be done directly or indirectly, for its own purpose or on behalf of a third party.

The only restriction (and this defines their offshore nature) is that the majority (more than 50%) of the investment / ownership must be outside of Uruguay. Thus, for example, a SAFI may be utilized to own shares of various companies, but these companies cannot be Uruguayan companies (at least more than 50% must be shares of non-Uruguayan companies).

It is important to notice, however, that to benefit from the favourable tax treatment that characterizes offshore corporations, all of the investment / ownership must be in goods outside of Uruguay, and this is usually the case for using SAFIs.

An important issue is that SAFIs can freely open bank accounts, in foreign currency, in any bank within Uruguay.Finally, SAFIs may seek and obtain authorization to operate as offshore banks and may provide services within Uruguay.

Offshore Corporation´s Preferential Tax Treatment

The main advantage offered by SAFIs is the special tax treatment they are granted.Unlike regular corporations incorporated in Uruguay, SAFIs have no income tax of any kind, or any tax on any of the goods it owns. The only tax a SAFI must pay is an annual tax of 0.3% of its net worth. For all practical purposes, this tax can be reduced even more according to the SAFI’s chosen capital structure (according to the amount of debt, the tax can be reduced).

Other Advantages Offered by Uruguayan SAFI

SAFIs may be utilized to engage in any activity, offshore of Uruguay.
Operating costs are extremely low. SAFIs offer absolute anonymity for their shareholders. The SAFI’s shareholders do not have to be registered in any book or before any local institution. A SAFI’s Director or Board of Directors may be composed of third persons, unrelated to, but designated by its shareholders.This protection is further enhanced by Uruguay’s long tradition of banking, professional and fiscal secrecy, which are guaranteed by law.

A SAFI’s Type and Amount of Required Capital

A SAFI’s equity is represented in the form of bearer shares (although nominative shares can be issued if the owner wishes so).

The SAFI need not have more than one shareholder. The shareholder may be one or many persons or companies.

Since SAFIs have the form of a share-corporation, liability is limited, and thus not extensible to shareholders beyond the capital invested in the company.

SAFIs have an “authorized capital” stated in their by-laws, of which the law requires that only 5% be integrated.

SAFIs’ capital and accounting may be in any currency.

Incorporating An Offshore SAFI Corporation

Any person or company, of any nationality, may acquire or incorporate a SAFI.There are two ways to own a SAFI: by incorporating a new one, or by acquiring a “dormant” one that has already been incorporated. The latter is the most common method, since SAFIs that are pre-incorporated have by-laws with a broad spectrum of permitted activities that allow practically any kid of profit or non-profit activity.

To obtain a SAFI, the interested party simply pays for the cost of incorporation to the person or firm (such as our firm) that incorporated it, then names a Director (which our firm can also provide), and the shares -bearer shares- are all handed to the buyer. A simple process of registration of the company with the tax authorities activates the SAFI immediately.

Aspects of a SAFI Operation

A SAFI has two bodies: the Board of Directors and the Shareholder Assembly (plus an optional Auditing Committee).

The main body is the Shareholders’ Assembly. It must meet once yearly. Shareholders may empower third parties to represent them in the annual shareholder meeting. This body designates the Director(s) and their powers.

The Board of Directors may have one or more members. These may be of any nationality and country of residence / domicile. A Director is not required to be a shareholder of the SAFI.

Legal Obligations of a SAFI

A SAFI’s obligations are minimal and simple. The corporation must:

  • Have accounting books of the company.
  • Prepare annual financial statements of the company (not of its shareholders).
  • Pay the annual tax, once a year.
  • Hold an annual shareholders’ meeting to approve the financial statements.
  • The presence of the SAFI’s owners (shareholders) is not required for any of these activities.

Examples of a SAFI´s Activities

As an investment vehicle:

A SAFI may simply be used to own property, intangible goods or shares of other companies in any country. It may be used to perform contracts of any kind, including the handling of bank accounts.

As a holding company:

Multinationals may elect to use a SAFI as a holding company. The parent company may receive its dividends and financing-related payments tax-free and without exchange restrictions in a SAFI, and redirect its investments from there.

As a trade intermediary

A SAFI may be used as a trade intermediary in the following cases:

  • To increase the sale price of exported/imported goods (respecting the regulations of the involved countries), or to generate and retain a commission on the sale.
  • To avoid the disclosure of the identity of the supplier of the goods.
  • To take advantage of exchange arbitrage opportunities.In the import or export of goods or services, a SAFI may perform the invoicing, in order to accumulate income in a virtually tax-free jurisdiction, maximizing the profits of a company that may be domiciled in any country.
  • The goods or services do not enter Uruguay. The SAFI simply handles the flow of the payments of the operation and the respective documentation. The goods are shipped directly from the exporter (in Brazil, for example), to the importer (in Europe, for example).When using an offshore corporation as a trade intermediary, it can either be the importer or the exporter of goods who owns the offshore corporation. To better understand each case, a description of each follows:

  • When the owner of an offshore corporation is the EXPORTER:

    a) The goods, the documentation related to them and the payments flow between the importer and the exporter.

    b) The letter of credit is received in Uruguay, on behalf of the SAFI.

    c) The payment is transferred from the SAFI to the place of origin of the goods or to where the seller wishes to transfer it.

    d) An invoice is issued in the country of origin of the goods; another invoice is issued in Uruguay. The letter of credit’s payment reflects the amount in the SAFI’s invoice; the collection is of the amount of the exporting country’s invoice.

    e) The goods never touch Uruguay. They move directly from the exporter to the importer.

When the owner of an offshore corporation is the IMPORTER:

a) The letter of credit is opened in the importer’s country, in favour of the SAFI. The SAFI itself opens another letter of credit in favour of the country where the goods originate.

b) The payment leaves the importer’s country to Uruguay, for the amount in the invoice issued by the SAFI. The amount transferred to the seller is that which is in the selling country’s invoice.

c) The goods never touch Uruguay. They move directly from the exporter to the importer.

In sum, the SAFI is a vehicle to retain the difference between the invoices, and where the payment conditions are altered according to the parties’ needs.

The following diagrams illustrates a SAFI’s role in a trade operation:When the object is to provide financing to a country in the region:

a. As a first step, an Argentine importer opens a letter of credit in favour of a Uruguayan offshore corporation (SAFI).

b. When the SAFI receives the letter of credit, it issues a new letter o credit (in a back-to-back operation) to a Mexican exporter.

c. The Mexican exporter can sell its trade receivable to a bank in Uruguay.

d. The goods flow directly from the exporter to the importer.

When the object is to generate a transfer price in Uruguay:

I. As a first step, an Argentine importer opens a letter of credit in favour of a Uruguayan offshore corporation (SAFI), for USD 100,000.

II. The SAFI issues a new letter o credit (in a back-to-back operation) to a Mexican exporter, for USD 80,000.

III. The Mexican exporter sends the documentation to the SAFI for USD 80,000.

IV. The SAFI issues an invoice for USD 100,000, and sends that invoice plus the documentation issued by the Mexican exporter to the Argentine importer.

V. The Argentine importer pays the SAFI USD 100,000.

VI. The SAFI transfers USD 80,000 to the Mexican exporter, and retains the difference (USD 20,000) for the SAFI.

VII. The goods flow directly from the exporter to the importer.

As a provider of loans and investments

A SAFI can be used to give loans to third parties, or to channel capital increases in other companies.

As a Special Purpose Vehicle (SPV) to secure assets in a third country

A SAFI is the ideal vehicle to use as an SPV owning the assets that may result in a securities operation of any type, in any country in the region.

As an owner of patents and copyrights

An offshore company owning patents and copyrights may make it easier to justify the transfer of royalties for their use.

As an asset-protection vehicle

Offshore companies are commonly used to protect assets from eventual legal claims from commercial or other parties.

To engage in leasing agreements

An offshore company that owns and leases out capital goods avoids the payment of taxes on the leasing-related income.

To hire personnel abroad

An offshore corporation may be utilized to hire executives of a company.

To provide professional services

An offshore corporation may be the sole owner of the rights of services that a client may want to offer to third parties.

Captive Insurance and Re-Insurance activities

Uruguayan Safi’s can be engaged in captive Insurance and/or Re-Insurance activities, as permitted by law

Corporate Features

GENERAL

Type of Company: SAFI

Political Stability: Good

British Based Legal System: No

Disclosure of Beneficial Owner: No

Migration of Domicile Permitted: No

Tax on Offshore Profits: 0.3%

Non-English Language Names Allowed : Yes

CORPORATE REQUIREMENTS

Minimum Number of Shareholders / Members: One

Minimum Number of Directors / Managers: One

Bearer Shares Allowed: Yes

Corporate Directors / Managers Permitted: Yes

Company Secretary Required: Yes

Standard Authorised Capital: $50,000

LOCAL REQUIREMENTS

Registered Office/Agent: Yes

Company Secretary: No

Local Directors: No

Local Meetings: Yes

Government Register of Directors / Managers: Yes

Government Register of Shareholders / Members: No

ANNUAL REQUIREMENTS

Annual Return: Yes

Submit Accounts: Yes

RECURRING GOVERNEMENT COSTS

Minimum Annual Tax/Licence Fee: Varies

Annual Return Filing Fee: Nil

introduction

Geographical Location

Uruguay is located on the Atlantic coast South America, bordered by Brazil in the north-east and Argentina in the West, and has a total land mass of 173,620 square kilometers. Its topography is mostly flat or rolling, lacking steep mountains. The country possesses no significant natural resources other than its land.

Population

The population of Uruguay is approximately 3.3 million people of European origin, mainly from Spain and Italy. The indigenous population having been destroyed by the early European explorers. This results in a density of 16 people per sq.mt. 40% of the population lives in Montevideo, the capital, and its suburbs.

population-article_1506492c

Political Structure

Uruguay is a Republic. The Executive Branch is in the hands of the President and his Cabinet. The Legislative Branch is composed on the Senate and the House of Representatives. Justice is exercised by Judges and Courts of Justice and the Supreme Court of Justice.

Infrastructure and Economy

The temperate climate and abundant pastureland are ideal for raising livestock, but the agricultural sector lacks the requisite heavy investment and modern organisation to become more productive. The Salto Grande Dam completed jointly with Argentina on the Uruguay River in 1983 produces enough hydroelectric power to make Uruguay generally self-sufficient in its energy needs. A gas-fired power station was completed in 1991, allowing Uruguay to export surplus energy to Argentina. Two road bridges spanning the Uruguay River, and a railway across the Dam expedite travel and trade between Uruguay and Argentina.

There are direct flights to Montevideo from most South American, European countries and the U.S.A. Pluna, the national airlines has direct flights to Madrid. Telecommunication services, although very expensive, are modern and efficient.

Language

The official and spoken Language is Spanish. Many Uruguayans also speak English and other European languages.

Type of Law

Civil Law based on Spanish Civil Law.

Currency

Uruguay Peso ($) issued by the Uruguay Central Bank. US$1.00 equals approximately $8 (eight Uruguay Peso).

Exchange Control

None.

Principal Legislation

Companies Act, Law 16,060 enacted September 1989. Offshore Companies Act. Law 11,073 enacted 1947.

Company Formation

Type of Company for International Trade and Investment Offshore Companies are called SAFI (Sociedad Anonima Financiera de Inversion).

Procedure to Incorporate

Submission of Bylaws, together with forms signed by two founders to obtain Bylaws approval. Registration in the Public Registry and publication of bylaws summary in the Official Gazette and a Public Newspaper. Type of company is stated in the Bylaws.

Powers of Company

A company incorporated in Uruguay has all the powers of a natural person.

Name Restrictions

A name that is similar or identical to an existing company. A name that is known to exist elsewhere. A name that in the opinion of the Registrar is undesirable or offensive. A name that implies illegal activities or implies Government patronage.

Names Requiring Consent or a License

Bank, Buildings Society, Savings, Loans, Trust, Insurance, Assurance, Re-Insurance, Fund Management, Investment Fund, Fiduciary, Broker or their foreign language equivalents.

Classes of Shares Permitted

  • Registered shares
  • Preference shares
  • Bearer shares
  • Shares with or without voting rights.

Taxation

SAFI’s are exempted from domestic taxation.

Language of Legislation and Corporate Documents

Spanish, but foreign language translations may be obtained.

Registered Office Required

Yes, must be maintained in Uruguay. All statutory records, including registers of directors, members, charges and the minute book must be held at the Registered Office.

Time Scale to Incorporate

30 days.

Language of Name

Can be in any language which uses the Latin alphabet, but the Registrar may request a Spanish translation.

Suffixes to Denote Limited Liability

Sociedad Anonima Financiera de Inversion, SAFI

Disclosure of Beneficial Ownership to Authorities

No.

Authorized and Issued Share Capital

The maximum authorised share capital for the minimum capital duty payable on incorporation is US$30,000. The capital can be in any currency, but the capital duty payable is in Uruguay Pesos based on the exchange rate applicable on the date of Incorporation. The minimum issued capital is US$2,500 or its currency equivalent.

Bearer Shares Permitted

Yes.

Contact Us

Should you require additional information, request a quotation or clarify any related matter, please contact one of our Consultants who will be happy to assist with your enquiries.

Disclaimer

COI ´s services are subject to its Terms and Conditions.The information provided by COI is intended as informative material and should not be relied solely upon in decision-making, especially if it concerns international tax planning and financial structuring as these areas are subject to frequent changes, although its efforts to keep all information on its website regularly updated.

COIstrongly recommends that each potential user of its services seek tax and legal advice before deciding on implementing a solution employing international financial structures. COI will not be liable for any damages, costs and expenses resulting from or incurred as a result of any action taken or omitted based upon any such information provided by COI.