Castellán

In an attempt to keep the economy active, on 5/26/2020 the Government approved Decree 151 granting important tax benefits for companies that invest in fixed assets and thus can self-finance through the exemption of IRAE.

As the economist Keynes said many years ago: "We are caught in a vicious circle: we do nothing because we have no money, but it is precisely because we do nothing that we have no money".

Decree 151/020 regulatory of the Investment Promotion Law (COMAP Projects).

Through this decree, important tax benefits are made available to companies with the aim of promoting investment in Uruguay, both by local entrepreneurs and foreign investors who decide to settle in the country. The benefits include investments made between 4/1/2020 and 3/31/2021, both for projects already submitted and for new projects that enter COMAP before 3/31/2021.

It is a unique opportunity in the history of the Investment Promotion Law for companies to obtain a significant recovery of their investments (up to 100%), provided they generate sufficient IRAE within the project period. These investments can also be financed with long-term bank credit at very convenient rates with subsidized lines at BROU or private banking and guaranteed by the SIGA-emergency. It is an excellent opportunity for companies to carry out their investments at very low costs or even at zero cost.

Micro and small companies have access to additional benefits, both in the percentage of investment recovery and in the available time for their use.

How much IRAE benefit does Decree 151 add?

Investments made between 4/1/2020 and 3/31/2021 will be computed 1.5 times for the calculation of the IRAE exemption. Likewise, companies with a balance sheet closing between 4/1/2020 and 3/31/2021 may exempt up to 90% of the IRAE (60% is the maximum of Decree 2/012 and 143/018). For new projects submitted between 4/1/2020 and 3/31/2021, the percentage obtained from the indicator matrix will be increased by 20% (% obtained in the matrix * 1.2), provided that at least 75% of the investments are executed before 12/31/2021.

Before seeing some examples of the potential performance of this decree, let's review the basic criteria of the COMAP Projects regime.

How is the COMAP regime classified?

To access the tax benefits of the Investment Promotion Law, it is a requirement to be a taxpayer of IRAE or Cooperative. To qualify, it is necessary to commit to indicators and execute eligible investments within a certain period. The following table details the indicators and their relative weight within the matrix. Each of them has requirements and specifications, which will need to be analyzed together with the entrepreneur in order to maximize the benefit for IRAE and other taxes, minimizing commitments.

Clean Technologies Indicator

One of the indicators that stands out is the Clean Technologies indicator, which includes investments that contribute to more environmentally sustainable production, either through resource efficiency such as raw materials, inputs, water and energy, the substitution of fossil fuels by renewables, the reduction in the generation of waste, effluents and polluting emissions including greenhouse gases, or that allow adjusting production systems in response to present or expected climatic situations. For the application of the Clean Technologies component, the general criterion is the promotion of the most efficient and/or least polluting technologies. In the case of the energy and transportation sector, those that reduce fossil fuel consumption stand out.

Climate Change Mitigation. Livestock, Agriculture and Fisheries Sector Indicator

Within this framework, the Agriculture, Livestock, and Fisheries sectors receive special support with the aim of promoting the development of more sustainable businesses that contribute to climate change mitigation. Investments related to water management (reservoirs, conduits, irrigation use, and animal water supply), installation of new shelter and shade forests, new windbreaks, permanent subdivisions to improve natural field management (fences), investments aimed at better management of natural pastures, the protection of biodiversity, the reduction of degradation and restoration, as well as the adaptation of grazing management to soil suitability and type of cover. Other investments that receive additional points are those involving official certifications or international recognition processes such as: Good Agricultural Practices - GLOBALG.A.P, Sustainable and Sustainable Forestry Production, Organic Meat Production, Meat Certification according to INAC - PCNCU protocol, Food Safety (including GMP and HACCP among others), Responsible Soy Production and its Chain of Custody, RTRS. Likewise, the training of rural workers and technicians participating in training programs endorsed by the National Employment Directorate of the MTSS is rewarded. In all cases, specific criteria apply that must be evaluated on a case-by-case basis.

What type of investments are eligible or accepted?

Eligible investments are those in physical assets directly related to the company's activity.

- Movable assets: machinery, equipment, facilities, photovoltaic plants, utility cargo vehicles, Clean Technologies, R&D&i, etc.
- Construction of real estate or fixed improvements: warehouses, industrial plants, offices, silos, parking lots, etc. (does not apply to the purchase of the property)
- Seedlings and implementation costs (year 0) of trees and perennial fruit shrubs, The implementation cost (in Year 0) includes trees for wind protection (windbreaks).
- Electric passenger vehicles: only until 4/30/2021, with CIF value not exceeding U$S 70,000.

What amount of benefit is possible to obtain?

To visualize the impact that Decree 151 has on obtaining funds through IRAE, let's see some examples:

- Agribusiness Sector: Company to be established in Colonia outside the capital, invests U$S 300,000 in water reservoirs, an irrigation system and water conduction for agricultural use and water supply system for animals, agricultural machinery, and a truck. Of the investments, U$S 80,000 are categorized as adaptation to climate change and energy efficiency.
In the calculation of the benefits to exempt the IRAE, we can distinguish two cases:
- Micro/small company*: potential recovery of 91% of the investment (U$S 275,400) and 5 years to deduct from the IRAE (without Decree 151 yields 51%)
- Medium company: potential recovery of 56% of the investment (U$S 167,400) and 4 years to deduct it from the IRAE. (without Decree 151 yields 30%)
- Commerce and Services Sector: Small service company invests U$S 100,000 to expand existing facilities, includes U$S 15,000 in photovoltaic panels and other investments in Clean Technologies. Commits to training 50% of the staff.
- Micro/small company: potential recovery of 72% of the investment (U$S 72,000) and 4 years to deduct from the IRAE. (without Decree 151 yields 40%).

The benefits apply to all sectors of activity, in each case it will be necessary to analyze the type of investments and possible indicators to commit.

Undoubtedly, it is an excellent self-financing opportunity for those companies with IRAE to pay and investment needs within a time frame of 1 to 5 years. Advancing investments can be a good deal, even in this time of crisis and uncertainty. To finance them, it is possible to access subsidized financing from BROU or private banks plus access to SIGA-emergency guarantees, thus making investments under very favorable conditions.

As always, the key to success is to carry out adequate planning and analysis of the investment project.

C.P.A. Patricia Lombardi - C.P.A. Lorena Castellán

Montevideo, September 4, 2020