Investment Opportunities in Uruguay

08 Otoño

April 2010

Offshoring & Outsourcing

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1. Why invest in the service export industry in Uruguay?

1. Uruguay has several characteristics that make it attractive for companies offering services for export, utilizing either outsourced or captive operations:

Suitable natural geographic, economic, political and business environment characteristics. Uruguay is noted among Latin American countries for its economic liberalization and security.

Attractive cultural and educational foundations, including a multilingual population.

Suitable time zone between the United States and Europe (for time-sensitive services).

Advanced communications and connectivity infrastructure.

Reasonable wage costs.

Easy procedures for foreign worker immigration.

2. Uruguay treats foreign and national investments equally and has signed investment protection and promotion agreements with 26 countries, including Spain, the U.S., Finland, France and the U.K.

There are no restrictions on the repatriation of capital, profits, dividends or interest.

3. The country has vast experience in the offshoring services industry, including substantial foreign and domestic investments that have been increasing over time. An estimated 20,000 people work in the industry. Among the foreign companies that have invested in the industry are Tata Consultancy Services, Sabre Holdings, Atento and Avanza. Two undertakings (Aguada Park and WTC Free Zone) are joining the country’s main technology park, Zonamérica, as Free Zones, thus increasing capacity for operations and international services under the offshoring model.

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4. Several systems, such as the Free Zones and the Investment Promotion Law, favor

investment by reducing or eliminating the IRAE corporate income tax. In the case of contact centers, a 2008 decree provides corporate income tax exemptions under certain circumstances. In addition, the 2008 Information Protection Law puts national requirements in line with those of the European Union. In the software and related services industry (ITO, BPO and KPO)1, exemptions for corporate income tax are granted for exports. In the audiovisual industry, a government fund has been created to support national film and other audiovisual productions. In addition, donations made by companies to projects linked to the audiovisual industry may be deducted from corporate income tax.

2. Characteristics that make Uruguay a very attractive location for offshore services

Uruguay offers economic, cultural, educational and industry-specific advantages that make it a very attractive location to set up outsourcing and captive services for export.

2.1 Suitable geographic, economic, political and business environment characteristics

Uruguay has a natural environment that is free of natural disasters. It is politically stable with a representative democracy and rotation of the three main political parties. Uruguay’s per capita GDP was approximately USD 10,000 in 2008, which is third in South America just behind Chile and Argentina. The country’s GDP has grown at a rapid pace since 2004 and even in 2009 (although at a lower rate of 2.9% due to the international crisis). Growth is expected to continue in the coming years. Since 2004, macroeconomic indicators have remained satisfactory and inflation has been under control (in the single digits). Uruguay offers the most open business environment in the region (Tholons, Report on Outsourcing in Uruguay, June 2009):

1 ITO (Information Technology Outsourcing) refers to information technologies including software and consulting, BPO (Business Process Outsourcing) refers to business processes including accounting, collections, staff administration, etc. and KPO (Knowledge Process Outsourcing) refers to knowledge intensive processes (research and development, design, etc.)

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• There are no restrictions on the repatriation of capital, profits, dividends or interest.

• No permits or prior authorization are required to make foreign investments. Local companies may be 100% foreign owned.

• The foreign exchange market is open and there are no limits on foreign currency trading. Investments can be made in any currency.

• There are no restrictions on hiring foreign staff (except for companies located in Free Zones where 75% of employees must be domestic). A residency permit and proof of good health are the only requirements.

• Residency permits can be quickly obtained and anyone who has entered the country legally can obtain one and start working even during the application process.

• Citizens from most western nations do not require visas to enter the country.

Uruguay offers the safest destination for outsourcing in Latin America (Tholons, Report on Outsourcing in Uruguay, June 2009):

• Low impact of crime on business. The World Economic Forum’s 2009/2010 Global Competitiveness Report (GCR) compared Uruguay with Argentina, Brazil, Chile, Costa Rica and Mexico using three variables: organized crime, costs to companies regarding crime and violence and costs for businesses regarding terrorism. Uruguay earned the best scores in all three areas.

• Uruguay leads Latin America with respect to regulatory framework and property rights. The 2009/2010 GCR evaluated four variables and in Latin America, only Chile and Costa Rica were relatively comparable (legal system efficiency, judicial independence, intellectual property protection and property rights).

• International Research on Peace and Corruption places Uruguay among the

best countries in the region. Transparency International ranks Uruguay as the country with the lowest corruption in Latin America (2009) along with Chile, as does the Institute for Economics and Peace (2008 Global Peace Index).

• Uruguay also offers insurance against political risk to investors through an agreement between the Uruguayan government and the U.S. Overseas

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Private Investment Corporation (OPIC). The insurance covers all risks except credit risk with claims subject to international arbitration.

2.2 Attractive cultural and educational characteristics

Uruguayans are mainly descendents of European (mostly Spanish and Italian) immigrants. There are no conflicts among minority groups.

The country’s literacy rate is very high (98% in 2008).

The country ranked 23rd in the world (130 countries) in 2007 in tertiary education enrollment. As seen in the following chart, Uruguay ranked second behind Argentina in Latin America (World Economic Forum’s Global Competitiveness Report 2009/10):

Tertiary education enrollment

Argentina 20

Uruguay 23

Chile 38

Colombia 68

Brazil 73

Mexico 75

Costa Rica 78

Source: World Economic Forum’s Global Competitiveness Report 2009/2010

Managerial talent is high and there are many examples of Uruguayans who begin their careers in Uruguay and succeed internationally.

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In 2009, the first stage of a government plan to provide all public elementary school children with laptop computers and all public elementary schools with internet connectivity was successfully completed (Plan Ceibal, One Laptop per Child).

In 2010, the second stage of the plan will be implemented to supply computers to all first and second year high school students.

Uruguay and in particular Montevideo are noted for a high standard of living at a low cost:

• Quality of life (Montevideo): First in South America (Mercer, 2009)

• Cost of living (Montevideo): Fourth lowest in South America (Mercer, 2009)

2.3 Use of several languages * English

English is widely spoken by young people (41% of the active population between 19 and 24 years of age and 31% between ages 25 and 34). Estimates by the National Statistics Institute (INE) show that 26.5% of the active population in the country as a whole speaks English. In Montevideo, some

37% speak English2. Nearly 70% of those who have completed or are currently in tertiary studies know English and 40% of those who have completed secondary studies know the language.

The state-run University of the Republic, the largest university in the country, reported in its 2007 student census that 70.5% of students can comprehend written English and 50.7% can speak the language (out of a total of 81,774 students).

* Portuguese

Portuguese is spoken by many Uruguayans who live or were raised in cities that border Brazil. Two departmental capitals, Rivera and Artigas (as well as other smaller cities), are located on the border and have sister cities on the Brazilian side. As a result, residents are bilingual in Spanish and Portuguese.

The University of the Republic’s 2007 student survey shows that 28.5% can read Portuguese and 34% can comprehend the language orally.

* Other languages Several other languages are spoken by minor segments of the population.

For example, Sabre Holdings, a U.S. company located in Zonamérica (a technology park in Montevideo), maintains contacts with clients in 15 languages, including Spanish, English, Portuguese, Italian, French, German,

2 National Statistics Institute (INE). Expanded Household Survey, 2006.

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Swedish and Turkish.

In these cases, human resources available include not only residents who are descendents of immigrants who speak these languages, but also alumni of bilingual schools and Uruguayan emigrants (or their children) who reside abroad and want to return.

The 2007 university student census shows that approximately 18% and 8.5% can

comprehend written or spoken Italian and French, respectively.

2.4 Time zone between the United States and Europe

Uruguay is geographically located between the U.S. and European time zones. The time difference between Uruguay and India is between 7.5 and 8.5 hours.

This location enables complementary tasks to be performed during the normal workday from an office in Montevideo with those in other regions. For example, TCS Uruguay combines its client service center in Montevideo with another located in India, enabling round-the-clock

worldwide services.

2.5 Uruguay is now seen in reports on international outsourcing locations

A.T. Kearney, Offshore Location Attractiveness Index Since 2006, Uruguay has been among the 50 most attractive countries for services outsourcing.

Tholons, Top 50 Emerging Global Outsourcing Cities Montevideo appeared in a 2009 report among the top 50 emerging cities. Uruguay appeared as one of the top 20 emerging countries for global service offshoring.

2.6 Concentration in Montevideo Today, nearly all contact centers are located in the department of Montevideo, both in the downtown area as well as in the Zonamérica technology park, where tax exemptions under the Free Zone system are granted. Most export service companies (outsourcing or in-house) mentioned in this report are also located in Montevideo.

According to the Telecommunications Chamber of Uruguay, an estimated 20 contact center companies were in operation as of May 2008, employing nearly 4,000 people in downtown Montevideo and 2,000 in Zonamérica. In 2008, approximately 12,000 people worked in the information technology industry and about 4,000 worked in the audiovisual industry.

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2.7 Advanced communications in a stage of rapid growth In Latin America, Uruguay currently ranks the highest in terms of the use of modern communication technology. The following data supports this claim.

According to the World Economic Forum’s 2009/2010 Global Competitiveness Report, Uruguay holds the following positions:

Broadband subscribers: 1st in Latin America per capita, 2008.

Mobile telephone subscribers: 2nd in Latin America per capita, 2008.

Fixed telephony: 2nd in Latin America per capita, 2008.

Internet users: 1st in Latin America per capita, 2008.

School internet access: 2nd in Latin America per capita (2008/09 average).

Broadband subscribers Mobile telephone subscribers

Fixed telephone lines

Internet users School internet access

Uruguay 46 Argentina 31 Costa Rica 37 Uruguay 44 Chile 38

Chile 47 Uruguay 48 Uruguay 47 Colombia 46 Uruguay 43

Argentina 48 Colombia 66 Argentina 52 Brazil 47 Costa Rica 62

Mexico 50 Chile 67 Brazil 61 Costa Rica 48 Brazil 64

Brazil 54 Brazil 81 Chile 62 Chile 53 Mexico 77

Colombia 61 Mexico 89 Mexico 65 Argentina 60 Colombia 81

Costa Rica 63 Costa Rica 107 Colombia 76 Mexico 73 Argentina 89

Source: World Economic Forum’s Global Competitiveness Report 2009/2010.

2.8 Reasonable wage costs Wage costs are reasonable in Uruguay and, in general, are lower than in the region.

The following chart shows total costs for the company and what employees receive for two

cases: a call center employee working 36 hours per week and a full-time computer

programmer (48 hours per week).

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Annual wage costs (2009) expressed in USD for a call center employee in Montevideo (1) (6 hours per day) and a software programmer (8 hours per day)

Call Center Programmer (4)

Total cost for the company 5,828 111.6% 12,421 111.6%

- Company social security contributions (2)

(606) (11.6%) (1,291) (11.6%)

Annual nominal wages (includes mandatory bonus and vacation wages)

5,222 100% 11,130 100%

- Social security contributions and taxes paid by employee (3)

(955) (18.3%) (2,037) (18.3%)

Employee take home pay 4,267 81.7% 9,093 81.7%

(1) Estimated monthly wages in Uruguayan pesos: 8,000. Exchange rate: UYP 21 to the dollar (November 2009).

(2) Employer contributions on wages and mandatory bonuses: 7.5% pension, 5% health insurance, 0.0125% labor conversion fund.

(3) Employee contributions on wages and mandatory bonuses: 15% pension, 4.5% health insurance, 0.0125% labor conversion fund. In these cases due to the relatively low salary amounts, the IRPF personal income tax is not applicable. Tax deductions for staff depend on several factors.

(4) The nominal salary for programmers corresponds to the average wage on the next chart.

The following chart lists remuneration levels for various positions in the software industry according to the annual member survey of the industry’s business association.

Monthly nominal wages in the Uruguayan IT services industry (in USD)

CATEGORY MINIMUM AVERAGE MAXIMUM

Top level manager 2,000 2,738 4,000

Leader/Coordinator/Manager 1,300 2,000 2,493

Technical leader 1,128 1,590 2,130

Senior analyst 1,150 1,500 2,000

Functional analyst 900 1,235 1,500

Junior analyst 618 800 1,100

Database administrator 715 1,200 1,350

Programmer 552 795 1,026

Sales representative 500 800 1,650

Support (networks, PCs, mainframes, Unix) 485 680 800

Web designer 500 600 800

Administrative assistant 430 525 720

Administrative staff 500 605 1,075 Source: CUTI 2009 annual survey of member companies.

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Lastly, the following chart shows monthly pay levels for management positions in various

countries in Latin America, including Uruguay.

Monthly net wages (in USD)

Date CEO CFO / finance director

Sales manager

Production manager

HR manager

Brazil 21 May 2009 30,062 13,068 14,614 12,323 13,551 Costa Rica 26 May 2009 12,464 5,630 5,530 5,593 4,815 Chile 31 Dec 2008 13,801 5,842 5,871 4,661 5,191 Argentina 28 Dec 2009 12,526 4,623 5,124 4,621 3,929 Uruguay 30 Sep 2008 8,280 4,353 4,652 4,047 3,525

Management pay is lower (sometimes much lower) in Uruguay than in many Latin American

countries. According to the data presented and depending on the position, remuneration is between

300 and 400% higher in Brazil than in Uruguay, between 30 and 70% higher in Chile and between 10

and 60% higher in Argentina.

2.9 Foreign worker immigration facilitation

The procedure to apply for legal residence in Uruguay is fast and simple. National identification cards can be obtained when the process is started. Applicants must present a request to the National Migration Bureau stating the reasons for residing in the country. Upon approval, the legal residency process starts.

To start the legal residency process, applicants must present proof of means (work contract or job offer signed by a company), health card issued by the Public Health Ministry or a private medical institution, certificate of good conduct (legalized

and translated) from countries that maintain an agreement with Interpol, and the document that was used to enter the country.

Once the legal residency process is started, a provisional Uruguayan identification card may be obtained.

3. Offshore services offered in Uruguay

Offshoring refers to services performed outside the national sphere. For the country that

renders offshore services, said services are considered exports. Offshore services may be

performed by the company itself, using its resources and capabilities in another country (in-

house supply) or may be performed by third parties hired by the company (outsourced

services).

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The following table shows various situations with respect to offshoring and outsourcing and

their possible changes over time, indicated by arrows.

Country where services are performed

In the country Abroad (offshoring)

Company

that

performs

services

Source: Center on Globalization, Governance & Competitiveness, Duke University (November 2009), The Offshore Services Industry: A

New Opportunity for Latin America.

Arrow 1 indicates the change to hiring outsourcers within the country of services performed

previously by a department in the company.

Arrow 2 shows the same outsourcing but to companies located outside the country of the

company (outsourcing/offshoring).

Arrow 3 shows the transfer of tasks from headquarters to affiliated companies abroad (in-

house/offshoring).

Currently, major outsourced offshore services in Uruguay include: information technology

outsourcing (ITO), business process outsourcing (BPO), knowledge process outsourcing

(KPO) and the audiovisual industry.

3.1 Information technology outsourcing (ITO) In a manner of speaking, all software-related services can be considered outsourced to the

extent that they are performed by specialized companies outside of the company that uses

them. In Uruguay, the software industry began to develop in the 1980s and enjoyed

explosive export growth in the following decade. In 2008 and prior years, 40% of total

industry sales was exported (totaling USD 220 million in 2008). Direct employment in

In-h

ou

se

(cap

tive

)

Internal departments

in the country

3

1 2

Affiliated companies in

other countries

(in-house/offshoring)

Ou

tso

urc

ing

Third parties in the country

(outsourcing)

Third parties in other

countries

(outsourcing/offshoring)

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information technology was 11,725 people in 2008, 75% of

whom were highly qualified (engineers, analysts,

programmers, IT technicians, and other professionals).

Harvard University recently researched the Uruguayan

software industry for a case study in their MBA program.

Uruguay was chosen as the most advanced country in Latin

America with regard to information technology and software

(Tholons, June 2009, Uruguay Outsourcing: Creating a

Roadmap to Success).

Of all activities performed in Uruguay in the information technology industry, the following

two segments are noted for outsourcing and exporting:

a) Application development

These companies are mainly Uruguayan and create off the shelf and customized software (De Larrobla, Top Systems, Solur, Memory, etc.) Also, two companies produce new development tools (industry leader Artech has offices in the U.S., Mexico and Brazil and exports to more than 30 countries; and Ideasoft, which has its own business intelligence

technology platform). An estimated 40% of current software exports consist of products in this segment (including licenses).

In Uruguay, U.S. company VeriFone has one of its five global development and support centers for its software products (together with centers in India, Ireland, Israel and the United States). 46 people work at the Uruguayan center. The company has 62 branches in the world and specializes in software for credit and gift cards, as well as hardware terminals for use in stores.

b) Software consulting

Consulting includes services associated to the implementation of software performed by the same development company or by consulting firms, as well as other services.

Both domestic and international companies are included in this segment. Domestic companies include Grupo Quanam (associated with Oracle, implementing software from large companies) and Infocorp (associated with Microsoft) and Conex (consulting unit of state electric company UTE).

International companies include Tata Consultancy Services (TCS), which has in Uruguay a Global Development Center for Latin America, Spain and Portugal. IT and consulting services are provided from Montevideo to more than 30 clients, with the company operating as an offshore base for some clients in the United States and Europe. Application development and maintenance services are provided through multiple technological platforms, as are business solutions including Oracle applications.

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Other international companies in Uruguay include IBM (staff of 450 as of 2008, 120 in a new BPO undertaking starting in that year as detailed below), Microsoft, Bull, Sonda (Chile) and Indra (Spain).

As a whole, these international companies represent about 50% of the sales of the software consulting segment.

3.2 Business process outsourcing (BPO)

Companies are increasingly focusing on their core business and depend on third parties to provide integral solutions to their support processes.

Here, outsourcing services include customer services, administration and consulting. Major local companies that perform services abroad are linked to global consulting firms.

a) Customer service: contact centers, marketing and sales.

As noted in our December 2009 report on contact centers, offshore services are performed in Uruguay for foreign headquarters (in-house) as well as for third parties (outsourcers).

In the first case (in-house), Tata Consultancy Services (TCS), Sabre Holdings and RCI Global Vacation Network are noteworthy. All three operate from the Zonamérica Free Zone (TCS also has another location in Montevideo). A total of about 1,600 people were employed by these companies in 2009.

In the case of outsourcers, Spanish companies Atento and Avanza are noteworthy. In addition, several domestic companies operate in downtown Montevideo and employ about 4,000 people in total.

b) Company administration: accounting, finance, logistics, purchasing.

Several companies serve foreign clients, offering a range of services:

* IBM Uruguay provides accounting and finance business process outsourcing (BPO) to the headquarters of a European bank, with 120 professionals working on this project since 2008. The company seeks to expand this type of business in Uruguay.

* Several consulting companies provide outsourcing services to multinationals (in addition to local companies) to meet regional administration needs (accounting, financial statement preparation and

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adaptation to international standards, creation of management reports, purchasing, collections, payments, etc.) as well as management, audit, tax, operations, logistics, economic and financial consulting. These companies include: DCA, CPA Ferrere, Guyer, KPMG, PwC and Deloitte, among others.

* Several companies, including Sabre Holdings, centralize accounting functions of South American subsidiaries in Uruguay.

c) Human resource administration: selection, training and payroll.

* The aforementioned consulting firms also offer services in the area of human resource administration, which includes payroll, labor documentation, labor regulation and social security reviews, management reports, absentee and leave administration, and training and support for seasonal staff needs.

3.3 Knowledge process outsourcing (KPO) a) Innovation, design & testing.

Several companies perform design and innovation processes for foreign clients, from

Uruguay.

One of these is CCC Medical Devices, which began to

manufacture and export pacemakers in 1970. By the end of

the 1990s, the company began to offer implantable medical

device design services. Foreign companies request design

services, including Impulse Dynamics, Meta Cure, Biocontrol

Medical, American Medical Systems, Victhom and BioHeart.

These companies develop ideas and concepts for devices to treat specific medical

problems. In turn, CCC develops specific devices using the requirements of the client,

building prototypes, manufacturing the final products in small quantities and

transferring the production technology if necessary. Devices have been designed to

treat various illnesses, such as heart failure, obesity, diabetes, high blood pressure,

sleep apnea, chronic pain, etc.

CCC currently has a world market share of between 70 and 80% in its niche market

and exports its services to the United States, Europe, Israel and other countries. The

company has a staff of 140. Of these, 50 are electronics and software engineers and

to a lesser extent include mechanical and chemical engineers.

Chipmate, a recently created company, specializes

in microelectronics, designing products for an

Indian pacemaker manufacturer. The company

consists of engineers specializing in

microelectronics.

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b) Business consulting (re-engineering, benchmarking, process design, etc.), legal

consulting (intellectual property, legal support, etc.) and financial consulting (financial

market advice, risk analysis, etc.)

The following are examples of companies that perform these services in Uruguay:

Towers Watson, a consulting firm specializing

in human capital and financial and risk management

with 14,000 employees worldwide (headquartered

in the United States). The company set up in Montevideo (Zonamérica) in 2005 with

a financial research center to support its own offices throughout the world. This

center, which is one of a kind in Latin America, is part of the company’s global

research structure and currently employs around 50 people in the country.

Global Supply Chain Finance (GSCF) set up in

Zonamérica in January 2009 and provides financial

services in the area of international trade. Utilizing

financing from affiliated banks and coverage from

credit insurance companies, GSCF designs and manages programs for its corporate

clients, both in portfolio management of debtors as well as creditors. Headquartered

in Switzerland and with offices in Uruguay and Malaysia, GSCF can cover markets in

Asia, the Americas and around the globe.

Consulting firms mentioned in point 3.2 b) offer business, legal and financial

consulting services to a diverse portfolio of foreign clients.

c) Advanced vertical activities (services to specific industries): pharmaceutical companies,

health services, logistics and transportation, education and training, product

development.

The Montevideo branch of the Institut

Pasteur of France works on biotechnology

projects related to human and animal

health, among other areas. Biotechnology

services are performed for domestic and

foreign companies. Biopolis S.L. (Spain)

hired the institute in 2009 to optimize an

animal model outsourcing system (mice) for the pre-clinical study and analysis of

biotechnological molecules and/or ingredients requested by its European clients.

Since 2008, French company Danone, through its own research and development

center, has collaborated to jointly develop, at the Institut Pasteur of Montevideo, a

platform of highly predictive biotechnology models for the study of dairy food

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prototypes with beneficial effects on human health. Models developed in Uruguay

are complementary to those developed in France, the U.S., China and Holland.

The Pando Technology Pole at the School of Chemistry (University of the Republic)

works in the areas of chemistry, biotechnology and nanotechnology for the food,

pharmaceutical and environmental segments. It operates as a large R&D and

innovation center and technology service provider (high technology analysis, industry

services for environmental projects and center for competitive intelligence). Work is

performed under various methods: specific demand, shared risk/benefit projects

(consortiums) and as an incubator.

Foreign clients receiving technology transfer services include Wama Diagnóstica

(Brazil), Wiener Lab (Argentina) and Omya (Switzerland).

3.4 Audiovisual industry The audiovisual industry is emerging in Uruguay and includes several sub-sectors that can

perform outsourced services for foreign clients. The following are the most significant

activities:

a) Production of advertising audiovisual material performed by several local companies that

export their services, such as Metrópolis Films, Salado Media, Taxi Films, París Texas Casa

Productora, Milagrito Films, Mojo, Kafka Films and others. Some have affiliates in other

Latin American countries. Approximately 90% of work is done for foreign clients. In total,

there are between 40 and 50 companies, which also produce for

the domestic market.

b) Animation film producers, consisting of 15 small firms that

focus on the export market, but also have local sales. For

example, Tournier Animation has performed work for the

Discovery Kids channel and others using stop motion techniques.

Also noteworthy are Animática Producciones, Animation Campus,

MTW, La Mano Estudio and Animalada 3D.

c) Approximately 15 video game producers, including Powerful

Robot Games, which has exported to the Cartoon Network, Batoví Games, Soho, Ludo

Contenidos and others.

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d) Production of fiction and documentary films by independent producers.

e) Production of television programs, although with only

slight international market penetration. Companies include

Diezcatorce Compañía Productora, OZ Media, Guazú Media

and Contenidos TV.

f) Another group of companies in Uruguay renders services

related to audiovisual production, including preproduction

(casting), filming (equipment rental, interpretation,

technical and support staff) as well as post-production

(editing, dubbing, audio, soundtracks and jingles).

Uruguay has several advantages in the audiovisual industry:

Excellent price-quality ratio given the high production quality as evidenced by

numerous international awards garnered and the advantages the country offers in

terms of technical ability, proximity to various filming locations and rapid completion

times through the Montevideo municipal government’s Location Office.

Flexibility of companies as a result of their small size, expansion capability (with the

availability of a large number of freelancers) and the number of diverse projects

completed.

The country is attractive given its safety and architectural diversity that enables

multiple sets, proximity to locations both within Montevideo (1.5 million inhabitants)

and other parts of the country (a wide variety of locations at 50, 100 or 150 km. from

Montevideo) and an ethnic diversity that allows the recreation of many places

around the world.

Broad tax exemptions for audiovisual activities.

Examples of Hollywood productions shot in the country include Miami Vice (2006, directed

by Michael Mann and starring Colin Farrell and Jaime Foxx) and Blindness (2008, directed by

Fernando Meirelles and starring Julianne Moore, Mark Ruffalo and Danny Glover). Both

were filmed partially in Uruguay.

Several global ad campaigns were entirely produced in Uruguay (e.g., Absolut Vodka, TNT,

Mattel).

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4. Recent investments in the industry

* Since their arrival, nearly all transnational companies have continued to expand activities in Uruguay. Most began at the start of the decade with less than half of the employees they currently have.

TCS not only expanded its site at Zonamérica, but established another one in downtown Montevideo.

IBM began a significant contract for a foreign-based bank in 2008.

Towers Watson continued to grow in the 2007-2009 period by adding staff and enlarging its Zonamérica infrastructure.

Global Supply Chain Finance set up in Zonamérica in January 2009.

* In the audiovisual industry, a lab to develop, transfer and manipulate digital images was set up in Zonamérica in 2009.

* Two significant infrastructure initiatives are underway: Aguada Park and WTC Free Zone, both under the Free Zone system.

1) The Aguada Park technology and service park is located near downtown Montevideo, the Port of Montevideo and most universities and includes two state-of-the-art 19-story towers (56,000 square meters) and a total investment of USD 42 million (building and equipment). The undertaking seeks to house companies involved in software development, call centers, BPO, shared services, design and other professional for export services.

The first tower opened in March 2010 with 22,000 m2 of total available space (offices available between 10 and 1,400 m2 of space). With the second tower, available space will increase to 3,000 m2.

2) WTC Free Zone is building an office tower next to World Trade Center Montevideo and the Montevideo Shopping Center in an area full of banks, hotels and restaurants.

Flexible office space may be leased ranging from 40 m2 offices to entire floors, all with the latest telecommunications technology. The opening is scheduled for 2011.

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5. Prospects for further investments in the industry

In the framework of the global offshoring trend, Uruguay is in an unmatched position to receive investment in this industry.

The country’s geographic, political, economic and cultural characteristics and its suitable communications infrastructure and high-quality workforce ensure solid financial prospects and low risk for companies considering investments.

The nearly continual expansion of foreign companies backs this perspective and new building projects are on the horizon that will offer new office space for those who decide to build on these opportunities.

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APPENDICES

Domestic and foreign investment promotion

Foreign investors in Uruguay enjoy the same benefits as domestic investors and do not need prior authorization to set up in the country.

Law 16,906 (dated 7 January 1998) declares the promotion and protection of domestic and foreign investment of national interest. Decree 455/007 updated the regulations of this law.

Investment projects in any industry that are submitted and promoted by the Executive Branch may use between 50% and 100% the amount invested as partial payment of IRAE corporate income tax, according to project classification.

The normal IRAE tax rate is 25%.

In addition, moveable fixed assets and civil works are exempt from IP equity tax and VAT can be recovered for purchases of materials and services for the latter.

Trade agreements and investment protection

1. General trade agreements

Uruguay has been part of the World Trade Organization (WTO) since its creation in 1995 and is part of the Latin American Integration Association (ALADI, 1980) along with ten South American countries plus Cuba and Mexico.

In the framework of ALADI, the Southern Common Market (Mercosur) was formed in 1991 with Argentina, Brazil and Paraguay. Mercosur became a customs union in 1995, with the free movement of goods, the elimination of customs duties and non-tariff barriers between countries, and a common

external tariff for countries outside the bloc. Venezuela is currently in the process of joining Mercosur.

Within the framework of ALADI, Mercosur has signed trade agreements with other countries in South America: Chile (1996), Bolivia (1996), Colombia, Ecuador and Venezuela (2004) and Peru (2005), and an agreement with Israel (2007), all of which form respective Free Trade Areas, with tariff reduction schedules that should be completed no later than 2014/2019, according to the country.

Uruguay also signed a bilateral free trade agreement with Mexico (2003), which allows for the free movement of goods and services between both countries (zero tariffs) since June 2004, with certain exceptions that end in 2014.

2. Investment protection agreements Uruguay has signed investment security, protection and promotion agreements with 26 countries, including Spain, the U.S., Finland, France and the U.K., among others.

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General government export incentives 1. Refund of VAT paid on supply purchases

Refunds of VAT on purchases are made generally by discounting VAT charged on sales made within the national territory and paying the difference to the government. Since this tax is not charged on exports (of goods and services), VAT included in purchases of inputs is refunded at the request of the company. The DGI tax bureau extends credit certificates that can be used in paying other taxes.

Decree 220/998 lists the operations included in the concept of services exports. The following are some examples: foreign transmission of television material produced in Uruguay; logistical support services for foreign cinematographic and television productions; consulting services provided to foreign persons; services provided to foreign persons for the design, development and implementation of specific logistical support; services performed by international call centers as long as the main activity is for foreign clients; data processing; services performed for the design, development and implementation of digital content; market and social research services; and advertising services provided by advertising agencies for foreign clients.

2. Free Zones

There are the 10 Free Zones or customs enclaves for manufacturing activities or services to third countries where customs duties and taxes are not paid on entry and exit of goods and services and where VAT is not paid in advance. Furthermore, broad exemptions from national taxes include the IRAE corporate income tax, but not social security payments for domestic personnel.

A minimum of 75% of Uruguayan citizens on total staff is the only requirement, although this percentage may be reduced with prior approval by the Executive Branch.

Specific government incentives for various sub-sectors mentioned in this report

1 Contact centers. Decree 207/2008 dated 14 August 2008. IRAE corporate income tax exemption.

This decree incorporates contact centers in the Investment Promotion Law (Law 16,906

dated 7 January 1998) as long as the company has a minimum of 150 direct employees and

the services are consumed abroad by non-residents.

Those awarded incentives will be exempt from the Economic Activities Income Tax (IRAE) for

10 years.

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2 Contact centers. Personal Information Protection and Habeas Data Action (Law 18,331 dated 11 August 2008 and regulatory decree 414/09 dated 31 August 2009).

According to this regulation, all physical and legal persons have the right to have their personal information protected. This covers collection, recording and treatment under any method in the public and private spheres. The database manager must obtain and safeguard proof of consent of the owner of the information and must inform the owner of the use of said information, as well as use techniques to ensure its integrity, confidentiality and availability.

The decree establishes operations of the Personal Information Control Regulatory Unit.

This law adapts current regulations to those of the European Union, thus enabling European clients to contact companies located in Uruguay.

3 Software industry. IRAE corporate income tax exemption for software and related services exports.

Title 4 of Amended Text 1996 covers income exempt from the IRAE corporate income tax. It includes income obtained from logistical support production activities and related services (determined by the Executive Branch), as long as they are consumed entirely abroad.

Decree 150/2007 dated 26 April 2007 (IRAE regulations, article 163 bis) includes the services linked to hosting, call center, business process outsourcing, sales and other services. In all cases they must have logistical support as the objective, even when said logistical support has not been carried out by the services provider.

With regard to logistical support, said article includes development, implementation, update, version correction, personalization (GAPs), testing, quality control, logistical support maintenance, training and consulting.

4 Cinematographic and audiovisual industry. Law 17,930 of December 2005 (Patronage) and law 18,284 of May 2008 (Film Law)

Law 17,930 created a system of incentives for artistic and cultural activities (sponsorship),

providing tax incentives (income and capital taxes) for those who make donations towards

projects of this type and to their promoters, including film and audiovisual production.

The Film Law created the Film and Audiovisual Institute of Uruguay in the framework of the

Ministry of Education and Culture with the objectives of promoting, providing incentives and

stimulating the creation, production, co-production, distribution and exhibition of

Uruguayan cinematographic and audiovisual works in the country and abroad. In addition,

the Cinematographic and Audiovisual Fund was created to support the development and

production of projects of this type, and empowers the Executive Branch to exempt customs

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duties and import and export taxes and to grant temporary admission for movies and

audiovisual material of national production or those co-produced in other countries.

Institutions

* One industry institution of note is the Uruguayan Chamber of Information Technology (CUTI). Headquartered in Montevideo and with more than 20 years of existence, CUTI’s objective is to “drive the sustainable development of the information and communication technology industry, expanding markets, facilitating growth and globalization of its members and emphasizing the development of people and social responsibility.”

CUTI has approximately 300 members (December 2009) and provides statistical information on the industry collected in annual company surveys, business opportunities, support for international positioning, training and promotion of member products.

Website: www.cuti.org.uy

* The Telecommunications Chamber of Uruguay includes many industry companies and has formed commissions according to area of activity. One of these is for call centers, where the largest companies of the industry participate.

Website: www.telecomunicaciones.org.uy

* The Audiovisual Chamber of Uruguay includes major companies in the industry and works in three central areas: institutional relations, professional formation and market expansion.

Website: www.audiovisual.com.uy

* The Uruguay Film Commission & Promotion Office (UFC&PO) works with the Audiovisual Chamber of Uruguay, the Film and Audiovisual Institute of Uruguay and the Montevideo Locations Office. It provides a collective platform to attract audiovisual activities to the country, connecting Uruguayan companies and professionals, while offering a structure to jointly promote Uruguayan

audiovisual projects.

Website: www.uruguayfilmcomission.com.uy

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Uruguay in a nutshell (2009)3

Location South America, bordering Argentina and Brazil

Capital Montevideo

Surface area 176,215 km2. 95% of the territory has soil suitable for agriculture and livestock activities.

Population 3.3 million

Population growth 0.3% (annual)

GDP per capita USD 9,458

GDP per capita (PPP) USD 13,019

Currency Uruguayan peso ($)

Literacy rate 98%

Life expectancy at birth 76 years

Form of government Democratic republic with presidential system

Political divisions 19 departments

Time zone GMT - 03:00

Official language: Spanish

Location South America, bordering Argentina and Brazil

Main Economic Indicators 2005-2009

2005 2006 2007 2008 2009

Annual GDP growth rate 7.5% 4.3% 7.5% 8.5% 2.9%

GDP (PPP), USD millions 32,048 34,602 38,235 42,543 43,551

GDP, USD millions (current) 17,367 20,035 24,262 32,207 31,606

Exports (USD millions), goods and services 5,085 5,787 6,933 9,292 8,551

Imports (USD millions), goods and services 4,693 5,877 6,775 10,218 7,755

Trade Balance (USD millions) 393 -90 158 -926 796

Trade Balance (% of GDP) 2.3% -0.4% 0.7% -2.9% 2.5%

Current Account Surplus / Deficit (USD millions) 42 -392 -220 -1,503 259

Current Account Surplus / Deficit (% of GDP) 0.2% -2.0% -0.9% -4.7% -0,8%

Overall fiscal balance (% of GDP) -0.4% -0.5% 0.0% -1.4% -2.2%

Gross capital formation (% of GDP at current prices) 16.5% 18.6% 18.6% 20.2% 19.1%

Gross national savings (% of GDP) 17.6% 16.9% 19.0% 17.9% 17.1%

Foreign direct investment (USD millions) 847 1,493 1,329 1,840 1,139

Foreign direct investment (% of GDP) 4.8% 7.5% 5.4% 5.7% 3.6%

Exchange rate peso / USD 24.5 24.1 23.5 20.9 22.5

Reserve assets (USD millions) 3,071 3,097 4,121 6,329 8,373

Unemployment rate (% of EAP) 12.2% 11.4% 9.7% 7.9% 7.7%

Annual inflation rate 4.9% 6.4% 8.5% 9.2% 7.5%

Net foreign debt (USD millions) 8,938 9,157 9,662 8,254 11,123

3 GDP (PPP) data was taken from the IMF; data on GDP (current), foreign trade, FDI, exchange rate, international reserves and foreign debt was provided by the Central Bank of Uruguay (BCU); population growth, literacy, unemployment and inflation data comes from the National Statistics Institute (INE).

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Investor Services

About Us Uruguay XXI is the country’s investment and export promotion agency. Among other functions, Uruguay XXI provides no cost support to foreign investors, both those who are evaluating where to make investments as well as those currently operating in Uruguay.

Our Investor Services Uruguay XXI is the first point of contact for foreign investors. Services we provide include:

Macroeconomic and industry information. Uruguay XXI regularly prepares reports on Uruguay and the various sectors of the economy.

Tailored information. We prepare customized information to answer specific questions, such as macroeconomic data, labor market information, tax and legal aspects, incentive programs for investments, location and costs.

Contact with key players. We provide contacts with government agencies, industry players, financial institutions, R&D centers and potential partners, among others.

Promotion. We promote investment opportunities at strategic events, business missions and round tables.

Facilitation of foreign investor visits, including organization of meetings with public authorities, suppliers, potential partners and business chambers.

Publication of investment opportunities. On our website, we periodically publish information on investment projects by public entities and private companies.