| Criteria | Score
(4-0) | Rationale |
| Laws on VC/PE fund formation and operation | 2 | The trust legal form (fideicomiso) exists but it is less than ideal and not designed specifically for PV/VE funds. Offshore vehicles can be set up, however, with participation by Uruguayan investors. (January 2007 and November 2005 interviews). |
| Tax treatment of VC/PE funds & investments | 3 | The corporate tax rate is relatively low at 30%. But individuals and locally constituted firms and financial institutions pay a net worth tax (impuesto al patrimonio) on assets held in country; it stands at 2.8% for financial institutions and 1.5-2% for companies. Stocks issued on the exchange are not counted against the issuer's net worth. Capital gains are taxed as part of normal corporate income and are inflation-adjusted. Dividends to local shareholders are tax-exempt, as are those paid by one company to another. Dividends remitted abroad are taxed at 30%. Profits credited or paid abroad by companies subject to Uruguayan income tax are not taxed if the profits are taxed in the recipient’s country and if no credit is available for payment of Uruguayan taxes. (EIU, Country Commerce 2006). |
| Protection of minority shareholder rights | 2 | Minority shareholders are generally weak in law and practice, even among listed firms. Protections built into shareholder agreements are a common and generally effective response. (EIU, Country Commerce 2006; January 2007 and November 2005 interviews). |
| Restrictions on institutional investors (pension funds, insurance firms) investing in VC/PE | 2 | Institutional investors may only invest in rated instruments, though the availability of capital on the part of such investors has increased. |
| Protection of intellectual property rights | 2 | EIU Risk Briefing score. Intellectual-property piracy is a serious and chronic problem in Uruguay. According to the most recent annual study prepared by IDG and the Business Software Alliance, a private industry group represented locally by Software Legal Uruguay, the country’s software-piracy rate was an estimated 71% in 2004, above Latin America’s 66% average rate. Several associations concerned with discs, books, films, plays, paintings and software created Uruguay’s Chamber of Intellectual Property (Cámara Uruguaya de la Propiedad Intelectual—CUPI) in September 2004. CUPI aims to publicize more actively the negative effects of piracy. It will also take on a lobbying role to persuade the government to enforce the Copyright Law more stringently. Following the exponential growth of forged trademarked goods offered on the Internet and in local street markets, Uruguay’s Ministry of the Interior in 2005 created a task-force within the police specializing in trademark forgery and piracy. Some US$69m in forged merchandise (mainly clothing, sports shoes, records and videos) is estimated to enter the local market each year, though only 3% of this is usually seized. |
| Bankruptcy procedures/creditors' rights/partner liability in cases of an invested company's bankruptcy | 2 | A new bankruptcy law pending at the time of publication would facilitate the merger or sale of insolvent companies. The lengthiness of bankruptcy proceedings (18-24) is currently a concern, which leads to settlements typically being negotiated (with substantial markdowns of debt); partner liability remains considerable. (November 2005 interview; EIU, Country Commerce 2006). |
| Capital markets development and feasibility of exits (ie, local IPOs) | 2 | Average of three EIU Risk Briefing scores. Activity on the stock exchange has been divided since September 1994 between two institutions, the traditional Bolsa de Valores de Montevideo (BVM, the Montevideo stock exchange), and the Bolsa Electrónica de Valores (Bevsa, the electronic stock exchange). The number of firms raising equity through the stock exchanges is small, and only 19 companies are quoted. Hopes of increasing the participation of the stock exchanges in the supply of risk capital will depend greatly on the development of administradoras de fondos de ahorro previsional (AFAPs, private pension funds). The volume of equity traded on the stockmarket is low, and most trade consists of bonds. The availability of exits to strategic buyers or via investment in an offshore company which can be readily sold or obtain capital in Uruguay is facilitated by the marked openness of Uruguay economy to inward and outward financial investment flows. (January 2007 interview). |
| Registration/reserve requirements on inward investments | 3 | Uruguay has simple registration rules and no reserve requirements (January 2007 and November 2005 interviews; EIU, Country Commerce 2006) |
| Corporate governance requirements | 2 | The corporate sector is marked by weak transparency of companies' finances and decision-making. There are weak disclosure requirements and board review powers. Funds deal with these issues effectively through shareholder agreements. (EIU, Country Commerce 2006; World Bank, Doing Business 2006; January 2007 and November 2005 interviews). |
| Strength of the judicial system | 2 | EIU Risk Briefing score. This indicator considers the following: a) the extent to which the legal process/the courts can be interfered with or distorted to serve particular interests; b) extent to which the judicial process is speedy and efficient; and c) the risk that contract rights will not be enforced. Uruguay's judiciary is honest and independent, but the judicial process is slow. This is particularly acute in bankruptcy cases, where the pursuit of debts by creditors is frequently rendered uneconomic by lengthy and costly delays. Two special courts devoted to bankruptcy hearings were set up in early 2001, and checks put in place to prevent exploitation of the system by unscrupulous debtors. A faster, though more expensive, dispute settlement forum is provided by the National Chamber of Commerce and Services. |
| Perceived corruption | 2 | EIU Risk Briefing score. This indicator considers the following: a) the length of time the regime/government has been in power; b) the number of officials appointed rather than elected; c) the frequency of reports/rumors of bribery. It measures perception of degree to which public officials are involved in corrupt practices (misuse of public office for private benefit, accepting bribes, dispensing favors and patronage for private gain). Corruption is low to negligible in Uruguay. |
| Quality of local accounting industry/use of international standards | 3 | International standards are imposed as a condition for funds' investments. International auditors are present and serve to bring firms into compliance. General integrity of accounting standards is rated by EIU's Risk Briefing as intermediate. (November 2005 interview). |