Architecture & Engineering services in Uruguay

Transcription

1 Architecture & Engineering services in Uruguay June, 2014

2 Table of contents 1. Why choose Uruguay as an architecture and engineering service provider? Executive Summary Advantages of Uruguay in the provision of services Professionals Architecture firms Salaries Talent training Export of services Success cases Outsourcing or partnership cases in Uruguay Work awarded through tenders or for end clients Hiring by specialization Hiring based on author prestige, associated with specialization Institutional framework Main Challenges Regulatory Framework National and foreign investment promotion Government general export incentives Appendix Uruguay at a glance (2013) Main economic indicators

3 1. Why choose Uruguay as an architecture and engineering service provider? Uruguay has grown at an annual average rate of 5.7% between 2004 and 2013, which makes it one of the leading countries in terms of regional growth. A strategic geographical location in South America, a gateway to markets such as Brazil, Argentina and Chile among other Spanish-speaking countries, an attractive tax regime for operations with a focus abroad and availability of qualified talents at competitive costs, are some of the attributes of this country, where there are no restrictions on the transfer and repartition of capital and dividends. In the last two decades the export of services has boosted and gained share in the country's economy, placing Uruguay as an attractive option for the location of global services. With regard to Architecture and Engineering services, it is worth noting the availability and excellent benefit-cost ratio of highly skilled and committed labor, with international level professionals in different fields of knowledge and world-renowned Uruguayan architects (eg: Rafael Viñoly, Carlos Ott), as well as a good command of English (over 65% of university graduates have a good level) and other languages (eg: Portuguese, French, German). In Uruguay, over 500 professionals graduate from university every year, with an approximate number of 11,000 students in architecture and civil engineering-related courses 1. The total number of registered professionals is close to 10,000. Uruguay has a long tradition in the architecture and engineering degrees, dating from 1888 when courses on these subjects began to be lectured. The streets of the capital city, Montevideo, are a clear testimony to the diversity of styles and quality of designs that have converged during the past 100 years of development of these professions. By walking along a few blocks of Montevideo's main avenue it is possible to appreciate all the architectural styles of the twentieth century. There are modern buildings with architectural design, such as Carrasco International Airport (Montevideo) listed as one of the most beautiful of the planet by the BBC % of students have joined the workforce, but only just half of them work in activities related to their field of study. 2 Source: 4/05/140514_vert_cult_aeropuertos_hermosos_yv.s html 2

4 developed services, known as off shoring or global export services. The GPV of architectural and engineering services is estimated at US$ 300 million annually; it accounts for over 90% of the domestic market. Cultural affinity, the time zone located between USA and Europe allowing to work 24 hours (Business Continuity Plan BCP), as well as the excellent quality of life and the pleasant environment in the country, contribute to the increasing export of this type of services from Uruguay. These advantages together with a high standard of building infrastructure and communications (highest download speed in LATAM), make Uruguay appealing for both the location of in-house centers and the outsourcing of services from local firms. 2. Executive Summary Over the past few years, development of new information and communication technologies and especially Internet, has promoted and boosted the internationalization of services at a global level. This dynamism is accompanied by a profound productivity transformation process integrating into traditional services (transport and tourism) a group of recently Uruguay is part of this global trend. The export of services has had a dynamic performance in the past two decades, it has earned participation in our economy in recent years and has managed to position Uruguay as an attractive option for the location of services. Specifically, there are favorable conditions for the development of architecture and engineering services. Some of the main advantages are the availability of skilled workers, the regulatory framework and tax incentives, an appropriate technological infrastructure, political and socio-economic stability, a favorable business environment, competitive costs, among others. Outlined in this report are some of the main challenges the industry is facing in the medium and long term. 3. Advantages of Uruguay in the provision of services Characterization of the sector This report is focused mainly on the provision of architecture services, offering additional information on engineering services. The architecture and local engineering industry is strongly associated with the construction industry. In this regard, it is worth recalling that between 2005 and 2013 the investment in construction increased from US$ 1,600 million (10% of the GDP) to US$ 8,500 million (12% of the GDP). From these figures, approximately 5% could correspond to architecture and engineering services, which drove the industry to reach US$ 425 million dollars in

5 3.1.Professionals According to the Retirement and Pension Fund for Uruguayan University Professionals (CJPPU, for its Spanish acronym), there are almost 5,000 "practicing" architects, that is, actually contributing taxes to the CJPPU and 1,500 that although they are listed as "nonpracticing", they may be serving as "employees" for companies and certain organizations (Government, etc.), contributing to another social security fund. The number of male and female architects is very similar, but as regards engineers, male engineers triple their female counterparts. Graph 1 CJPPU registered professionals 3 5,083 ARCHITECT 1,442 Practicing 1, CIVIL ENGINEER Non-practicing In said profession and according to the same data, there are 1,100 practicing civil engineers and around 500 who have reported themselves as "non-practicing", once again who may be serving as company employees, etc. 3.2.Architecture firms In order to typify the industry, firms may be individual or shared and must meet the following requirements: Chart 1 Major players in the value chain 3 Source: CJPPU, August

6 - Individual firms: although the property is exclusive to the owner of the firm (Architect), it must have at least one dependent worker. - Shared firms: the firm ownership may be associated with more than one architect. Even though there is no architecture firm registry as such, from a preliminary estimate there could be in Uruguay a number of 1,000 formal firms as hereby defined. In late 2013, the Uruguay XXI Global Services Support Program identified 200 architecture firms with whom they conducted an online survey answered by 67 of them 4. Among the main results, it has been noted that the architecture industry is highly fragmented in Uruguay thus following the global trend, given that in addition to the large number of professionals working as sole traders, over 80% of respondents state that their firm employs up to 5 architects 5, with the remaining 20% being divided equally amongst firms of 5-10 architects, and over 15 professionals. 4 The survey was conducted during November 2013 and was aimed at "Architecture Firms" operating in Uruguay which in the last year have had at least one client or project implemented. Firms can be individual or shared, therefore they should at least meet the following requirements: - Individual firms: although the property is exclusive to the owner of the firm (Architect), it must have at least one dependent worker to qualify as a firm for this survey. - Shared firms: the firm ownership may be associated with more than one architect. - To see the content of the survey, please visit HZ718rr2iCvS7- o1u2evoijbjjqtrtpps94yq/viewform 5 The trend towards firms with less than 5 people would be a global industry trend. Graph 2 Staff numbers per firm 6 Over 70% of firms employs students, 87% are located in Montevideo and only 5% have offices in free trade zones. More than 40% have reported having systematic policies and procedures, which is a relevant aspect when exporting services. In terms of turnover in the past 3 years, in over 60% of cases it has increased, about 30% remained relatively stable and for the remainder it has dropped, a trend which is associated with the increase in construction in recent years. Less than 10% of firms undertake own developments or of partner firms, which means that most services are rendered to third parties. When outlining services associated with turnover percentage, it can be gathered that project management is the main service accounting for 30%, final design projects account for 28% and drafting 20%. 6 Source: Architecture Firm Survey in Uruguay. Uruguay XXI,

7 Graph 3 Type of service in relation to the percentage of annual turnover 7 Graph 4 Export of services 8 25% 50% 25% Have exported in the past year Have previously exported With regard to specialization, even though less than 10% of the firms are highly specialized, more than half report that 60% of their turnover corresponds to a specific niche. Thus, the most mentioned specializations are single family dwellings (25%), residential buildings(12%), industrial architecture (12%), business premises (10%), followed by sports/educational or offices architecture (7%) and finally interior design or urban planning (4%). Only one of the 67 firms reported being certified, which in their case is ISO 9001, 36% had received awards or honorable mentions in Uruguay, and 27% the same but overseas. 86% of the firms have a web site, and just over half are bilingual. With regard to the export of services, 25% had exported in the past 12 months and 50% had done so previously. Drafts and final design projects are the main exported products, followed by renders to a lesser extent. The main export destinations are MERCOSUR countries, followed by USA/Canada and the rest of Latin America in equal proportions and finally Europe. With regard to Asian countries experience is isolated to a specific firm. Foreign clients are distributed in similar shares between architecture firms and real estate developers. 3.3.Salaries Both the Society of Architects of Uruguay (SAU, for its Spanish acronym) and the Association of Engineers of Uruguay (AIU, for its Spanish acronym), have a fixed fee in relation to the amount payable to professionals by their clients 9. The information below refers to earnings received by architects as members of an architecture firm, regardless of the fees charged to their client. Among architects, the net monthly income declared by respondents ranges from US$ 1,200 to US$ 4,000. The average among the respondents is a monthly income of US$ 2,300 per architect. Among students, the reported salaries range from US$ 600 to US$ 1,200 per month, being US$ 800 per month the average pay. 7 Source: Architecture Firm Survey in Uruguay. Uruguay XXI, Source: Architecture Firm Survey in Uruguay. Uruguay XXI, For further information visit: & 6

8 Category Chart 2 Salaries 10 Annual net income (in US dollars) Graph 6 Prioritized engineering services university students (2012, thousands of students) 12 Student 7,200 14,400 Architect 14,400 48, Talent training Approximately 11,000 university students are registered under professions related to business segments that develop architecture and engineering work. The industry has an average of 1,300 new entries and 600 university graduates per year. For Architecture Services Outsourcing, the professions of architecture, design and interior design have been considered, comprising about 6,400 enrolled students and an average of 650 students with 360 graduates per year. Graph 5 Prioritized ASO university students (2012, thousands of students) Civil Engineering Industrial Engineering Electrical Engineering (3) Marine Engineering ,094 1,381 1,280 Entries Graduates Enrollment In addition to the number of annual graduates, as indicated above, Uruguay has a high level of university students that may be part of the labor market with some of the skills required for these business segments. In fact, in university courses related to architecture, 43% of students have completed up to 20 subjects, and in engineering 60% Architecture Decorators - Interior designers Entries Graduates Enrollments Engineering services require civil, industrial, electric and marine engineers, featuring a university output of 4,200 enrolled students, with an average of 550 entries and 150 graduates per year. 10 Source: qualified industry sources consulted by Uruguay XXI. December Source: Compilation based on the Statistical Yearbook of Education, MEC Source: Compilation based on the Statistical Yearbook of Education, MEC

9 Graph 7 Number of completed subjects per student ,189 1,124 1,064 1, , Graph 8 Relationship between main job and prioritized degree for architecture and engineering services 14 ENG, 56% ASO, 47% ASO, 53% ENG, 44% ASO ENG 0 subjects 1 to to 20 Non-existing or slightly related Existing or highly related With regard to the age of university students of the courses selected for each segment, 12% are under 20, 67% between 20 and 29 and 21% over 30. On average, students of engineering related courses are younger than those of architecture. 61% of university students of the selected courses are inserted in the labor market. The distribution is very similar among students of selected courses for different business segments. Among employed students, 38% are employed in an activity that is not related to their profession, 12% is poorly related and the remaining 50% is related. As for the number of hours dedicated to work, of all the students doing courses related to the business segments, 7% work less than 10 hours, 12% between 10 and 20 hours, 24% between 21 and 30 and 58% over 30 hours. The following graph shows the distribution per business segment, with a similar proportion of hours devoted to work by related degree courses. Graph 9 Weekly hours of work between prioritized degrees for architecture and engineering services 15 24% 30% 28% 28% 20% 35% 12% 7% 8% 10% ASO ING Less than 10 hs Between 10 and 20 hs Between 21 and 30 hs Between 31 and 40 hs Over 40 hs In terms of the language skills of public university students, the Census identifies that on average 64% speak, write, read and understand English, 28% Portuguese, 5% French, 11% Italian and 5% German. 13 Source: Compilation based of data furnished by the UdelaR Statistics Unit, University Census Source: Compilation based of data furnished by the UdelaR Statistics Unit, University Census Source: Compilation based of data furnished by the UdelaR Statistics Unit, University Census

10 In the case of students of courses related to the considered business segments, the distribution is the following: Graph 10 Language command of university students of prioritized degrees for architecture and engineering services 16 71% 84% 32% 28% 7% 6% 8% 7% ASO 1% 2% English Portuguese French Italian German ENG The general command of the English language, as well as Portuguese, among students stands out. In other languages it is similar to the overall total of UdelaR students. With regard to the syllabus, it is very complete and is majorly focused, in the case of architects, on the technical nature of the profession, not only on design as taught in other places. This makes Uruguayan professionals remarkably adaptive to work in various methods and construction techniques. Moreover, the way they study leads professionals to be good coordinators and global thinkers which provides them with knowledge on how to coordinate interdisciplinary work teams. Uruguay has introduced different cultural and commercial construction systems, including the most traditional (mud, ceramic), the intermediate (iron structure) and the new such as drywall or plaster for exterior use, precast concrete and various hybrid or mixes that make it possible to master the constructive ways thereof, which are usually present predominating in each country but not all together in such an even way as in Uruguay. Upon completion of their university degree they make a study tour around the world, allowing them to have worldview parameters experienced first-hand which help them when designing and also provides them with knowledge on other technology and building methods. As for postgraduate and Master's degrees, Uruguay has an extensive academic offering distributed among the UdelaR public system and the private system formed by 4 private Universities and 6 University institutes with available study programs. At the end of 2012 there were more than 11,500 enrolled students and an average of 3,500 annual entries and 1,500 graduates. In the case of courses related to the business segments of Architecture and Engineering, there are over 20 educational proposals available Export of services Although there are notable exceptions, Uruguayan services of architecture and engineering have mostly turned to the domestic market, exhibiting low international integration and lacking development as global architecture firms, thus maintaining a studio profile. The opportunities for the internationalization of an architecture services industry as the Uruguayan could be segmented into: 16 Source: Compilation based of data furnished by the UdelaR Statistics Unit, University Census For further information refer to Appendix 2. 9

11 a) The rendering of services to other architecture or engineering firms with access to end clients in high demand and purchasing power markets (Outsourcing 18 or Partnerships). b) End clients (public tenders, private corporations, others). For both types of clients, the path should be guided by distinction and not by the cost scale or leadership, being these the main vectors of distinction: 1. The quality of services (mainly applied to outsourcing or partnership strategies with other firms in the target markets, differing from other low-cost service providers like India). Chart 3 Strategic internationalization options 18 Architecture and engineering outsourcing basically refers to contracting services from third parties or subsidiaries of an own firm (architecture studio) located offshore, services such as digitalization of blueprints, interior design, final design project, construction blueprints, calculations, 3D design, among others. International consulting firms requested by this Program have noted that the main markets for this service are first the United States, Europe and Latin America. 10

12 2. Specialization in certain areas (eg. urban planning cultural or educational facilities, sports facilities, refurbishment, accessibility, energy efficiency, etc.) which allows to work in the outsourcing modality or developing partnerships with other firms, but also eventually access end clients, always in a range of greater value than the outsourcing of basic or general tasks. 4. Success cases 4.1.Outsourcing or partnership cases in Uruguay Estudio MARQ (Architects Luis Rocca, Daniel Giménez and Carla Antón), Montevideo Project: Collaborative tasks (Preliminary and Basic Project) for the Qingdao Shopping Mall of Qingdao - Shandong China, projects proposed for The architectural prestige of the author. This seemed to be the path with the highest value ranges, but with greater difficulty for international insertion. Each of these internationalization options and their combinations have their individual critical success factors, to be considered for the definition of specific strategies for the firms. In Uruguay there is a large number of success cases in terms of export of architecture and engineering services. Below are some cases that encompass the various situations described above. Project: the same firm has among its portfolio of international projects (also working on the Preliminary and Basic Project) the Ribeirao Shopping of Ribeirao Brazil, 2012 project. 19 Images furnished by the firm 20 Source: 11

13 4.2.Work awarded through tenders or for end clients Estudio OAP (Architect Federico Mirabal Pietra, Punta del Este) Project: Project tasks and management in Lago di Garda. Tender for Comune di Bardolino, Verona, Italy 4.3.Hiring by specialization CSI Ingenieros Hiring based on author prestige, associated with specialization Administrative-technical monitoring and quality control of the drinkable water, sewerage and sanitation project for the cities of Río Bravo and Nuevo Progreso, Tamaulipas, México. The project includes the construction of a wastewater treatment plant for the cities of Río Bravo and Nuevo Progreso and the associated piping system: Project: Additionally there is a work case for the Boutiques Villas Paami hotel in Trawangan, Indonesia - Wastewater plant treatment for 190 lps based on a lagoon system - WWPT discharge transmitter to the Río Bravo, of 609 m in length, in HDPE of 450 mm - Río Bravo pump station with a capacity of 240 lps - Nuevo Progreso pump station with a capacity of 60 lps - Pressurized drive line from Río Bravo pump station to WWPT, m in length in thermofusioned PVC, 660 mm in diameter. - Pressurized drive line from Nuevo Progreso pump station to WWPT, m in length in thermofusioned PVC, 300 mm in diameter. - Río Bravo sewer pipe to the pump station, m in length, of PVC in diameters from 355 mm to 910 mm. The purpose of the consultancy can be summarized in getting work contracts to be executed in compliance with the contract 23 Information furnished by the company to Uruguay 21 Source: oap.com.uy 22 Images furnished by the firm XXI. 24 Images furnished by the firm 12

14 documents, with the expected level of quality, by the stated deadlines and for the quoted price. Its scope includes project review, construction surveying, supervision of works and their respective quality control, monitoring and physical and financial control of works and the preparation of weekly and monthly reports for COMAPA and the BDAN. for its Spanish acronym) in Caracas, capital of the Bolivarian Republic of Venezuela, the firm has been commissioned the design of a research center in Genomics, Proteomics and health for IDEA (Institute for Advanced Studies). The building includes the following areas that develop in approximately 5,100 m 2 of indoor spaces and 800 m 2 of balconies: - Management and general services, genetic parentage services and forensic sciences. - Research laboratories - Core Capability Areas - Internal Service Areas The same firm has other laboratory projects in Venezuela. Idéntica project: CICPC Guarenas CICPC Barinas 4.4.Hiring based on author prestige, associated with specialization Estudio Ashur of Architects Carlos Ott and Carlos Ponce de León Idéntica project: IDEA Caracas In the framework of the Identica Project, which provides for the implementation of a DNA National Identification System (SIN, 25 Information furnished by the company to Uruguay XXI. 26 Images furnished by the firm They are two buildings with the same features for the Corps of Scientific, Penal and Criminal Investigations (CICPC, for its Spanish acronym) of said country. Developed in approximately 1,300 m 2 of indoor area and 570 m 2 of balconies and outdoor technical area, each building contains: laboratory areas with bio-stations as appropriate (post room, indubitable sample extraction room, low copy extraction room, premix, evidence analysis area, area for preparing solutions), 13

15 administration and general services areas (security room, data processing center, reception and evidence filing, quantification area, extraction clinic), internal service areas (meeting rooms, changing rooms, waste areas, storage, bedrooms with bathrooms, break room with kitchen and dinning room), as well as outdoor parking area and an auditorium with hall and terraces. 5. Institutional framework Society of Architects of Uruguay (SAU, for its Spanish acronym): founded in 1921, it currently has 2,500 members, more than half of the architects who have declared themselves as "practicing". For further information, visit Association of Engineers of Uruguay (AIU, for its Spanish acronym): founded in 1905, it currently has over 1,100 members. For further information, visit Design Chamber of Uruguay (CDU, for its Spanish acronym): organized in 2009 and composed of design studios, independent designers and industry training institutes, becoming the representative before national and international stakeholders. The CDU has 113 member companies. For further information, visitwww.cdu.org.uy Global Export Services Support Program Uruguay XXI: opportunities have been identified for the establishment of investment and development in the export of services for the Outsourcing of Architecture, Engineering and Design Services (ASO). This is why all the Agency departments are implementing a strategy which involves both attracting foreign companies to open subsidiaries or "captive centers" in Uruguay, and promoting Uruguayan companies interested in providing these services abroad. For this purpose an Executive Group was established, made up of Architecture firms, representatives of the institute and the Society of Architects of Uruguay, which acts as a benchmark for the industry cooperating with Uruguay XXI's work. The Executive Group is committed to: Being the private negotiator of the Uruguay XXI-Program promoting dynamism of the sector and its internationalization. Oversee and guide the implementation of the promotion plan. Ensure that all the necessary information reaches all the industry stakeholders. Work in an ultimate formal institutionalization of the sector in the future. 14

16 For further information visit 6. Main Challenges Uruguay has an important potential to position itself as a global player in the export of architecture, engineering and design services. The challenges lie in displaying the opportunities offered by the country, both to locate their regional operations and to obtain services or other partnerships with local suppliers, while strengthening the development of supply. This is, one of the main challenges is to position Uruguay as a country that provides this type of services. In this regard, in the framework of Uruguay XXI's Export of Global Services Program various activities that are worth mentioning have been undertaken. The first activities were aimed at making various national and foreign players aware of the feasibility of exporting these services from Uruguay. In this respect, two conferences were organized: 1. Architecture, Design & Engineering from Uruguay, delivered by David del Villar, expert in architecture outsourcing, author of a doctoral thesis at Harvard University on this subject and architect Christian Wolff, codirector of the office in San José de Costa Rica of the architecture firm GENSLER, one of the largest in the world. 2. "How to make a plan to promote your architecture services to the world": delivered by the international expert Architect Sergio Corian, specialist in the field of marketing for architecture firms. Furthermore, an Executive Group was formed and a promotion plan was validated in consultation with the firms which participated in different activities and workshops. The objective of the plan is to Promote the country value proposal and build long term relationships of trust, based on the following general guidelines: Develop industry specific promotional brochure and website Attend conferences in USA E.g.: American Institute of Architects Conference (AIA); PBC 2013; American Design Drafting Association Technical and Education Training Conference Generate student exchanges with US universities (agreements between universities) Generate internships in US firms (agreements between firms) Organize new events in Uruguay and trade missions (with potential clients or investors) Facilitate specific training (eg. BIM). The Global Services Support Program implemented by Uruguay XXI also offers companies the opportunity to access subsidies of up to 70% in Finishing Schools, which are educational programs for the purpose of boosting the export of services). Put an institutional framework in place so as to develop an export agenda for architecture, design and engineering. Moreover, in Uruguay XXI and with the support of the Executive Group information has been generated and used for the preparation of this report, and work 15

17 is being performed in order to develop promotion material (brochures and web page). These communication actions, also rely on the development of the crossservice brand: Uruguay Smart Services / Architecture & Engineering. A joint effort between local public and private players is necessary, firstly to position the country as a provider of this type of services and then each firm/studio/consortium in particular. There is enough market for all which means that the efforts of others will benefit all. The widespread use of tools such as BIM (Business Information Modelling), very popular in USA, will help Uruguayan professionals to get involved in more international projects, as well as to obtain more international certifications and standardized work processes. To continue to work with local players showing them the possibilities that may arise when working for abroad is another challenge, committing to excellence, quality and professionalism. Uruguay should aim at specific quality work, exporting knowledge and design. 7. Regulatory Framework 7.1 National and foreign investment promotion Uruguay is very attractive compared with other countries that receive investments from the rest of the world, and for several years now, it has had an active policy to promote investments in the country. Law 16,906 (1998) declared of national interest the promotion and protection of domestic and foreign investments. One of its main features to be highlighted is that foreign investors are granted the same incentives as local investors and there is no tax discrimination or restrictions for transferring profits abroad. Decrees 455/007 and 002/012 updated the regulations of said law. For any investment projects submitted and promoted by the Executive Branch, it is possible to compute as part of the tax payment (IRAE - Corporate Income Tax) between 20% and 100% of the invested amount, depending on the type of project and the score attained on the basis of a matrix of indicators. The IRAE nationwide flat rate is 25%. Personal property included in fixed assets and civil works are exempt from the Net Wealth Tax, and the Value Added Tax is recovered from the purchase of materials for civil works. Moreover, the import of personal property included in fixed assets which is not competitive in the national industry is exempt from import taxes or duties. 7.2 Government general export incentives a) Reimbursement of VAT paid when purchasing supplies VAT paid in purchases is generally recovered by discounting VAT invoiced in sales, paying the State just the difference thereof. Since in exports (of goods and services) said tax is not invoiced, the reimbursement of VAT included in the purchase of materials is authorized directly upon the company s request. The Tax Administration Office (DGI) issues credit certificates which may be used in the payment of other taxes. Decree No 220/998 lists the transactions covered by the concept of services exports. By way of example the following are mentioned: international broadcasting of television material produced in the country, logistics support services to international cinema and TV production 16

18 companies, consultancy services provided to people abroad, services rendered to people abroad in the design, development and implementation of specific logistics support, services rendered by international call centers provided that their main activity is destined for the external market and aimed at such, data processing, services provided for the design, development and implementation of digital contents, market and social research services, and advertising services rendered by advertising agencies to customers overseas. Under Decree 780/008, consulting, translation, engineering, design, architecture projects, technical assistance, training and auditing services have been included in Decree No. 220/998. b) Law on Free Zones Free Zones in Uruguay are regulated by Law No. 15,921 of December 17, They can be operated on a private or state basis. Free Zones under private operation are administered, monitored and controlled through the General Trade Office - Free Zone Area, Ministry of Economy and Finances. This office is the main point of contact for all the regulations, permits and controls regarding Free Zones in the country. As for state operated free zones, this is the area in charge of their management. Free Zones can operate trade, industrial or service activities. Moreover, companies in Free Zones can provide services to other countries and, in some cases, to Uruguay. The industrial activity may not only involve added value but also change in the nature of goods. Businesses authorized to operate from Free Zones may be natural or legal persons under any company form. As for legal persons, there are no restrictions on their form but they need to have an exclusive purpose. There is no distinction between domestic or foreign investments and the latter are not required to meet any special process or requirement. Foreign companies are allowed to setup branches. Up to 25% of their staff can be foreign. Goods can be indefinitely kept in the free zones and their destination can be changed at any time. Benefits granted to companies set up in Free Zones include the following areas: - Exemption from Corporate Income Tax (IRAE), Wealth Tax (IP) and any other current or future domestic tax. The State is the guarantor of this exemption. - Dividends distributed among shareholders domiciled abroad are also tax-exempt in our country. - Foreign staff may be exempt from making social security contributions in Uruguay. - Sales and purchases of goods and services to and from abroad are VAT exempt. Sales and provision of services within ZF are also VAT exempt. - Non-resident entities are also IRAE exempt regarding activities developed with foreign goods declared in transit or kept within Free Zone, when they are not bound for the national customs territory. They are also IRAE exempt when sales bound for the national territory do not exceed 5% of the total disposals of goods in transit or kept within Free Zone. 17

19 - Goods traded by Free Zones with the rest of the world are exempt from customs duties. Law reform project: Special Economic Zones Throughout these 25 years of validity, Free Zones regulatory framework has been successful in attracting investments, creating jobs and diversifying exports. The Special Economic Zone Bill which updates Law No. 15,921 is generally aimed at making two adjustments. On the one hand, it updates and distinguishes the outlined purposes and, on the other hand, it expands the regime in order to foster activities that promote countrywide development within a context of deep transformation at global and local levels. A new particular form called Service Thematic Zones, aimed at promoting activities in the health care, amusement and entertainment and audiovisual areas is included. The first change proposed affects the name of the regime: from Free Zones to Special Economic Zones; and the operators of the regime would become developers. Another change would be keeping the minimum percentage of national labor at 75% for industrial and commercial activities and reducing it to 50% for services activities, as this would be a hindrance for the setup of companies that render Global Exports Services. Moreover, additional benefits are granted to developers who submit inland projects as a means to develop economic processes with regional significance. Finally, it is worth mentioning that all rights acquired by already setup companies remain unchanged as a sign of the stability and continuity of the regime (which has remained unaltered for six periods of government under three different politic parties). In line with this, the abovementioned changes have no effect on the international agreements executed by Uruguay regarding Free Zones. In July 2013, the bill was submitted to parliament by the Executive Branch and at the date of publication of this report it was under consideration by the Senate Committee on Finance. Global Services in Free Zones 27 In Uruguay there are thirteen Free Zones (11 are private FZ and 2 state-owned FZ), or customs enclaves. Most global services are rendered from Free Zones, although there are also companies that operate in other areas, mainly in Montevideo city (Aguada, Centro, Ciudad Vieja, Pocitos Nuevo). The 4 Free Zones specialized in services which currently operate in Uruguay are presented below: «Zonamerica: first free zone to operate in the country, located at Route 8, Km 17.5, near Carrasco International Airport. It currently has 8 business platforms, almost 350 companies and generates over jobs. For further information: «Aguada Park: located close to the city center and the port of Montevideo, it has state-of-the-art infrastructure in a 19 story tower within a 56,000 m2 complex involving a total investment of US$ 27 Refer to UruguayXXI1.pdf 18

20 50 million (land plot, two buildings and equipment). All these companies employ approximately 1,200 people. For further information: «World Trade Center (WTC) Free Zone: is a Free Trade Zone for Services strategically located in the city of Montevideo with a worldclass building infrastructure which provides customers with the possibility to work in the first and only LEED tower in Uruguay. It has 17,000 m2 of office space, from where currently about 80 leading companies offer their services to the world. These companies currently employ nearly 800 people and it is estimated that once the tower is fully occupied, it will have a population of about 1500 people. For further information: «Parque de las Ciencias: is a Free Trade Zone geared towards accommodating pharmaceutical and biotechnological companies as well as those that provide support services to these industries. Parque de las Ciencias has been operating since December 2011 and already has 65,000 m 2 built, many of them are industrial projects that take advantage of the world class infrastructure provided by the park. For further information: c) Trade agreements and investment protection Uruguay has been part of the World Trade Organization (WTO) since its creation in 1995 and is part of the Latin American Integration Association (LAIA, 1980). Argentina, the Plurinational State of Bolivia, the Federative Republic of Brazil, the Republic of Chile, Republic of Colombia, the Republic of Ecuador, the United Mexican States, the Republic of Paraguay, Republic of Peru, the Eastern Republic of Uruguay, the Republic of Cuba, Republic of Panama and the Bolivarian Republic of Venezuela are all members of LAIA. In the framework of ALADI, it has been part of the Southern Common Market - MERCOSUR - with Argentina, Brazil and Paraguay. MERCOSUR became a customs union in 1995 with the free movement of goods, removal of customs duties and noncustoms restrictions between the parties and a Common External Tariff to other countries. Since 12 August 2012 Venezuela is a full member of MERCOSUR. d) Trade agreements with access to goods Uruguay has signed, as part of the Mercosur or independently, a series of trade agreements that allow access to other markets with preferential tariffs beyond Mercosur. MERCOSUR has signed trade agreements with many countries in Latin America: Chile (1996), Bolivia (1996), Colombia, Ecuador and Venezuela (2004), Peru (2005) and Cuba (2006). An agreement that exclusively covers the automotive sector was signed with Mexico (2002). Outside the region, the Mercosur has signed agreements with Israel (2007), India (2004), SACU (2008), Egypt (2010) and Palestine (2011). SACU, Egypt and Palestine agreements have not yet come into force. Except for the agreements with Cuba, India and SACU, which include preferences for a limited number of products, the remaining agreements that have been signed by 19

21 Mercosur tend to form free trade zones, with tariff reduction schedules that are completed for substantial trade on variable dates according to the country. Agreements with Chile and Bolivia have reached 100% of tariff reduction for the entire mass of goods. In the remaining agreements in force, total tariff relief will be achieved for substantial trade by Mercosur is also part of the Global System of Trade Preferences among developing countries (GSTP), in force in Uruguay since The last Round (2010), not yet in force, involves 20% to 70% of tariff lines with Cuba, Egypt, India, Indonesia, Malaysia, Morocco and Republic of Korea. Uruguay has also executed with Mexico a bilateral free-trade agreement (2003) which enables the free movement of goods and services between both countries (no tariff) since June 2004, with certain exceptions for which treatment has been explicitly provided for in the agreement. e) Investment protection agreements Uruguay has executed investment performance, protection and promotion agreements with 30 countries, including but not limited to Spain, United States of America, Finland, France and United Kingdom. f) Agreements on Trade in Services Uruguay takes part in different instances of negotiation of trade in services: General Agreement on Trade in Services (GATS): multilateral negotiation in the framework of the WTO. The 159 member countries are signatory to the GATS, but negotiations have been practically stagnant since Preferential Agreements with chapters on services: in parallel to the GATS, and permitted under its regulation, various preferential agreements trading services have emerged. In MERCOSUR, the Protocol of Montevideo (1997) sets the conditions for the liberalization of trade in services in MERCOSUR, including lists of commitments by individual country. Even though Paraguay did not adhere to the Protocol of Montevideo, it has been valid for the remaining members of the MERCOSUR since There have been seven negotiation rounds in the MERCOSUR to date, further developing the list of initial commitments, although so far only the first agreed list is in force. In 2009, the Protocol on Trade in Services between MERCOSUR and Chile was signed, entering into force in 2012 between Uruguay and Chile, with a services agreement currently under negotiation between MERCOSUR and Colombia. Finally, the Free Trade Agreement between Uruguay and Mexico includes provisions for all types of services covered by GATS. g) Double Taxation Agreements 28 Finally, Uruguay has agreements to avoid double taxation with Germany (2011), Argentina (2013), Korea (2013), Ecuador (2012), Spain (2011), Finland (2013), India (2013), Liechtenstein (2012), Malta (2012), Mexico (2010), Portugal (2012) and Switzerland (2011). Many other countries are in the process of parliamentary ratification. 28 Refer to content/uploads/2011/12/acuerdos- Uruguay.pdf 20

22 Appendix 1 ACADEMIC OPTIONS FOR OUTSOURCING OF ARCHITECTURE, ENGINEERING AND DESIGN SERVICES a) Graduate Degrees University of the Republic School of Architecture - Architecture - Visual communication design - Landscape design - Industrial design - Integrated design For further information visit ORT University School of Architecture - Architecture - Bachelor of Interior Design For further information visit University of the Republic School of Engineering - Civil Engineering - Land Surveying - Electrical Engineering For further information visit University of Montevideo School of Engineering - Civil Engineering For further information visit fium.um.edu.uy For further information visit BIOS University Institute School of Design: - Interior Architecture - Interior Design - Green Spaces design - Hyperrealism and Animation in Architecture For further information visit b) Postgraduate Courses The country has a wide range of postgraduate courses in the areas analyzed 21

23 herein, said courses have been mentioned below: Post graduate Degrees at the University of the Republic School of Architecture: The academic courses offered are varied including a Doctorate in Architecture followed by Masters in Construction Works of Architecture, Land Planning and Urban Development and Integrated Coastal Management in the South Cone. Finally, there are Specialization courses in the area of Architectural Heritage, Project Research, Furniture Project, Landscape Project, Structure and Architecture Construction Work Project (source: ) Post graduate Degrees at the University of the Republic School of Engineering: In this School, there is also a varied availability of postgraduate courses including PhDs, Masters and Diplomas. In terms of Doctorate degrees, there are courses in Computer Science (PEDECIBA: Spanish acronym), Applied Fluid Mechanics for Engineers, Electrical Engineering, Chemical Engineering, Environmental Engineering, Structural Engineering and Physics Engineering. Coastal Management in the Southern Cone, Applied Fluid Mechanics, Science and Food Technology, Physics Engineering. Finally, the School of Engineering offers Diplomas in Bioinformatics, Physics, Technology Management, Energy Engineering, Mining Engineering, Software Engineering, Information Systems and data management technologies, Electric Power Systems, Computer Security and Telecommunications (source: as-de-posgrado) Post graduate Degrees at the University of Montevideo School of Engineering: The courses offered include Technical Specialization, Supply Chain Executive Program, Masters in Applied Research in Engineering and a Cleaner Production Program. (source: fium.um.edu.uy) Postgraduate Degrees at ORT University School of Architecture: The offer includes a Diploma of Specialization in Real Estate Developments. With regard to Masters degrees, they are divided in Masters oriented towards vocational training or education. The former include Environmental Engineering, Professional Masters in Computer Science, Pulp and Paper Engineering, Energy Engineering and Innovation Management. Concerning academic Masters, there are courses in Computer Science (PEDECIBA: Spanish acronym), Electrical Engineering Structural Engineering, Chemical Engineering, Mathematics, Integrated 22

24 Official name Geographic location Capital city Area Population (2013) Population growth rate (2011) Uruguay at a glance (2013) 29 Oriental Republic of Uruguay South America, bordering Argentina and Brazil Montevideo 176,215 km 2. 95% of the territory is productive soil, suitable for agriculture and cattle breeding million 0.40% (annually) GDP per capita (2013) US$ 16,421 Currency Uruguayan peso ($) Literacy rate 98% Life expectancy at birth Government type Political division 76 years Democratic republic with presidential system 19 departments Time zone GMT - 03:00 Official language: Spanish Main economic indicators Indicators GDP (Var % per year) 7.2% 2.4% 8.4% 7.3% 3.7% 4.4% GDP (in million U$S) 30,367 30,461 38,882 47,237 50,004 55,708 Population (Millions of people) GDP per Capita (U$S) 9,108 9,107 11,584 14,017 14,792 16,421 Unemployment rate Annual Average (% EAP) 8.0% 7.7% 7.2% 6.3% 6.5% 6.5% Exchange rate (Pesos per US$, Annual Average) Exchange rate variation (Annual Average) -10.7% 7.7% -11.1% -3.7% 5.2% 0.8% Consumer Prices (Var % annually accumulated) 9.2% 5.9% 6.9% 8.6% 7.5% 8.5% Exports of goods and services (Millions of US$) 9,372 8,711 10,719 12,868 13,398 13,603 Imports of goods and services (Millions of US$) 10,333 8,191 10,089 12,779 14,685 14,964 Trade Surplus / Deficit (Millions of US$) ,287-1,361 Trade Surplus / Deficit (% of GDP) -3.2% 1.7% 1.6% 0.2% -2.6% -2.4% Overall Fiscal Balance (% of GDP) -1.6% -1.7% -1.1% -0.9% -2.8% -2.4% Gross capital formation (% of GDP) 23.2% 20.1% 18.9% 21.1% 23.6% 23.6% Gross Debt (% of GDP) 58.3% 75.4% 61.4% 57.2% 62.3% 59.5% Foreign Direct Investment (Millions of US$) 2,106 1,529 2,289 2,504 2,687 2,796 Foreign Direct Investment (% of GDP) 6.9% 5.0% 5.9% 5.3% 5.4% 5.0% 29 Sources: GDP data were taken from the IMF, foreign trade data from IED, foreign exchange rates, international reserves, and foreign debt come from the BCU, the population growth rate, literacy, unemployment and inflation were provided by the Statistics National Bureau. 23