Using Tax Breaks, Uruguay Fishes Abroad for Tech Workers

Uruguay has formally laid the groundwork to attract foreign tech talent.

The country’s parliament enacted a law to provide tax incentives to foreign IT workers who settle in its territory.

Uruguay, whose IT services industry generated US$1.95 billion in revenue in 2021, is hopeful that the presence of a large pool of programmers, software engineers and other tech experts will naturally draw foreign firms with plans of overseas expansion.

To qualify for the tax benefits, IT workers must be foreigners, should not have paid income tax in Uruguay in the past five years and must be employed full-time by a technology company operating in Uruguay.

The legislation offers foreign IT workers the option of paying foreign income tax (IRNR) instead of Uruguay’s income tax (IRPF). The IRNR has a fixed tax rate of 12%, while the IRPF has progressive rates that reach up to 36%.

In addition, benefitiaries of the program who choose to pay the IRNR are exempt from local social security contributions. In Uruguay’s system, social security contributions can be a significant expense for employees.

A Unique Program

Many countries in Latin America responded to the rise in remote work which followed the COVID-19 pandemic by implementing programs to attract digital nomads. Uruguay’s approach is unique, however.

Uruguay is primarily looking to support the domestic IT sector by making available a larger pool of talent for tech companies to choose from. The most commong approach to digital nomad visas and programs in Latin America has focused on boosting the tourism sector.

While Uruguay’s tech industry has boomed in recent years, an acute shortage of talent remains a major headache for local tech businesses.

Over 3,000 IT positions lie vacant in the country. As of the end of 2022, Uruguayan tech companies employed barely 2,000 more people than the number recorded in 2020, according to data by the Uruguayan Chamber of Information Technologies (CUTI).

Only 11% of college students in Uruguay pursue engineering degrees. As a result, local IT companies struggle to find the skilled workers they need.

According to a recent study by human capital monitor Advice, the country suffers from an acute shortage of programmers, software engineers, systems engineers and database administrators, as well as AI experts and data scientists.

A Booming Industry

There are over 500 companies operating in the Uruguayan technology sector, with a large majority of them based in the free trade zones within Montevideo.

The sector employs more than 24,000 people and accounts for 3% of the country’s GDP. If micro companies are also taken into account, the total headcount may exceed 27,000, according to the country’s investment promotion agency.

Uruguay is the largest software exporter per capita in Latin America. In 2021, the country exported IT services worth more than US$1 billion. The United States is Uruguay’s biggest export market, followed by Chile, Colombia and the UK.

Thanks to its stable economy and absence of security fears, Uruguay houses delivery centers for several large IT companies in the region. These include Tata Consultancy Services (TCS), Globant, IBM, Indra Systems, Microsoft, New Context and NetSuite.

Google is also expanding to the country. In 2020, Google purchased a large plot of land in Canelones’ Science Park, near Montevideo, to build a data center.

Almost a third of Latin America’s top 30  custom software vendors have offices in Uruguay, according to Clutch.