18 special economic zones for large companies in Latin America: The tax guide for large companies

Today we are going to tell you how large companies minimize taxes in Latin America with Free Trade Zones and SEZs. Throughout the article, we will analyze some twenty countries.

The time has come to dispel a persistent prejudice: the idea that large corporations are irrevocably exposed to overwhelming tax exploitation when operating in Latin America. While countries with comprehensive tax systems such as Argentina, Brazil, Colombia, Mexico, and Peru may seem problematic at first glance, the reality is that they offer highly effective legal and strategic mechanisms to significantly reduce the tax burden.

The key to this tax strategy lies in Special Economic Zones (SEZs) and their counterparts: Free Trade Zones.

According to the World Free Zone Organization, there are more than 600 of these strategic centers in Latin America alone. These defined areas (which can range from industrial parks and ports to entire cities) not only guarantee tariff exemptions and tax advantages, but also offer administrative facilities that are crucial for logistics and international trade.

These zones are a pillar of the policy to attract Foreign Direct Investment (FDI) in the region. Their purpose is to boost local economic growth and job creation, offering companies privileged access to natural resources, strategic location, and, above all, security and fiscal competitiveness in return.

In this article, we present the definitive guide to Free Trade Zone and Special Economic Zone regimes in 12 key Latin American countries. We will detail the incentives, competitive advantages, and specific requirements so that your large company can strategically leverage this ecosystem and dramatically optimize its operations and financial results in the region.

Special Economic Zones in Latin America

It is important to understand that free trade zones are true strategic hubs, ranging from ports and industrial parks to entire cities. Companies that set up shop in them not only enjoy tax advantages but also administrative facilities, such as tariff and tax exemptions.

These zones are not created arbitrarily. They are an essential part of the policy of attracting foreign investment, especially in developing countries, where local economic growth and job creation are essential to boosting the economy.

These measures make Latin America an increasingly attractive destination for large companies. In addition to its strategic location, which facilitates international trade, the region also offers easy access to natural resources and is home to more than 600 SEZs, which already offer various incentives to more than 10,000 companies. These countries include, among others:

Argentina

Argentina currently has 13 free trade zones (FTZs) under Law 24.331/1994, which establishes that these zones are strategically defined areas intended to promote international trade. In these zones, companies enjoy tax exemptions and can use special facilities for storage, handling, and distribution, facilitating trade, transshipment, and re-export of goods. Among the most important sectors in these zones are information technology, the automotive industry, the textile industry, the chemical industry, the food industry, and logistics.

The 13 free trade zones are strategically located in key areas of the country, including:

• La Plata, Buenos Aires province
• Iguazú, Misiones province
• Córdoba, Córdoba province
• Mendoza, in Luján de Cuyo
• San Luis, in Justo Daract
• Concepción del Uruguay, Entre Ríos province
• Comodoro Rivadavia, Chubut province
• Salta, province of Salta
• General Pico, province of La Pampa
• Villa Constitución, province of Santa Fe
• Río Gallegos, province of Santa Cruz
• Bahía Blanca, in Puerto Galván
• Bahía Blanca, in Punta Alta

In these zones, imported and exported goods are exempt from customs regulations, meaning that no tariffs are applied. In addition, the 21% value-added tax does not apply to imported goods, and there are tax exemptions for essential services such as telecommunications, electricity, water, and others.

However, Argentine companies registered in the FTZs are not completely exempt from taxes. They are still subject to the usual corporate tax, with rates of up to 35%, as in the rest of the country.

Admission to these zones is relatively straightforward, as there are no minimum investment or staffing requirements. It is sufficient to demonstrate solvency for the activity in question.

In addition, Argentine free trade zones allow the importation of almost all types of goods and services, with the exception of weapons, ammunition, and products that “may endanger health, safety, or the environment.”

Bolivia

Bolivia’s free trade zones play a key role in promoting the country’s industrial development, with the aim of diversifying Bolivian exports and supporting economic growth. These zones, which operate under Decree No. 2,779, are divided into two types: industrial free trade zones and commercial free trade zones.

In industrial zones, goods are processed, prepared, or transformed for export, re-export, or even import into the domestic market. Activities such as product assembly, vehicle and equipment adaptation, and various industrial operations are permitted.

Commercial zones, on the other hand, serve as storage areas for goods that can be stored indefinitely and resold at a later date. In these zones, it is possible to package, relabel, repackage, and even retail products.

Currently, the following free trade zones are active in Bolivia:

• Winner (ZOFWIN), in Santa Cruz de la Sierra
• Oruro (ZOFRO), in Oruro
• Patacamaya (ZOFRAPAT), in La Paz
• Puerto Suárez (ZOFRAMAQ), in Puerto Suárez
• Cobija (ZOFRACOBIJA), in Porvenir

These zones offer significant tax advantages, including exemption from 13% value added tax, excise duty on hydrocarbons, and various tariffs and levies.

Access to these zones is straightforward, and there are no minimum investment or employee requirements. However, there are some restrictions: free zone users cannot transfer their rights to third parties or be owners or shareholders of the concessionaire company in the zone, in order to avoid conflicts of interest.

Brazil

Brazil has more than 20 free trade zones, including one main zone and several export processing zones (Zonas de Processamento de Exportação, ZPE), created specifically to reduce taxes and offer greater regulatory freedom. The aim of these zones is to promote the development of different regions of the country while maximizing the competitiveness of Brazilian companies by offering them incentives through strategic locations to access important global markets such as Latin America, North America, Europe, and Asia.

The best known of these zones is the Manaus Free Trade Zone, which offers a series of tax exemptions that significantly reduce Brazil’s high tax burden, especially in the area of corporate taxes. Among the most important incentives are:

• A reduction in import tax of up to 88%.
• A total exemption from the tax on industrial products (IPI).
• A 75% reduction in corporate income tax (IRPJ), which is normally 34%.
• An exemption from PIS/Pasep and Cofins taxes for domestic transactions.

In addition to these federal advantages, there are also municipal and state incentives, such as exemption from the value-added tax on goods and services (ICMS), as well as property taxes and garbage collection and sewerage fees for a period of ten years.

The result? More than 600 renowned companies, such as Coca-Cola, Samsung, Honda, and Harley-Davidson, have set up shop in the region.

In addition to the Manaus Free Trade Zone, there are more than 20 EPZs throughout Brazil, in places such as Rio Branco (Acre), São Luís (Maranhão), and Recife (Pernambuco), although currently only the EPZs in Pecém (Ceará) and Parnaíba (Piauí) are in operation.

These zones offer tailored incentive packages with tax exemptions and simplified administrative procedures. One example is the Ceará EPZ, which offers a 75% reduction in income tax, as well as high connectivity through ports, airports, and railways. Companies operating in these zones benefit from tax exemptions on raw materials, machinery, and technologies they import, including import tax, IPI, PIS/Pasep, and other levies. These incentives can be extended for consecutive periods of up to 20 years.

Another advantage is that EPZs are no longer required to export a certain percentage of their production. Companies can now sell freely on both the international and domestic markets.

However, access to tax incentives in the Manaus Free Trade Zone and other EPZs is not automatic. To benefit from the advantages, industrial projects must meet strict requirements. These include creating jobs in the region and providing social services to workers. In addition, companies must integrate advanced technologies into their products and production processes, while demonstrating a steady increase in productivity and competitiveness levels.

Chile

In Chile, the concept of a free trade zone refers to defined areas that, due to their proximity to ports or airports, are considered extraterritorial zones for customs purposes. In practice, this means that goods entering these zones are treated as if they were outside the country and are therefore exempt from tariffs, taxes, and other levies.

Chile is home to two important free trade zones: the Iquique Free Trade Zone (ZOFRI), located in a port city in the north of the country, and the Punta Arenas Free Trade Zone, located in the Chilean region of Patagonia. ZOFRI is the largest and one of the most important free trade zones in South America and acts as a distribution center for the movement of goods between Mercosur, Asia, and North America.

Both Iquique and Punta Arenas serve as hubs for companies engaged in the import, purchase, storage, processing, and trade of goods, all tax-free. These zones are true shopping paradises, offering everything from perfumes to electrical appliances, clothing, and toys at very attractive prices. However, the generous tax exemptions do not apply to “more sophisticated” products, such as luxury items, fireworks, tobacco, or alcoholic beverages, which remain subject to excise taxes.

The main tax advantages of the Iquique and Punta Arenas free trade zones include:

• Total exemption from first category corporate tax, which is normally 27%.
• Exemption from value added tax (19%) on sales and services within the zones.

Goods that are re-exported are completely exempt from taxes. However, if they enter the Chilean market, they are subject to the usual import duties and VAT, unless they come from a country with a free trade agreement with Chile.

To operate in these free trade zones, companies must meet the following conditions:

• The company must be incorporated in Chile.
• It must be registered with the Chilean Internal Revenue Service.
• It must be a first-class taxpayer under the Income Tax Law.
• It must maintain impeccable accounting records.

In addition, a minimum capital of CLP 5,000,000 (approximately USD 5,400) is required in the ZOFRI.

Costa Rica

Taking advantage of a free trade zone in Costa Rica is a fantastic opportunity for companies that want to achieve significant savings and increase their competitiveness in the global market. Costa Rica’s free trade zones allow for the processing, transformation, manufacturing, production, and maintenance of goods, as well as the provision of services for export or re-export, all with a number of attractive tax advantages.

In addition to tax incentives, the country also offers an unbeatable location: just a five-hour flight from the United States, with well-developed infrastructure and a highly skilled workforce. All this in a politically stable environment, which, frankly, is rather an exception in Latin America.

There are more than 30 free trade zones, most of them around the Greater Metropolitan Area (GMA) near San José. These zones contribute 15% of the country’s GDP and account for 60% of exports.

Among the best known are the Metropolitan Free Trade Zone in Heredia, the Coyol Free Trade Zone in Alajuela, the Eastern Free Trade Zone in San José, and the La Lima Free Trade Zone in Cartago.

If you register a company in one of these zones, you will benefit from advantages such as:

• Exemption from customs duties on the import of capital goods, raw materials, and machinery for a maximum of 12 years.
• Exemption from tax on profits and dividends paid to shareholders, the duration of which depends on the location of the company: up to 8 years within the extended metropolitan area and up to 12 years outside it.
• Exemption from corporate income tax (normally 30%) for up to 10 years.
• Exemption from taxes on exports, local sales, and value-added tax (default rate of 13%).
• No restrictions on the repatriation of capital or profits.

In short, if you want to operate tax-free for a while, Costa Rica seems to be the perfect place. The requirements to enjoy these benefits are clear: a minimum investment of US$100,000 or US$10 million in the case of megaprojects. This investment must be completed within the first three years after approval of the regime. In addition, companies must employ at least 15 people (or 200 in the case of manufacturing companies) and keep detailed records of their activities. Added to this is a monthly fee to the Foreign Trade Agency, starting at US$200.

And before you think about using the free trade zone for mining or arms production, bear in mind that these activities (as well as hydrocarbon extraction, electricity generation for sale, and banking services) are prohibited under the regime.

El Salvador

Under Decree No. 405, free trade zones were created in El Salvador to boost the local economy and encourage job creation. These zones are veritable tax havens for companies setting up in the country. Goods can enter the country without tariffs or import taxes, and the companies operating in these zones are mainly involved in the textile, clothing, agricultural, electronics, and fishing sectors.

There are currently 17 free trade zones in the country, and companies that set up in them benefit from very attractive tax advantages. Companies located within the metropolitan urban area can enjoy a total exemption from corporate tax for 10 years, while companies located outside this area can remain tax-exempt for 15 years. This is particularly lucrative when you consider that the general corporate tax rate in El Salvador is 25% for income up to US$150,000 and rises to 30% for amounts above that.

In addition, these companies are exempt from municipal tax and 13% VAT. Companies outside the urban region enjoy a 100% tax exemption for 20 years, with the possibility of extending it for another five years if the initial investment volume is doubled. Dividends, which are normally subject to a 5% tax, are also exempt for the first 12 years. In addition, there is a total tax exemption on the acquisition of real estate when it is used for authorized activities.

The requirements for setting up a company in a Salvadoran free trade zone depend on the type of activity and the model chosen. However, in principle, companies must meet at least one of the following criteria: a minimum investment of US$500,000 in fixed assets, which must be achieved within the first two years of operation, or the creation of at least 50 permanent jobs (five in the case of commercial companies).

In addition to free trade zones, El Salvador also offers industrial parks where companies can benefit from tax exemptions without being subject to the free trade zone regime. Here, too, there are attractive advantages, such as total exemption from customs duties and other import duties on machinery, equipment, and other essential inputs, as well as 100% exemption from municipal taxes on business assets throughout the entire period of operation in the country. There is also a total exemption from corporate income tax for up to 15 years. Some of the most important industrial parks are Altius Tech Park, Apolo Industrial Park, Orion Industrial Park, and Sirius Industrial Park.

Ecuador

Free trade zones have existed in Ecuador since 1991, but they were put on hold after the old free trade zone law was repealed in 2010, when they were replaced by ZEDES (Special Development Zones). These ZEDES were intended to encourage innovation, but the concept failed to take hold. With the recent approval of the Economic Efficiency and Job Creation Law, free trade zones are back in play and are being adapted to current circumstances.

Ecuadorian free trade zones are now defined as clearly delimited geographical areas within the national territory and are subject to special regimes in areas such as foreign trade, customs, taxes, finance, agriculture, technology, and capital treatment.

However, activities that harm the environment are strictly prohibited. This means that neither mining, hydrocarbon exploitation, nor weapons production are permitted within these zones.

There are currently three free trade zones in operation in Ecuador: at the airports in Quito and Guayaquil, and at the Quito cable car.

In terms of tax advantages, operators and users are exempt from corporate income tax for the first five years. From the sixth year onwards, a flat tax of 15% applies, which remains in place for the rest of the operating period. This is a significant advantage compared to the general corporate income tax rates, which are 22%, 25%, or 28%, depending on the shareholding structure.

In addition, there is a 15% exemption from value-added tax, capital export tax, and foreign trade duties. Likewise, VAT on purchases made within the national territory for production processes in free trade zones is refunded.

The good news is that there is no minimum investment amount required. However, job creation is an essential requirement.

Guatemala

Free trade zones have a long history in Guatemala and play an essential role in the country’s economy. They are an effective tool for attracting investment and promoting economic growth. Guatemala’s free trade zones are divided into three categories of users:

• Industrial: companies specializing in the production or assembly of goods for export outside the customs territory, re-export, or research and technological development.
• Services: these are related to international trade and range from logistics to specialized services.
• Commercial: these focus on the distribution of goods for export, without altering the characteristics or origin of the products.

There are currently five active free trade zones in the country:

• Cipelesa (Centro Industrial de Exportación, S.A.): Zone 7, Guatemala City.
• CONSIGNA: Villa Nueva, Guatemala, on the Pacific route.
• Sadinsa: Zone 4, Mixco, El Naranjo.
• Parque Zeta La Unión, S.A: Amatitlán, Guatemala.
• Zofraco, S.A: Zone 12, Guatemala City.

These zones offer a number of tax advantages. These include:

• 100% exemption from corporate income tax (25%) for the first 10 years.
• Exemption from value added tax (12%) on the movement of goods within and between free trade zones.
• Exemption from stamp duty and other taxes on the purchase and transfer of real estate.
• Exemption from VAT on the purchase of local production materials that are incorporated into the final product.

However, not everything is permitted. Activities related to the extraction and trade of crude oil, fuels, and natural gas are prohibited. The production and trade of alcoholic beverages, with the exception of wine and cider, is also not permitted. The list of prohibited products is extensive and includes mineral water, fishing, the timber industry, sugar cane, coffee, cotton, bananas, and natural rubber.

In addition, livestock, mining, the production of polluting materials, the manufacture of explosives, the cultivation of agricultural products, tobacco, cement, and even construction products are prohibited in these zones. The importation of vehicles for sale or rental is also not permitted. Financial services, telephony, and the trade in jewelry and precious stones are also excluded from Guatemalan free trade zones.

Honduras

For those doing business in Honduras, the country’s location in the heart of Latin America is an advantage that should not be underestimated. With flights taking only two hours to major airports in the United States and ports on the Atlantic and Pacific coasts, logistics seem simple: it takes between 48 and 72 hours to transport goods by ship to the United States.

Honduras has 39 free trade zones, making the country an attractive location for many foreign companies. The largest of these zones, the Villanueva Industrial Park, is located in San Pedro Sula. Other important zones include ZIP Calpules, ZIP Continental, ZIP San José, and the Zoli América Industrial Park.

In these zones, companies can operate with tax exemptions, including exemption from corporate income tax (25%). However, there are specific conditions depending on the category of the zone:

• Free Zones (ZOLIS): these zones are uninhabited and the companies operating in them are mainly engaged in export. They benefit from an indefinite exemption from corporate income tax.
• Temporary Import Regime (RIT): This category is aimed at companies that assemble or modify products for export outside Central America. Both maquiladora and normal exports are included. Companies are exempt from corporate tax for 10 years, provided they create 25 direct jobs.
• Industrial Zones for Export Processing (ZIP): These zones are private but supervised by the state and focus on exports. They offer tax and duty exemptions on imported and exported goods, as well as a 20-year corporate tax exemption for operators, while no limit applies to user companies.
• Tourist Free Zone: This zone focuses on services and offers an exemption from customs duties and sales taxes. Products imported into or exported from these zones are also exempt from customs duties, excise taxes, and other levies. In addition, companies are exempt from value-added tax (15%).

Honduras’ free trade zones also allow unrestricted currency exchange, uncomplicated importation of machinery and raw materials, and shipment processing in less than a day with minimal documentation. Among the sectors that benefit most from free trade zones are the textile industry, the automotive supply industry, and the agricultural industry, such as tobacco and shrimp.

Colombia

In Colombia, free trade zones are geographically strategic areas where industrial and service activities are carried out under a special tax regime. As in Chile, goods entering these zones are considered outside the customs territory, which exempts the products from import and export duties and taxes.

However, there is one condition: companies wishing to operate in these zones must meet two fundamental obligations. On the one hand, they must create a certain number of jobs within a set period of time, depending on the initial capital of the company. On the other hand, it is necessary to invest in the company.

Colombia’s free trade zones are divided into three main categories:

• Permanent free trade zones: These are defined areas that accommodate several industrial and commercial users and benefit from a special tax, customs, and trade regime. To operate in a permanent free trade zone, companies must meet investment and job creation requirements during the first five years of the project. These criteria vary depending on the total value of the company’s assets.
• Special permanent free trade zones: Only one industrial user can operate in these zones, but the tax and customs advantages are maintained. These zones are intended for investment projects that promise to have a major economic and social impact. The investment and job creation requirements must be met within three years of the free trade zone’s declaration.
• Temporary free trade zones: these zones are important for trade fairs, exhibitions, seminars, and conferences relevant to the economy and international trade.

Among the advantages of operating in a Colombian free trade zone is a fixed corporate tax rate of 20%, well below the 35% applied in the rest of the country. In addition, goods imported into these zones are exempt from value-added tax (normally 19%), and imports remain duty-free while they are in the free trade zones.

There is also no time limit for the storage of goods in the free trade zone, nor are there any restrictions on the sale of goods or services produced in the free trade zone within the national territory. However, not all goods are welcome. The importation of weapons, explosives, nuclear waste, and toxic substances is prohibited. Materials that can be used for the manufacture of drugs or controlled substances may only be imported with the express authorization of the competent authorities.

Colombia currently has 124 free trade zones spread across 20 departments. Of these, 42 are permanent free trade zones for several companies, while 82 are special permanent zones that only serve a single company. Economic activities in these zones are very diverse: 60 of them focus on the industrial sector, 47 on services, and 17 on the agricultural economy.

Among the best-known zones are:

• ZFP – Rionegro
• ZFP – Bogotá
• ZFP – Barranquilla
• ZFP – Candelaria
• ZFP – Cartagena

Mexico

In Mexico, companies can benefit from both free trade zones and special economic zones (SEZs), which are specifically designed to promote economic growth through attractive incentives. SEZs offer a very favorable business environment, especially for sectors such as the automotive, chemical, agricultural, electronics, and technology industries. Key advantages include:

• Corporate tax reduction (30%): Companies in SEZs enjoy a 100% tax exemption for the first 10 years and a 50% exemption for the following 5 years.
• 0% VAT (16%): Goods and services in SEZs are subject to 0% taxation as long as they are provided by companies based in Mexico.
• Social security incentives: Tax credits on employer contributions, with a 50% discount for the first 10 years and 25% for the following 5 years.
• Special customs regime: tax exemptions for imports and exports, with accelerated procedures and reduced tariffs.
• Exemption from the use of federal property: SEZ companies do not have to pay fees for the use of federal property.

There are currently seven special economic zones in Mexico, located in strategic locations:

• Puerto Chiapas, Chiapas
• Salina Cruz, Oaxaca
• Lázaro Cárdenas – La Unión, Michoacán and Guerrero
• Coatzacoalcos, Veracruz
• Champotón, Campeche
• Dos Bocas, Tabasco
• Progreso, Yucatán

Each of these zones specializes in certain sectors. Coatzacoalcos, for example, is a center for the agricultural and petrochemical industries, while Salina Cruz, on the Isthmus of Tehuantepec, a region rich in natural resources, attracts the automotive, mining, and renewable energy industries. In Chiapas, the focus is on the agricultural economy, while Lázaro Cárdenas attracts large automotive and aeronautical companies. The Progreso SEZ in Yucatán focuses on information technology and is home to more than 250 companies in this sector.

Before operating in one of these zones, it is necessary to demonstrate technical and financial capacity to the federal authority, but there are no minimum investment or employee requirements.

Free trade zones, meanwhile, are an extension of the National Development Plan and are mainly applied in the northern and southern regions of the country.

In the north, states such as Baja California, Sonora, and Nuevo León benefit, while in the south, regions such as Tabasco and Quintana Roo are supported. In these zones, value-added tax is reduced from 16% to 8% and corporate tax is reduced from 30% to 20%.

Nicaragua

Just a two-hour flight and three days’ travel by boat from the main ports of the United States, Mexico, and South America, Nicaragua is a strategic destination for entrepreneurs. With 50 free trade zones spread throughout the country, especially in the Managua region, such as the Portezuelo, Internacional Managua, El Tránsito, Alpha, and Industriales Privadas Argeñal free trade zones, Nicaragua offers numerous opportunities for businesses.

For companies that set up in these zones, Nicaragua offers advantageous conditions, such as free currency convertibility, unlimited capital repatriation, and considerable flexibility, as there is no minimum or maximum amount required for investments or hiring.

Tax advantages include exemption from corporate income tax, which is normally 30%, for the first 10 years, followed by a 60% reduction in the eleventh year.

These tax exemptions also extend to the payment of taxes on the sale of real estate, capital gains, and even the incorporation, transformation, merger, and modification of companies.

Value added tax, which is normally 15%, does not apply in free zones, as these areas are exempt from all indirect taxes, sales taxes, and excise taxes.

In addition, tariff and tax exemptions are very generous and include the importation of raw materials, supplies, equipment, machinery, as well as samples and molds, all of which are intended to support the commercial activities of companies.

Panama

Panama, located at the crossroads of the Americas, enjoys a strategic location that is reinforced by free trade agreements with several countries and different free trade zone regimes. Panama is therefore an ideal location for companies wishing to export their products or services to other markets. The country has three different sets of legislation for its free trade zones: one for the Colon Free Zone (CFZ), another for the Panama Pacifico Special Economic Zone, and a third for free trade zones. Each of these zones offers its own set of advantages.

• Free trade zones: these zones are part of a special integrated and simplified regime whose objective is to attract companies that contribute to Panama’s development and generate employment and investment. Authorized activities vary, but the most relevant sectors include manufacturing, logistics services, high technology, scientific research centers, and goods processing. There are currently 16 active free trade zones in the country, located in strategic locations, including Astiba in Ancón, Aristos in Chepo, BPO’s in Brisas del Golf, and many more. Companies that establish themselves in these zones enjoy complete tax exemption covering virtually all types of taxes: import taxes, taxes on goods and services, patents, licenses, corporate income tax (normally 25%), and even value-added tax (7%). Only dividends are taxed at a reduced rate of 5%, compared to the usual 10%.
• Colón Free Zone (CFZ): Located on Panama’s Caribbean coast, the Colón Free Zone is the largest free trade zone in the Western Hemisphere and is home to companies in the manufacturing, distribution, and retail sectors. Colón is the busiest container distribution center in Latin America and the second-largest free trade zone in the world. Companies that set up here benefit from generous tax exemptions, including total exemption from corporate income tax (25%), customs duties, and value-added tax. In addition, dividend taxes are reduced from 10% to 5%, and the operating license tax is only 0.5%. Companies can import, store, process, repackage, and re-export goods without encountering customs barriers, except in the case of weapons and oil.
• Panama Pacifico: The Panama Pacifico Special Economic Zone is a modern example of this type of zone. It is located on the grounds of the former Howard Air Base on the Pacific coast and is home to high-tech companies, logistics firms, and call centers. Its proximity to the Panama Canal and direct connection to the Pan-American Highway make this zone a strategic location for trade with Latin America and the Caribbean. Panama Pacifico is only 15 minutes from downtown Panama City and one hour from the largest port complex in the Caribbean. Companies in this area enjoy a long list of tax exemptions: there is no corporate tax (25%), no sales or patent taxes, no dividend taxes, no ITBMS (VAT), no import taxes, and even no property taxes, which will not apply until 2030.

All zones have their own requirements for entering the market, but there are no minimum investment or employee requirements.

Paraguay

In Paraguay, the maquila regime is often the focus of attention when it comes to tax incentives for large companies. However, free trade zones also offer significant advantages for those seeking tax benefits in the areas of commerce, industry, or services.

Free trade zones are special areas within Paraguay that are isolated from the rest of the country in terms of customs regulations. In these zones, companies can operate under a special legal framework. This means that goods can enter these zones without paying tariffs and no national taxes are levied, as these areas are not technically part of Paraguay’s customs territory.

There are currently only two free trade zones in Paraguay: the Zona Franca Global and the Zona Franca Trans Trade, both in Ciudad del Este. Despite their small number, these zones offer ample opportunities for export-oriented industrial activities, such as the manufacture of products using imported raw materials or semi-finished products, as well as for commercial activities such as the storage and handling of goods, and also some services.

Companies established in these zones are exempt from all national, municipal, and regional taxes. The only exception is exports, which are subject to a fixed tax of 0.5% on gross turnover, known as the “Free Trade Zone Tax”, which is applied to each export.

Another important advantage is the tax exemption for the payment of license fees, commissions, fees, interest, technical assistance, and even the rental of equipment from abroad.

However, when activities affect the domestic market, companies in these zones must pay corporate income tax, which is applied at a rate of 10% on the portion of sales made in the country.

To set up a company in one of Paraguay’s free trade zones, certain requirements must be met, such as investing the capital indicated in the application, carrying out the agreed activities within one year of signing the contract with the concessionaire and, in the case of industrial activities, starting production within two years.

Peru

Peru’s free trade zones were created to promote regional economic growth, reduce logistical barriers, boost the local economy, and combat unemployment. There are currently four special economic zones in the country: Zofratacna in Tacna, on the border with Bolivia and Chile; Zed Paita in Piura; Zed Ilo in Moquegua; and Zed Matarani in Arequipa.

Companies that set up in these zones benefit from a number of tax incentives:

• Income tax exemption: outside the SEZs, the tax rate is 29.5%, but within these zones, this tax is waived provided that at least 50% of the activities are export-oriented.
• Exemption from general value-added tax: in the rest of Peru, the VAT rate is 16%, but in SEZs this tax is exempt.
• Exemption from municipal development tax: outside the zones, this tax is 2%.
• Exemption from excise tax: in other parts of the country, this tax varies between 2% and 30% depending on the product, but in SEZs it does not apply.
• Exemption from ad valorem customs duties on imported goods: outside the zones, rates of 0%, 6%, or 11% apply, while in SEZs no customs duties apply.
• Exemption from all central, regional, or municipal government taxes: with the exception of certain contributions, such as those to the EsSalud social security system, which continue to apply.

The activities permitted in these zones are very varied and include industries such as manufacturing, agribusiness, assembly, logistics, repair or recycling, telecommunications, information technology, health research, and infrastructure construction.

There are no minimum investment or employee requirements to set up a business in these zones. However, authorized activities must begin no later than two years after the contract is signed.

Dominican Republic

The Dominican Republic stands out as the second fastest-growing economy in the Caribbean and one of the region’s top investment destinations. Much of this success is due to the 87 free trade zones scattered throughout the country. These zones play an essential role in the country’s economic development, attracting domestic and foreign investors through a series of tax and customs incentives. In addition, their central location in the Caribbean makes them a strategic hub for trade between North America, Europe, and Latin America.

The Dominican Republic’s free zones can be classified into three main categories:

• Industrial or service free zones: these can be established anywhere in the country and focus on the manufacture of goods and the provision of services.
• Border free zones: these are located in an area between 3 and 25 km from the border with Haiti and are designed to promote economic development in the most remote areas.
• Special free zones: these are created for companies that depend on real estate resources or that must operate close to natural resources, and offer tailor-made solutions for sectors with specific logistical or geographical requirements. To benefit from the incentives, companies must export 80% of their production and employ at least 200 workers in a single location.

In terms of locations, there are free zones throughout the country, such as the Caribbean Industrial Park in Santiago de los Caballeros, the Herrera Technology Free Zone and the Global Industrial Free Zone in Santo Domingo, as well as the Caucedo Multimodal Free Zone in Andrés, among many others.

Tax incentives are particularly attractive, including total exemption from corporate income tax, which is 27% in the rest of the country. In addition, companies in free trade zones are exempt from import taxes, customs duties, and other levies on raw materials, equipment, and construction materials.

Another advantage is the total exemption from tax on the transfer of industrial goods, comparable to value added tax, which outside the free zones is 18%.

However, these tax exemptions are temporary: free trade zones in border areas enjoy tax exemptions for a maximum of 20 years, while those in other regions benefit from these incentives for a maximum of 15 years, with the possibility of extension by the National Council of Free Trade Zones.

Among the most important export sectors in free trade zones are medical and pharmaceutical products, tobacco and tobacco products, electronic products, clothing and textiles, and jewelry.

Uruguay

There are currently 12 active free trade zones in Uruguay: Nueva Palmira, UPM Fray Bentos, Libertad, Punta Pereira, Colonia Suiza, Franca Florida, Cuecar, Grupo Continental, Zonamerica, WTC Free Zone, Parque de las Ciencias, and Aguada Park.

In these zones, companies enjoy complete freedom to carry out a wide range of activities, from trade and storage to the assembly of goods. This is done with total exemption from all national taxes, both existing and those that may be introduced in the future.

Therefore, companies operating in Uruguayan free trade zones do not have to worry about import and export duties or income tax on economic activities, which would normally amount to 25% of net turnover. They are also exempt from dividend distribution tax (7%), property tax (1.5%), and value-added tax (22% in the rest of the country).

However, the tax exemption does not apply to social security contributions for local workers. These must be paid in accordance with the rules in force in Uruguay, which range from 18.1% to 23.1% for workers and 12.625% for employers. Foreign employees may choose to be taxed under the non-resident tax regime (12% on their salaries) and not pay social security contributions.

Another rule stipulates that companies operating in Uruguayan free trade zones must hire at least 75% of their workforce from among Uruguayan citizens, whether natural or legal. At least one employee and one office must be located within one of the free trade zones.

There is an exception for service companies, which allows them to request a reduction of this quota to 50%.

Venezuela

Venezuelan legislation offers entrepreneurs who wish to invest in the country several special regimes with different incentives. There are free ports, free trade zones, and special economic zones (SEZs), all of which are designed to attract investment and promote the country’s socioeconomic development.

Venezuela currently has two free ports. The first is the free port of Nueva Esparta state, which covers the islands of Margarita and Coche, and the second is the free port of Santa Elena de Uairén, located in the capital of the Gran Sabana district, in Bolívar state. In these zones, goods can be imported and exported without paying national taxes such as VAT (16%).

Free trade zones are classified into four categories: industrial, service, commercial, or mixed. This allows companies to engage in production, services, or trade in goods for export, benefiting from tax and tariff exemptions. Among the most important free trade zones in the country are:

• Paraguaná Free Trade Zone (industrial, commercial, and services), located on the Paraguaná Peninsula in Falcón state.
• ZOFRAT (ATUJA Industrial, Commercial, and Services Free Trade Zone), located in Maracaibo, Zulia state.
• Cumaná Free Trade Zone, in the autonomous district of Sucre, Sucre state.

According to Law 34.772, imported products entering these zones are exempt from tariffs, internal taxes, including VAT, and customs duties, with the exception of controls such as health and safety protection measures.

Companies established in Venezuelan free trade zones are also exempt for a period of 10 years from corporate income tax, which is normally 15%, 22%, or 44%.

Venezuela has also recently created four special economic zones: Paraguaná, Orinoco, Ureña, and Puerto Cabello-Morón. Although these zones do not offer direct tax exemptions like free trade zones, they do have a refund system that allows companies to recover part of the taxes paid on imported materials and raw materials, provided they are used for productive activities that benefit the economy of the zone.

Take advantage of the opportunities offered by Latin American free trade zones

In this article, we have explained how large companies can significantly reduce their taxes, even in countries with worldwide taxation.

We have a large number of incentives from special zones. On the one hand, we have those that offer reduced (or zero) tax rates, ranging from 0% income tax in the first years of new regimes (as in Peru) to a flat rate of 15% in Ecuador or 20% in Colombia.

Or there are also those that grant total exemptions. The elimination of tariffs, VAT, and income taxes in many cases makes SEZs true tax havens.

On the other hand, there are those that offer logistical advantages. Simplified customs procedures and strategic locations near ports and airports (such as in Chile, Honduras, or Nicaragua) guarantee a more agile and economical supply chain.

If you want to continue learning about how to free yourself from the burden of the state, sign up for free to our newsletter.

Or if you want us to help you optimize your personal or business tax situation (whatever the size of your business), take a look at our consulting services.