These corporations are stock companies whose main activity is to invest abroad (in securities, bonds, shares, debentures, drafts, real estate or movable assets) on their own behalf or that of third parties. They may also engage in commercial activities outside Uruguay, on their own behalf or that of third parties. They enjoy a special fiscal treatment being subject only to a tax at the rate of 0,3% per year on their capital and reserves as explained herein. Their activities within Uruguay are restricted as referred to under paragraph VI.

The procedures for incorporation, operation, control, etc. are similar to those for other corporations, with some special aspects: a) capital may be expressed in dollars; b) a minimum of 20% of the authorized capital must be subscribed and a minimum of 25% of the subscribed capital must be paid in; c) subscription and payment of capital may take place subsequent to the approval of the incorporation papers; d) incorporation is exempt from the 1% tax on authorized capital.

5.1 Activities

S.A.F.I.s may:

a) Perform, either directly or indirectly, on their own behalf or that of third parties or for third parties, investments in securities, bonds, shares, notes, debentures, movable or real estate, and to have invested abroad at least fifty one per cent of their own assets and/or on account of third parties (and in order to benefit from the fiscal advantages they also have to comply with what is referred to in VII below).

b) Perform the same activities as in 1) above and to have income generated abroad exceeding 50% of their total income.

c) As referred to above SAFIs may also carry out off-shore commercial activities on their own behalf or that of third parties. The inclusion of the commercial activities within the purpose of these companies was authorized by section 635 of law No. 16.170, dated December 28, 1990.

5.2 Limitations

SAFIs may not carry investments activities and/or hold assets in Uruguay. Any possible exceptions should be examined on a case by case basis.

The shares of these corporations may not be pledged nor submitted as guarantee or security of credits granted to their owners.

5.3 Tax treatment

S.A.F.I.s are subject exclusively to an annual tax of 0,3% on capital and reserves, provided their assets within the country be comprised solely by shares of other corporations of the same kind, by balances in current accounts totalling less than 10% of their assets and/or by national public debt, municipal and mortgage certificates totalling a nominal amount not exceeding 10% of their assets. S.A.F.I.s are exempted from any other taxes or contributions, whether on their income, capital or net worth.

The law provides that the amount of capital subject to tax shall be calculated on the capital issued in shares and debentures or notes plus reserves, plus any part of the liabilities and or funds managed on behalf of third parties, which exceeds an amount equal to double of the total capital issued in shares plus debentures and reserves.

Maintenance of an adequate assets-liabilities ratio allows for a reduction or regulation of the significance of the applicable tax (thus, in a very simplified example, a corporation may operate with an effectively paid-in capital of U$S 1.000.000 and pay a tax amounting to U$S 3.000; but, should one third of such capital be paid-in and the rest be received as loans from third parties or from their own shareholders, the tax would be reduced to approximately U$S 1.000).

Taxable amounts are determined at the end of the corporation's business year.

Foreign securities held by these companies shall be valued according to their purchase value if they have been acquired through a stock broker or a banking institution, or according to their nominal value in all other cases.