Uruguay, Latin America’s second-smallest country, has produced two World Cup champion teams, and now the country is rallying behind its film business.

This year, debutant director Fede Alvarez topped U.S. charts with his “Evil Dead” remake while international festivals, including Berlin and Cannes, are programming more Uruguayan pics.

Uruguayan cinema burst onto the festival scene in 2001 when Juan Pablo Rebella and Pablo Stoll’s slacker comedy “25 Watts” snagged a Rotterdam Tiger Award. Three months later, Beatriz Flores Silva’s social comedy “Tricky Life” bowed in Uruguay, selling nearly 140,000 tickets, a record number at the time.

“Watts helped put Uruguayan film onto the international arthouse map, and Life built up Uruguayan audiences’ appetite for local movies,” recalls 25 Watts producer Fernando Epstein. “But we quickly realized the only way to produce was via international co-production.”

The local population already had an international sensibility, thanks for an immigrant influx after the Spanish Civil War and World War II, and this outlook helped inform local artists, says helmer-producer Esteban Schroeder of shingle “La Suma.”

In 2008, the government passed a film law that created the Uruguayan Film and Audiovisial Institute (Icau), which handles a $5 million annual fund for pic projects. The fund has backed more than 300 projects, per Icau director Adriana Gonzalez.

Film budgets averages $600,000-$700,000; local financing hits, at best, $300,000-$350,000 per pic. “Icau funds have allowed filmmakers to establish a financing base for their productions,” says Alejandra Trelles, Uruguay film fest programmer.

Also, there’s hope that public funding will increase. “Political authorities are realizing the economic potential of film,” says producer Mariana Secco at Salado Media.

Uruguayan filmmakers have proved adept exploring financing opportunities, tapping into pan-regional co-production fund Ibermedia, the San Sebastian-Toulouse Films in Progress, Cannes’ L’Atelier workshop.

“Being a small place has made us more aggressive in securing financing abroad,” says Secco, who’s co-producing Alvaro Brechner’s “Mr. Kaplan” with Germany’s Razor and Spain’s Baobab.

“In recent years, co-production opportunities with Brazil or Argentina have grown,” says Schroeder, who produced Walter Tournier’s stop-motion “Selkirk, the Real Robinson Crusoe” with Disney’s Buenos Aires-based Patagonik.

Uruguayan B.O. — for foreign and local films — is growing, up 14% last year to $18.1 million, per Francisco Armas, at exhibition group MovieCenter.

A wider range of genres, from toons (“Selkirk,” “Anina”) to thrillers (“La casa muda,” gangland B.O. hit “Reus”) to docs (Aldo Garay’s “El casamiento,” Sebastian Bednarik’s “Mundialito”) also suggest film industry growth.

“Uruguay is now discovering its own identity. Documentaries, Uruguayans’ stories, have an audience,” says director Ana Pita (“Prisoner”).

With U.S. majors taking a 79.6% market share, however, the immediate challenge for Uruguay’s biz is distribution.

This year will see a 30-screen digital cinema network — including five screens in Uruguay — launch in Latin America, backed by pan-regional trade org Mercosur, attack head-on one of Latin American film’s biggest problems: pan-regional circulation of films, says Epstein, who’s also director of the network’s programming office.

Eleven Uruguayan filmmakers making their marks at home and on foreign screens