Investment Incentives

The Colombian government offers investment incentives, such as income tax exemptions and deductions in specific priority sectors, including the so-called “orange economy,” which refers to the creative industries, as well as agriculture and entrepreneurship.  More recently, the government has offered additional incentives in an effort to generate investments in former conflict municipalities. Investment incentives through free trade agreements between Colombia and other nations include national treatment and most favored nation treatment of investors; establishment of liability standards assumed by countries regarding the other nation’s investors, including the minimum standard of treatment and establishment of rules for investor compensation from expropriation; establishment of rules for transfer of capital relating to investment; and specific tax treatment.

The government offers tax incentives to all investors, such as preferential import tariffs, tax exemptions, and credit or risk capital.  Some fiscal incentives are available for investments that generate new employment or production in areas impacted by natural disasters and former conflict-affected municipalities.  Companies can apply for these directly with participating agencies. Tax and fiscal incentives are often based on regional, sector, or business size considerations. Border areas have special protections due to currency fluctuations in neighboring countries which can impact local economies.  National and local governments also offer special incentives, such as tax holidays, to attract specific industries.

Special tax exemptions have existed since 2003 and range from 10 to 30 years.  Income tax exemptions for investments in tourism cover new hotels constructed between 2003 and 2017, and remodeled and/or expanded hotels though 2017, for a period of 30 years.  Investments in ecotourism services benefit from income tax exemptions through 2023. New forestry plantations and sawmills also have benefitted from income tax exemptions since 2003.  Late yield crops planted through 2014 are tax exempt for 10 years from the beginning of the harvesting. Electricity from wind power, biomass, and agricultural waste were tax exempt until January 1, 2018, as were river-based transportation services provided with certain shallow draft vessels and barges.  Certain printing and publishing companies can benefit from tax exemptions through 2033. Software developed in Colombia has been tax exempt for up to five years since 2013. To meet exemption requirements, the software must have its intellectual property rights protected, be based upon a high concentration of national scientific and technological research, and be certified by Colciencias (Colombia’s agency for promoting science, technology, and innovation).

Foreign investors can participate without discrimination in government-subsidized research programs, and most Colombian government research has been conducted with foreign institutions.  R&D incentives include Value-Added Tax (VAT) exemptions for imported equipment or materials used in scientific, technology, or innovation projects, and qualified investments may receive tax credits up to 175 percent.  A 2012 reform of Colombia’s royalty system allocates 10 percent of the government’s revenue to science, technology, and innovation proposals executed by subnational governments. Although only subnational governments can submit a project, anyone, including foreigners, can partner with them.

In a tax reform passed in December 2016, the Colombian government created two tax incentives to support investment in the 344 municipalities most affected by the armed conflict (ZOMAC).  Small and microbusinesses that invest in ZOMACs and meet a series of other criteria will be exempt from paying any taxes from 2017 to 2021, while medium and large-sized businesses will pay 50 percent of their normal taxes.  The second component is entitled “works for taxes” (“Obras por Impuestos”), a program through which the private sector can directly fund infrastructure investment in lieu of paying taxes.

In the financing law of 2019 (tax reform), the Colombian government introduced exemption incentives in the payment of income tax for the new orange economy companies that invest more than COP 150 million in three years and that generate at least three jobs.  In addition, it created incentives for new projects in the agricultural sector which will be exempt from income taxes for seven years. Finally, the law created an incentive for the tourism sector for the construction of new hotel infrastructure, and the benefits were extended to projects such as boat docks, theme parks, and eco and agro-tourism projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

To attract foreign investment and promote the importation of capital goods, the Colombian government uses a number of drawback and duty deferral programs.  One example is free trade zones (FTZs). As of the end of 2018, there were 112 FTZs (including permanent, single company, and special types). These have generated development of new industry infrastructure for more than 840 companies in 63 municipalities and 19 geographic departments.  While DIAN oversees requests to establish FTZs, the Colombian government is not involved in their operations.

Decree 2147 of 2016 integrated the regulatory framework for FTZs dating back to 2007 in one document, and made clarifications to certain processes without significant changes.  The government revised tax treatment of companies operating FTZs with the December 2016 tax reform, maintaining a preferential corporate income tax for FTZs while increasing it from 15 to 20 percent.  FTZ users with contracts of legal stability will continue to pay 15 percent. Other changes include VAT exemption for raw materials, inputs, and finished goods sold from the national customs territory to the FTZs, as long as those purchases are directly related to the corporate purpose.  By contrast, no matter the purpose of the purchase, companies not located in the FTZs are affected by VAT. The 2016 tax reform increased VAT from 16 to 19 percent, and eliminated the Income Tax for Equality (CREE), a nine percent tax on company profits over COP 800 million (approximately USD 275,000) designed to contribute to employment generation and social investments.

In return for these and other incentives, every permanent FTZ must meet specific investment and direct job creation commitments, depending on their total assets, during the first three years.  Special FTZs are required to generate a certain number of direct jobs depending on the economic sector. According to the figures of the Colombian National Administrative Department of Statistics (DANE), FTZs reached cumulative exports valuing USD 28,346 million between 2005 and 2018.  Between January and December of 2018, exports amounted to USD 2,812 million.

Performance and Data Localization Requirements

Performance requirements are not imposed on foreigners as a condition for establishing, maintaining, or expanding investments.  The Colombian government does not have performance requirements, impose local employment requirements, or require excessively difficult visa, residency, or work permit requirements for investors.  Under the CTPA, Colombia grants substantial market access across its entire services sector.

In 2017, Colombia issued implementing regulations of its Data Protection Law 1581 of 2012.  The SIC, under the Deputy Office for Personal Data Protection, is the Data Protection Authority (DPA) and has the legal mandate to ensure proper data protection.  The SIC issued a circular on August 10, 2017 defining adequate data protection and responsibilities of data controllers with respect to international data transfers.  The circular details several general criteria reflecting the SIC’s view of adequate data protection and also provides a list of countries, which includes the United States, that meet the SIC’s data protection guidelines.

In Colombia, software and hardware are protected by IPR (Dirección Nacional de Derecho de Autor – DNDA – http://www.derechodeautor.gov.co/).  There is no obligation to submit source code for registered software. However, if the IT provider is contracting with the Colombian government, through a clause of the service contract, the source code must be provided to the entity that the government IT provider is contracting.  The SIC launched a national database registry in November 2015 to implement Law 1581 pertaining to personal information protection and management. It requires data storage facilities that hold personal data to comply with government requirements for security and privacy, and data storage companies have one year to register. The SIC enforces the rules on local data storage within the country through audits/investigations and imposed sanctions.