Colombia - 4-Industrial PoliciesColombia - 4-Industrial Policies
Investment IncentivesThe Colombian government offers investment incentives such as income tax exemptions and deductions in specific priority sectors. During the last decade, it has committed to providing more incentives and stability for investors. 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 companies can apply for these directly with participating agencies. Tax and fiscal incentives are often based on regional considerations. Border areas have special protections due to currency fluctuations in neighboring countries, which can harm 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 ten to thirty 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, and for ecotourism services 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 ten years from the beginning of the harvesting. Electricity from wind power, biomass, and agricultural waste are tax exempt until January 1, 2018, as are 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 Colciencias (Colombia’s agency for promoting science, technology, and innovation) must grant its certification.
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 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 ten 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. Colombia’s science, technology and innovation investment as percentage of GDP was 0.62 percent in 2016; Colombia’s R&D investment for 2015 was 0.239 percent of GDP, 4.4 percent less than in 2014.
Foreign Trade Zones/Free Ports/Trade FacilitationTo attract foreign investment and promote the importof capital goods, the Colombian government uses a number of drawback and duty deferral programs. One example is free trade zones (FTZs). As of January 2017, there were 104 FTZs (including permanent, single company and special types). These have generated development of new infrastructure of services for industry with more than 800 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 in one document the regulatory framework for FTZs dating back to 2007, and made clarifications to certain processes without significant changes. Tax treatment of companies operating FTZs was revised with the December 2016 tax reform. The reform maintained a preferential corporate income tax for FTZ’s, but increased 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 Free Trade Zones, 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 new tax reform increased VAT from16 to 19 percent. The reform also eliminated the Income Tax for Equality (CREE), a nine percent tax on company profits over 800 million pesos (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 of the project. Special FTZ zones are required to invest and generate a number of direct jobs depending on the economic sector. According to DANE, in 2016, total exports of 35 permanent FTZs and 60 special permanent FTZs were USD 3 billion, a 47 percent increase from 2015. In 2016, imports to FTZs decreased 14 percent to USD 2 billion. The trade balance for 2016 registered a surplus of USD 1.1 billion in FTZs; in 2015 there was a deficit of USD 209 million in FTZs.
Performance and Data Localization RequirementsPerformance 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.
Colombia is issuing new 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 draft circular on February 28, 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 excludes the United States, that meet the SIC’s data protection guidelines. This circular would affect contracting of public cloud services under the National Procurement Office’s Colombia Compra Eficiente Program. The agency requires a defined legal framework on cloud services to develop the necessary regulations for the public tender processes and exclusion of the United States from the list of countries complying with data protection standards could preclude U.S. firms from bidding for public cloud contracts.
The government currently requires local data storage only for government entities and does so using its service contract with a private company. In Colombia, software and hardware are protected by the National Copyright Directorate (DNDA), Colombia’s IPR enforcement agency. 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. Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.
Colombia Economic Development and Investment