Colombia has one of principal economy in Latin America and is one of the most business-friendly countries in the region. Proof of this is the entry into the Organization for Economic Cooperation and Development -OECD-, which puts us at the level of Mexico and Chile: a country with better public policies, with greater confidence and investment in the national economy, and with a better positioning and international influence.
Colombia also has a conducive and attractive business environment for foreign investors thanks to its qualified workforce and various investment incentives.
In Colombia investors and companies who come looking for the business with the highest profitability and sustainability find a panorama that presents a varied range of investment options that goes from sectors such as mining, energy, and infrastructure to Information and Communication Technologies (ICT), a sector in which the country has had a constant development in recent years.
With so many business opportunities in Colombia, it is strategic to understand what are those specific reasons that make this an attractive and advantageous country to invest, so that the best decision can be made regarding the sectors of the economy that are most convenient and with greater potential for growth and expansion and the benefits that you can access if you decide to make a foreign direct investment for the first time or expand your business in Colombia.
Among these mentioned reasons we can expose five of them as following:
- A COUNTRY WITH A STRATEGIC GEOGRAPHIC POSITION.
Colombia has multiple geographic advantages that position the country as a key destination in the region. Being the only country in South America with a coastline in the Pacific and Atlantic Oceans and the Caribbean Sea allows it to have a wide window for foreign trade, with easy access to the global market. Its strategic location less than six hours by plane from the main cities In the Americas, can become an export platform and a key point for the provision of services such as those related to BPO (Business Process Outsourcing) and share services point.[1]
In the country there is a technological infrastructure supported by nine submarine cables that guarantee connectivity and increase Colombia’s competitiveness.
The Ex-president Bill Clinton, who intervened as a president of the Clinton Foundation, added that even in difficult times such as the current one due to the COVID-19 pandemic, “smart investments” can be made in Colombia that will also be beneficial for the people. [2]
He also underlined the possibilities of forestry agriculture, since due to its geographical location the Colombian country meets the conditions to host at least 10 species of forests, as well as agribusiness due to the diversity of its thermal floors.
Colombia has the climate, agriculture, knowledge, and skills to harvest almost any crop, including high-quality exports such as coffee, essential oils, and spices, which can support the livelihoods and economic growth of many rural communities.
- IN COLOMBIA MINIMUM INVESTMENT WITH LESS CAPITAL IS REQUIRED
Foreigners who invest in Colombia can do so without the need to have a large capital, compared to what they would need to have to invest in other markets in the region. The reason lies in the devaluation of the Colombian peso against the dollar, which becomes one of the advantages best used by investors from other countries.
An example with which this advantage of investing in Colombia can be understood more easily is the real estate sector, investing in a real estate project in the country is much more profitable than doing it in a market like the United States because with the amount of money that is bought a luxury apartment in Bogota could only buy a small property in Miami or New York.[3]
In short, with less money you can make more far-reaching investments.
- THERE ARE FREE TRADE ZONES IN COLOMBIA
Another advantage of investing in Colombia is the ease of settling in the free trade zones, which implies certain benefits to produce goods or the provision of services. It is a special regime with tax benefits and unique marketing possibilities or legal conditions that facilitate direct foreign investment in Colombia.[4]
These are some of the benefits offered by free zones in Colombia:
- Single rate of income tax of 20% for industrial users of goods and industrial users of services. Commercial tax players are taxed at the general rate 31% for 2021 and 30% for 2022 and following.
- Customs taxes (VAT and TARIFF) are not incurred or paid for goods that are introduced from abroad, likewise, raw materials, inputs and certain goods that are sold from national customs territory to industrial users of free zones.
- Possibility of selling to the national territory 100% of the production of goods or services produced in free trade zones with the respective payment of tariffs and VAT.
- COLOMBIA BRINGS EXCELLENT TAX BENEFITS
With the aim of being the main investment destination in the region, Colombia has put in favour of companies a series of multiple and attractive tax benefits that range from the reduction of income tax to various exemptions. These incentives are among the main advantages of investing in a country with a strategic geographic location and marked macroeconomic stability.
The following are the main tax benefits of investing in Colombia[5]:
- Reduction of income tax
Colombian tax legislation establishes for companies from various sectors the progressive reduction of the corporate income tax rate from 33% to 30%. In addition, it provides for a progressive reduction of the applicable rate in matters of presumptive income from 3.5% to 0% in 2022. According to this tax legislation, those investors who decide to start or continue their business in Colombia will also have access to a tax credit of the 50% on Industry and Commerce Tax (ICA).
Taxpayers who make investments or donations, directly or indirectly, in projects classified as technological research and development, will have the right to deduct 100% of the investment from their net income in the taxable period in which they are made. Said investments may discount 25% of the value invested in said projects in the taxable period in which the investment was made.
This legislation also offers differential rent incentives for new hotel projects – new hotels that are built, remodelled, or expanded in municipalities with up to 200,000 inhabitants within 10 years of the financing law coming into effect – at 9%.
- Tax exemptions
In specific cases, exceptions are made in the payment of taxes to companies that meet specific characteristics that contribute to the socioeconomic development of the country.
As of 2019, among other cases, the following income will be exempt:
- Colombian companies with an orange economy will be exempt for 7 years, provided they meet certain requirements.
- Income from companies that make investments that increase productivity in the agricultural sector for a term of 10 years, provided they meet certain requirements.
- Income from the sale of renewable electricity (does not include hydroelectric plants), for 15 years from 2017, meeting certain requirements.
- Income associated with social and priority housing projects (includes property, first sale of VIS / VIP, urban renewal, financial returns, among others).
- New forest plantations.
- Low draft river transport, for 15 years
- Income associated with housing projects.
- Incentives and capital goods.
Colombia provides a 0% duty for the importation of capital goods and raw materials not produced in the country, in addition to the possibility of take as tax credit from the income tax the VAT paid for the acquisition, construction or formation and import of real productive fixed assets.
- Incentives for mega investments.
In Colombia, the special tax regime of mega investments for 20 years has been created for income taxpayers who generate at least 250 direct jobs and make new investments within the national territory with a value equal to or greater than 30,000,000 UVT (COP $ 1,028,100.000,000-year 2019. Approx. USD $ 342,000,000).
The benefits include the 27% income tax rate, exclusion from the presumptive income regime, exclusion from tax profits, depreciation benefits and exclusion from wealth tax. Additionally, for these investments a tax legal stability regime is created that will allow them to maintain the benefits in the event of unfavourable modifications to the regime, in exchange for the payment of a premium of 0.75% of the value of the investment made each year. for a period of 5 years.
Investments in hydrocarbons or mining are excluded from this regime.
- Benefit from the Colombian holding company regime.
This tax regime will apply to national companies whose main purpose is the holding of securities, investment in shares or participations abroad. Income exemption benefits are established, among others, for dividends distributed to them by non-resident entities and those distributed by CHCs to non-resident partners or shareholders, as well as for the sale of their shares. This will allow the country to compete with jurisdictions such as Panama, Costa Rica and offshore jurisdictions for multinationals to establish their headquarters in the country.
- Trade agreements with 60 countries
Foreign investors who decide to come to Colombia will also have the possibility of taking advantage of the trade agreements that Colombia has signed with more than 60 countries; so, they can access new markets, increase the quantity and diversity of their exports, and improve the quality of their production processes.
- INVESTOR SUPPORT
One of the advantages of investing in Colombia that foreign entrepreneurs value the most is the constant accompaniment from the research process to the installation of the investment in the country and the monitoring of the investment in the country by entities such as PROCOLOMBIA.
There is, for instance, the System for the Facilitation of Internationalization of Companies (Sifai), which aims to improve Colombia’s position in terms of investment climate and the environment for doing business through the institutionalization of a high-level Joint Technical Committee that convenes to the corresponding entities. As members of the committee are the High Councillor for Competitiveness, Science, Technology, and Innovation; the Minister of Commerce, Industry or Tourism; the director of the National Planning Department; the president of PROCOLOMBIA; and the president of the Private Council for Competitiveness or the delegates of each one[6].
Lastly, availability of talent, in addition to a favourable business environment and a strategic geographic location, are some of the attractions that have positioned Colombia as one of the most fashionable investment destinations in the world.
****This document was prepared for academic purposes, which is why it does not correspond to an advisory or consultancy, so Al Partners is not responsible for any contingency that may arise with reference to this article ****
[1]Newsletter (2017). Cinco ventajas de invertir en Colombia. https://investincolombia.com.co/es/articulos-y-herramientas/articulos/cinco-ventajas-de-invertir-en-colombia. Procolombia, Bogotá, Colombia
[2] EFE (2020). Clinton invita a invesores extranjeros a hacer negocios en Colombia. Recuperado de: https://www.bancaynegocios.com/clinton-invita-a-inversores-extranjeros-a-hacer-negocios-en-colombia/ Banca y Negocio. Bogotá, Colombia.
[3] Idem. Newsletter (2017).
[4] Procolombia (2017). El clima perfecto para invertir. Recuperado de: https://procolombia.co/noticias/colombia-con-el-clima-perfecto-para-invertir Bogotá, Colombia.
[5] Newsletter (2020). ¿Cuáles son los beneficios tributarios de invertir en Colombia? Recuperado de: https://investincolombia.com.co/es/articulos-y-herramientas/articulos/cuales-son-los-beneficios-tributarios-de-invertir-en-colombia Procolombia, Bogotá, Colombia.
[6] EFE (2019). Las ventajas que ofrece Bogotá como destino de inversión. Recuperado de: https://www.portafolio.co/amp/economia/bogota-destino-de-inversion-528541. Portafolio El tiempo. Bogotá, Colombia.
