Investment opportunities in Colombia (Part 1)

Commitment to sustainability, workforce and strategic location are the reasons why Colombia is a top place to invest.

Foreign direct investment in Colombia has been a major catalyst for the country’s economic development and a major source of job creation. The Colombian government is committed to attracting investments that contribute to building a lasting peace that is consistent with the social, economic and environmental justice that Colombia aspires to.

The goal is to attract sustainable capital that focuses on protecting biodiversity, that responsibly contributes to the energy transition and human development, and that works in favor of reindustrialization.

Why Colombia

Colombia has the fourth-largest economy in the region and stands out as one of the most stable economies in Latin America. The forecast for the next five years shows that Colombia’s GDP will grow faster than markets such as Brazil, Mexico and Argentina. In addition, Colombia offers an attractive domestic market with over 52 million inhabitants.

The country has several regions and business centers with a wide range of industry needs. Therefore, investors can find several business opportunities throughout the country.

Colombia is actively responding to international challenges such as sustainable development. The country has clear and ambitious goals in this regard, including reducing greenhouse gas emissions by 51% by 2030, achieving zero deforestation by 2030 and carbon neutrality by 2050. This framework creates several investment opportunities related to the circular economy, electromobility, equipment conversion and recycling. Also, thanks to its biodiversity, the country offers business opportunities in the fields of natural ingredients, sustainable agriculture and ecotourism.

High levels of foreign economic participation and trade further enhance Colombia's attractiveness for business. Colombia is an investment gateway to the Americas. With its privileged geographical location in the center of the continent, which allows you to quickly reach any destination in the hemisphere, the country is an ideal export platform.

In addition, Colombia is located within 2 time zones of all major cities in the Americas, making the country a great place to export services. Moreover, companies located in Colombia also benefit from a free trade zone regime that offers many incentives and is at the forefront of global trade trends.

When considering the region, Colombia's role as a regional hub becomes more apparent. Companies located here have preferential access to 97% of the countries in the Americas thanks to the Free Trade Agreement in place. These countries represent more than 31% of the world's GDP and 1 billion inhabitants.

The country has a large business network that supports the development of companies. This guarantees a reliable supply chain and the ability to find allies and customers. In addition, 1,110 startups operating in 26 sectors are part of Colombia's innovation ecosystem.

Moreover, the country offers key business conditions and attracts a large, young and urban workforce. Colombia's workforce stands out for its commitment and diversity of training. These advantages have encouraged global companies to trust and invest in Colombia. In addition, the country offers incentives for the entry of foreign companies, such as the Single Investment Window, as well as incentive policies in many sectors that support and accompany foreign investment in Colombia.

The presence of nutrient-rich soils, climate, thermal diversity and year-round supply of agricultural products, as well as the size of the market, position Colombia as an agri-food hub in the region with numerous investment opportunities.

Moreover, thanks to competitive prices for human talent, raw materials, distribution and production factors, Colombia offers an ideal location for manufacturing. There are opportunities related to the automotive industry, pharmaceuticals and aeronautics, among others.

Similarly, government policies for digital transformation and attracting investment in technology and value-added services make the country an ideal place to expand businesses related to the creation of knowledge-based services. Colombia offers opportunities in sectors such as software, video games, outsourcing services, etc.

Investment Incentives

The Colombian Constitution guarantees equal treatment of foreign and domestic investment. Foreign direct investment plays a fundamental role in the Colombian economy. The country has a clear and effective legal framework in line with international standards as a tool for attracting high added value investments aimed at sustainability.

Hotel and tourism incentives

Special tax rate of 9% on tourism-related income

a) For 20 years, for projects developed between December 31, 2020 and December 31, 2030 in municipalities with a population of up to 200,000 inhabitants. For example:

• New hotels.
• Renovated or expanded hotels.
• New theme park projects.
• New ecotourism and agrotourism park projects.
• New boat projects berths.

b) For 10 years for projects developed between December 31, 2020 and December 31, 2026 in municipalities with a population of 200,000 or more. For example:

• New hotels.
• Renovated or expanded hotels.
• New theme park projects.
• New ecotourism and agritourism park projects.
• New boat dock projects.

c) For 10 years for revenue from renovated or expanded theme parks if the projects are completed between December 31, 2020 and December 31, 2026.

d) For 10 years for care, nutrition, nursing, accommodation, rehabilitation, physical therapy and other assistance services provided in senior tourist assistance centers that began operations between 2020 and 2026, or that began operations before January 1, 2020 and underwent renovation or expansion between from 2020 to 2026, in the amount of at least 50% of the purchase price of the property.

Sales tax on the import, manufacture, construction or acquisition of productive fixed assets

Companies registered for VAT will be able to deduct the VAT paid on the acquisition, construction or manufacture and import of productive real fixed assets from their income tax payable, including VAT on services necessary for their provision for use.

Deduction for first employment

Taxpayers can deduct 120% of the wages paid to employees under 28 years of age if this is their first job.

Energy efficiency — Non-traditional energy sources FNCE (Law 1715 of 2014 and 2099 of 2021)

Income tax deduction of 50%:

Taxpayers with investments in research, development and production of electricity from non-traditional energy sources, including green and blue hydrogen (NCES or FNCE for its acronym in Spanish); and measures for efficient energy management; including smart metering, can deduct up to 50% of the cost of the investment for up to 15 years, starting from the fiscal year following the year in which the investment operations begin. The deductible value shall in no case exceed 50% of the taxable income assessed before deducting the cost of the investment.

VAT exemption:

Domestic or imported equipment, components, machinery and services used for pre-investment preparation or investment in the production and use of NCES, as well as for the measurement and assessment of potential resources, are exempt from VAT in order to stimulate the use of energy from NCES.

Tariff exemptions:

Owners of new investments in NCES projects are exempt from import tariffs on machinery, equipment, materials and supplies solely for pre-investment and investment work on projects using these energy sources. This tariff incentive applies to machinery, equipment, materials and supplies that are not produced domestically and can only be acquired through import.

Accounting incentive:

Power generation received from NCES will benefit from accelerated depreciation treatment, up to 33.33% per annum for machinery, equipment, construction work for renewable energy generation and energy efficiency actions/measures. This incentive can be obtained simultaneously with a 50% income tax deduction for the same investment.

0% Tariff Import

By Resolution 272/2018, the Ministry of Commerce, Industry and Tourism established a 0% duty on the import of products classified in the Standard Classification by Economic Use or Destination (CUODE, according to its Spanish acronym) as raw materials or capital goods that are not produced domestically. More than 3,000 tariff subheadings listed in Article 1 of the Regulation will be subject to 0% duty at the time of import. The list is reviewed and updated annually by the Ministry of Commerce, Industry and Tourism.

Income related to social housing (VIS, according to the Spanish acronym) and priority social housing (VIP, according to the Spanish acronym)

Exemption from income tax on income from the sale of property for the purpose of developing projects, first transfer of social housing and the sale of property for urban renewal projects.

Colombian Holding Company Colombia (CHC)

Designed for domestic companies whose main activities may be: holding securities, investing in or holding shares or interests in Colombian and/or foreign companies or entities and/or managing such investments.

Dividends paid to the holding company by companies not registered in Colombia are exempt from income tax.

Dividends paid holding company to residents are subject to withholding tax. Payments to non-residents are not subject to income tax — they are considered foreign-source income.

Incentives for Investment in Scientific and Technological Development

Income taxpayers who directly or indirectly invest in projects classified as research and technological development are entitled to deduct 100% of their net income in the financial year in which they are made. In addition, 25% of the cost invested in these projects may be offset in the financial year in which the investment is made.

Special Economic Zones (SEZ)

There are 120 different Special Economic Zones in Colombia . These zones play a key role in Colombia’s industrial development strategy and economy.

Colombia is home to a quarter of all business park economic zones in South America, offering a unique window into SEZ financing across the continent.

Colombia’s SEZs, known in Spanish as Zonas Francas, are designated business parks where tenants enjoy a variety of tax and regulatory incentives.

Under Colombian law, setting up a business in a SEZ comes with significant tax, regulatory, and customs benefits. According to ProColombia, a government agency that helps attract foreign direct investment, SEZ tenants receive the following benefits:

• Reduced income tax — 20% in SEZs, 34% in Colombia as a whole.
• No VAT or duties on goods imported into the SEZ.
• No VAT on raw materials sold from anywhere in the country to SEZ tenants.
• Companies in the SEZs are exempt from customs declarations.
• Goods produced but sold anywhere in the country are subject to VAT only on imported inputs.

SEZs are managed by companies known as operators. Operators can be specialized companies created to manage the zone, or a division of a larger company engaged in other activities.

Any company, foreign or domestic, can apply for SEZ status. To qualify for FEZ status, a company must meet several requirements, such as owning enough contiguous land, having enough capital to invest, and passing various checks and balances designed to prevent corruption.

Foreign Trade Zones (FTZs)

To attract foreign investment and facilitate the import of capital goods, the Colombian government uses a number of duty deferment programs. One example is Free Trade Zones (FTZs).

Benefits under the FTZ regime include a flat tax rate of 20% (compared to the normal 31%) and no value-added taxes or duties on the import of raw materials for use in the FTZ.

Each FTZ must meet certain investment and direct job creation requirements based on their total assets during the first three years.

Colombia has also initiated Special Economic Zones for Exports in the municipalities of Buenaventura, Cucuta, Valledupar and Ipiales to encourage investment. These zones receive the same import incentives as FTZs, and operators are exempt from certain payroll taxes and surcharges. Infrastructure projects in the zones are also exempt from certain income taxes.