What are the tax benefits of investing in Colombia?
Colombia is intent on becoming Latin America’s number one destination for investment and offers a range of attractive tax benefits to foreign investors. These include reductions in income tax and tax exemptions and are one of the many reasons to invest in a country that has a strategic geographical location and a marked macroeconomic stability.
Colombia is the third largest recipient of foreign capital in Latin America and one of the top 30 business destinations worldwide, according to the United Nations Conference on Trade and Development (UNCTAD).
Check out: Five reasons to invest in Colombia
The country was the third destination for foreign investment in the region, and had the highest growth, from 2015 to 2017, according to a report by The Financial Times’ fDi Markets.
This highlights the important advances Colombia has made in order to attract foreign investment, especially through Law 1943 of December 28, 2018, also known as the Financing Law, which offers several aids and incentives in terms of tariffs for investors.
The following are the main corporate tax benefits for investors in Colombia:
Reductions in income tax
Colombian law offers a progressive reduction in corporate income tax from 33% to 30% for companies from diverse sectors that invest in Colombia. It also foresees a progressive reduction of the applicable rate in terms of presumptive income from 3.5% to 0%.
Foreign investors who decide to start or continue their business in Colombia will also be entitled to a 50% discount on the country’s Industry and Commerce tax (ICA).
- Taxpayers who make investments or donations—directly or indirectly—in projects considered technological development or research, have the right to deduct 25% of the value invested, or donated, from their liquid income in the taxable period during which those investments or donations were made.
- A differential rate of 9% is also offered for hotel projects, where new hotels are built, remodeled or expanded in towns of up to 200,000 inhabitants within 10 years of the Financing Law being passed.
From 2019, the income of the following cases will be exempt:
- Colombian companies operating within Orange Economy 1. Exempt for seven years, provided they meet certain requirements.
- Companies making investments that increase agricultural productivity. Exempt for 10 years, provided they meet certain requirements.
- Sales of renewable electricity, not including hydroelectric power. Exempt for 15 years, provided certain requirements are met.
- Housing projects.
- Social-interest and priority housing projects, including land, first VIS/VIP transfer, urban renewal, and financial returns, among others.
- New forest plantations.
- Low-draft river transport. Exempt for 15 years.
Incentives on capital goods
Colombia offers a 0% tariff on the importation of capital goods and raw materials not produced in Colombia, in addition to the possibility of deducting the VAT paid on the acquisition, construction or formulation, and/or importation, of productive fixed assets from income tax.
Grants for mega-investments
A special tax system is in operation for 20-year mega investment projects, 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 (approx. USD $342m in 2019).
Benefits include a 27% tax rate, exclusion from the presumptive income regime, no-dividend tax, depreciation benefits and exemption from estate tax.
A legal tax stability regime has also been created that will ensure investors retain their benefits in the event of unfavorable modifications to the regime in exchange for the payment of a 0.75% premium on the value of the investment made each year for a period of five years.
Investments in mining or hydrocarbons are excluded from this regime.
Benefits of the Colombian holdings regime
This tax regime applies to national companies whose main purpose is to hold securities, shares and/or investments in shares abroad. It establishes income tax exemptions for dividends distributed by Colombian companies, as well as non-resident entities, and on the sale of their shares, among others.
This regime ensures Colombia competes with Panama, Costa Rica, and offshore jurisdictions to encourage multi-national companies to establish their headquarters here.
Trade agreements with 60 countries
Foreign investors in Colombia can take advantage of the trade agreements and commercial agreements Colombia has signed with more than 60 countries, enabling them to access new markets, increase the quantity and diversity of their exports and improve the quality of their production processes.
Advantages of Colombia’s free zones
Investors have the opportunity to construct, establish and carry out their commercial activity in a free zone with multiple tax benefits.
Consult the directory of permanent free zones here.
Advantages of free zones include:
- A single 20% income tax rate for industrial users of goods and services, and operators, with the exception of commercial users who pay taxes at the standard rate.
- No customs taxes (VAT and tariff) are paid or accrued on merchandise imported from overseas, nor on raw materials, supplies, and finished goods sold from the national tax territory to the industrial users of free zones.
- A VAT exemption on the sales of merchandise to external markets.
- The chance to sell 100% of the goods and/or services produced in the free zone to the national territory, whilst only paying VAT and tariffs on the percentage of inputs from third countries.
Do you want to invest in a free zone in Colombia? Click here for other benefits
Other tax discounts
The Colombian Financing Law also established the following tax discounts:
- ICA effectively paid.
- A discount for taxes paid abroad.
- A discount for investments made in the overseeing, conservation and improvement of the environment.
- A discount for investments made in technological development, research or innovation.
- A discount for donations to non-profit entities (known as ESALES in Colombia).
- The sales tax accrued on the importation, formulation, construction or acquisition of productive fixed assets.