SITUATED TO SUCCEED

Colombia 2013 | ECONOMY | FOCUS: FREE TRADE ZONES

Recently becoming the second largest recipient of FDI in South America, Colombia's free trade zones are blossoming investment destinations.

Although the country has a variety of attractive characteristics for companies and individuals seeking to make investments, one of the key tools Colombia uses to draw FDI is its free trade zone (FTZ) system.

The country's 113 permanent or single-enterprise FTZs offer excellent investor benefits such as a low 15% income tax, Value-Added Tax (VAT) exemption, and the possibility for producers and traders to sell or participate in the domestic market. Additionally, imports do not pay customs tax or duties, and any exports made from companies operating in FTZs benefit from Colombia's many free trade agreements (FTAs). Furthermore, it is possible to sell both to third-party countries and the domestic market from an FTZ, which significantly expands the scope of investor activity. Entrepreneurs that operate outside of the FTZ scheme are subjected to a 33% income tax.

PERMANENT PLACE

Colombia currently has 3.9 million sqm of area available at 36 permanent free trade zones (PFTZs). These zones are areas within Colombian territory, where multiple companies are established, subject to special tax and customs treatment, and managed by a single operator that coordinates and allocates space.

According to the Ministry of Trade, Industry and Tourism, this figure will grow gradually over the next two years with the operation of the newest zones, which have been approved in recent years, until reaching 9.3 million sqm in 2014. Companies can install and develop industrial, trade, or service activities in PFTZs. To build a PFTZ, the following requirements must be met: the establishment of a new company with net assets in excess of $7.5 million, the registration of at least five users, a new investment of at least $15 million within the five-year period following authorization, and a land area of at least 20 hectares. Considered to be the second-ranking PFTZ in Colombia after Barranquilla, Zona Franca Bogotá sets the example in the region for size and traffic. “We deal with more than $16 billion in merchandise in this FTZ per year," Juan Pablo Rivera Cabal, President and CEO of Zona Franca Bogotá, told TBY. “There are over 1,000 trucks, 21,000 employees, and 3,000 visitors going in and out every day." The operator is responsible for an area of 100 hectares and has attracted 223 companies—30% of them international and 75% SMEs—over the past 15 years.

Companies operating in PFTZs have experienced success in a variety of segments including FMCGs, energy, textiles, agrochemicals, petrochemicals, medical and chemical supplies, fossil fuel production, logistics, textiles, foodstuffs, and construction, among others.

SPECIAL USE

Meanwhile, single-enterprise or special free trade zones (SPFTZs) are designed to allow businesses to locate their operations anywhere in the country. Currently, there are over 75 operating or proposed SPFTZs, with at least 12 still waiting for final approval from the Taxes and Customs National Bureau (DIAN). The advantage of the single-enterprise format is that it allows large-scale projects in new areas of the country, such as the Cartagena Refinery, a project carried out by Glencore and Ecopetrol through a $5 billion investment.

This special framework exists for new companies that intend to develop a high-impact investment project in the country. However, the activities developed by the company located in the SPFTZ must be performed exclusively inside the zone, and companies that are seeking to establish an SPFTZ are obliged to register as a new company. Such companies must also comply with certain investment and employment generation requirements. In addition, each project inside the SPFTZ must include a component of industrial transformation, such as technology transfer or the incorporation of new services. Finally, applicants must draft, file, and obtain approval of a strategic plan for the business, which should outline technical, economical, financial, and marketing feasibility studies.

THE BENEFITS

FTZs of both types are located in up to 20 regions of the country, which naturally contributes to the development of these areas of Colombia. A significant number of the zones are operating on the coast, which creates important industrial support for new projects and offers the advantage of cost reduction in terms of the transportation of goods. The three main departments of the Colombian Caribbean region—Magdalena, Atlántico, and Bolivar—are equipped with 1.3 million sqm, 570,000 sqm, and 560,000 sqm of FTZ space, respectively. Colombian ports offer approximately 3,710 possible, regularly serviced maritime routes to the rest of the world, giving investors a prime geographic location for the base of industrial operation and trade. Colombia's geostrategic aspects are increasingly important for Asian economies that seek to begin manufacturing or basing their operations in South America. “We believe that there is a very important potential to attract companies with manufacturing operations in Asia," Bernard Gilchrist B., Manager of Zona Franca Parque Central, explained to TBY, adding “Labor costs in countries like China are rapidly growing, making Colombia a competitive alternative." Through the promotion and creation of more FTZs, companies from as far afield as Spain and China have seen an increased number of benefits to setting up shop in locations such as Barranquilla, Cali, and Cartagena, which have access to coastal hubs.

However, the FTZs benefit more than the investors who make use of them; through efforts to better connect the zones and the country at large, valuable improvements in local infrastructure have been carried out in recent years, with many more in the pipeline. At the same time, FTZs support the local economy by generating jobs and developing the country's industry sector, which is anticipating rapid growth.