CITY OF GOLD

Colombia 2018 | EXECUTIVE GUIDE | REVIEW

Colombia's regulatory policies are generally regarded as welcoming to foreign investment, as seen by the World Bank's 2018 Doing Business report, which ranked the country's business environment 59th globally. Chief among the country's appeal to foreign investors are its stable political and economic system, rich natural resources, and geographically important location at the crossroads of two oceans and continents.

Foreign investment is a key part of Colombia's economic strategy. Years of economic reforms beginning in the 1990s have resulted in a regulatory structure where foreign investors can generally participate fully in tenders after registration with the Colombian government. Recent years have seen privatization efforts across a number of previously state-controlled industries in an effort to raise revenues and increase efficiency. With the country's long-running civil conflict finally ended, government officials are counting on new investment flows to help bring new economic activity to underdeveloped regions. The country is also looking to draw activity from new markets, especially China, in an attempt to broaden its base.

Colombia's regulatory policies are generally regarded as welcoming to foreign investment, as seen by the World Bank's 2018 Doing Business report, which ranked the country's business environment 59th globally. Chief among the country's appeal to foreign investors are its stable political and economic system, rich natural resources, and geographically important location at the crossroads of two oceans and continents. Even during the midst of the insurgency and drug-related violence in the country, Colombia's political systems remained fairly stable by Latin American standards, resulting in peaceful transfers of power and steady economic growth. With the adaptation of the landmark FARC peace deal in place, there is widespread anticipation of new economic activity in previously underdeveloped rural villages. The country's fiscal position, while uncertain at times due to oil prices, has remained fairly stable recently, with Fitch and Moody's rating the country at two notches above junk.
Procolombia is the country's primary foreign investment promotion agency. It assists foreign firms that wish to enter the market through marketing and coordination with Colombian firms. Foreign investors hoping to enter commercial markets in Colombia are required to register with the Superintendence of Corporations and the chamber of commerce, after which they are free to bid on tenders or establish commercial activities. While full foreign ownership is allowed, there are a number of sectors that have limitations on how much control foreign investors are allowed. The financial, hydrocarbon, and mining sectors, for example, are bound by special concession agreements with the foreign government. The telecommunications sector is also subject to special regulations; foreign stakes in TV broadcasting companies cannot be more than 40%. Several other sectors require some degree of foreign presence in the country but otherwise allow for full ownership.
Colombia also has a robust free trade zone regime that offers tax and customs exemptions for foreign forms that meet certain minimums of investment and job creation within their borders. There are more than 100 FTZ across the country, with different frameworks that allow for single-party ownership or multiple firms to share a space. At present, firms operating in an FTZ face a 20% corporate income tax, VAT exemption for raw materials, and preferred customs treatment for export goods.
In late 2016, Colombia passed a tax reform designed to increase revenue through an increase in the VAT and a reduction in the corporate tax rate. Before 2017, Colombia's effective corporate income tax rate was 40%, one of the highest in the world. The tax reform reduced the corporate income tax rate to 33% over a period of years and removed the “fairness" tax on corporations. The law also eliminated several deductions and tax credits and increased the FTZ corporate tax rate to 20% for new companies. These changes, combined with a new withholding tax on dividends and an increase in VAT from 16% to 19%, are expected to produce a more streamlined tax regime that should increase revenues in the long run.