1. Freedom to invest.
Foreign investment in Colombia is free, with few exceptions, namely, those related to sectors of the economy where foreign investment is prohibited.
If the investment is made in a sector that is not restricted to national investors it is sufficient to register the transaction with the Central Bank (in Colombia the name of the Central Bank is Banco de la Republica.)
2. Forbidden investments.
The following investments are forbidden:
2.1. Those related to activities of national defense and national security.
2.2. Those to be made in the conversion, disposition and elimination of toxic, dangerous or radioactive waste not produced in the country.
2.3. Those to be made in activities related to acquisition, sale or lease of real estate, except if the activity is carried out in relation to construction made by the organization where the investment is made.
2.4. Those related to the securitisation of real estate or to construction projects made through real estate mutual funds.
Once it has been defined that the investment is not forbidden, the investor may proceed to make it through the commercial banks and to register the transaction with the Central Bank.
3. Registration of the investment before the Central Bank.
3.1. Registration is mandatory to obtain certain rights.
The registration of all foreign investments authorized by the competent entities and also those that do not require a prior authorization, must be made with the Central Bank in order to ensure that the investor will enjoy certain rights to remit profits and the capital invested at the time of liquidation of the investment.
3.2. Deadline to make the registration.
The registration of the investment must be made within three months following the date it was carried out, or the date it was approved by the competent entity.
3.3. Steps required to register the investment.
The registration of the investment with the Central Bank requires submitting detailed information as to the investor and on the origin of the funds used to make the investment.
More specifically, it will be necessary to provide the Central Bank with information that may prove the 'foreign' condition of the investor. Also, information must be provided as to the origin of the funds used to make the investment. Even though the Central Bank fulfils the functions of registrar of investments and not of surveillance, the information submitted to them must be verifiable and provable; otherwise, the registration may be cancelled and the rights accruing from it, such as the right to remit the investment and profits, may be lost.
TAXES TO FOREIGN INVESTORS IN COLOMBIA
The taxes of interest to foreign investors in Colombia are national, provincial or municipal. We shall make a brief summary of each of these categories below. National taxes will be given special attention further down.
National taxes:
These are the income taxes and their complementaries, the capital gains and the remittance taxes; the sales or value added taxes (VAT); and the stamp tax.
Provincial taxes:
These are the taxes on the sale and consumption of liquors, beer, cigarettes and tobacco, cattle slaughterhouses and the registration tax.
Municipal taxes:
These are the Industry, commerce and advertisements tax (ICA), the tax on real estate, the tax on circulation and transit of vehicles, the zoning tax and the tax on lotteries and betting.
Description of national taxes.
Income tax:
This tax applies to income from any source of nationals and of foreigners resident for more that five years in Colombia. Non resident or non domiciled foreigners and individuals are subject to income tax on their income from national sources only, as defined by the law.
This tax is levied at a rate of 35% on net income. All types of corporations and branches of foreign companies are subject to the same income tax rate.
The income tax rate on dividends or on profits distributed by limited liability companies already taxed at the level of the company generating the profits, are only subject to a 7% rate, withheld at the source, on the amount that will actually be remitted outside of the country.
In the case of profits of branches of foreign corporations, the withholding tax is substituted by a remittance tax at the rate of 7% on the profits made, whether they are remitted abroad or not. This tax may be deferred if the profits are reinvested in the country. If the reinvestment is made for ten years or more, the tax is waived.
Capital gains tax:
This tax is levied on capital gains such as are made from lotteries and prizes, and in the sale of assets for those taxpayers not bound to increase the value of their assets according to the inflation adjusted indexation system.
The tariff for the capital gains tax is also 35% on the net gain.
Remittances tax:
This tax is levied on a number of transactions involving the actual or presumed remittance of monies from Colombia to other countries.
The rates is 7% on the value of the of remittance.
Sales or value added taxes (VAT):
This tax is a typical value added tax, levied on all sales of products and services. Food and other articles meant for general consumption are exempt.
The rates for this are of 16% (the general rate for most of the goods), and of 35%, 45% and 60%.
Stamp tax:
This tax is charged on public and private documents that generate obligations for the parties involved in them, signed in Colombia or containing obligations to be performed in Colombia.
The rate is of 1.0% on the value of the transaction provided the value thereof is higher than US$32.000 (approximate figure.)
This report was prepared and is copyrighted in 1998 by PARRA, RODRIGUEZ, CAVELIER, a law firm with offices in Santa Fe de Bogota, Colombia.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
