Megainversions, Colombia's new commitment to attract foreign investment

A lower income tax, exemption from presumptive wealth or income tax and legal stability are some of the benefits of this new regime that seeks to incentivize the attraction of investment to the country.  

Bogota, 16 October 2020 (AmCham Colombia).- With the recent issuance of the new mega-investment regime, (Decree 1157 of 21 August 2020), listed as the project with the most international impact in Colombia in the last 20 years and which brings with it significant tax and legal stability benefits, opportunities are opened to attract large investments to the country , taking advantage of the global trade reconfiguration and the advantages that Colombia has over other countries in the region.

This was made known by the president of Araújo Ibarra Consultores, Martín Ibarra; and the executive director of the Colombo Americana Chamber of Commerce, AmCham Colombia, María Claudia Lacouture, during a virtual conversation organized by the Colombian Association of Private Capital Funds (ColCapital), which analyzed the current incentives and opportunities for foreign investment in Colombia.

According to the President of Araújo Ibarra, the mega-investment regime is one of the most successful laws of this Government inso way that it allows projects of more than US$282 million to engrave in stone the single income tax of 27% for the company – the lowest of the Pacific Alliance countries – and 0% for the partner; depreciate all investments you make in the first two years; enter into a 20-year tax stability contract; and exempts them from property tax or presumptive income.

"This is very interesting because, paradoxically, today Colombia has the best fiscal structure in the country of the last 20 years, far superior to the one we had in previous governments, and the best in Latin America. In addition, the benefits of mega-investments can be combined with the incentives of the free zone regime," Ibarra said.

An example of how the advantages of both regimes – free zone and mega-investment – could be combined is the creation of an electric car company in Cali, taking advantage of its proximity to the Pacific and with an investment of close to $500 million.  

"In this case, the free zone would reduce the value of Capex because it would eliminate VAT on the building, as well as the VAT tariff on machinery and equipment; and mega-investment would improve Opex because it would lower the single tax from 33% – plus 10% residual of the partner- to 27%; I would engrave it in stone and allow the entire investment to depreciate in two years," explained Araújo Ibarra's President.

Colombia currently has several advantages in attracting foreign investment through its free trade agreements, the available areas it has in its free zones, and the nearshoring that is recomposing the international opportunities of American, German and Chinese companies, which are looking for a place to relocate and Colombia could attract them.  

Colombia, ideal nearshoring destination

In this sense, the director of AmCham Colombia, María Claudia Lacouture, indicated that nearshoring is a process that has been taking place, for two years, following the trade tension between China and the United States, and that it accelerated with the effects that the pandemic of covid-19 has generated on trade.

"This trade reconfiguration changed the concept of global value chains and made way for regional chains. In the case of the United States, its companies are looking for new supply destinations, closer, more reliable and with stable rules; essential for long-term business, which is a great opportunity for Colombia," Lacouture said.

He added that, the House is supporting the Ministry of Trade, Industry and Tourism in a strategy for attracting forward foreign investment, based on the nearshoring initiative, through which around 50 American, European, Asian and Latin American multinationals interested in relocating to Colombia have been identified as a result of this break-up of the supply chains that has been generated at the current juncture.  

"Likewise, in the analyses we have carried out from AmCham, we find that, within the sectors in which Colombia can attract foreign investment are the pharmaceutical industry; cosmetics and grooming; manufactures and supplies for footwear, clothing and textiles; automotive industry; food and beverage industry; advanced outsourcing of services; digital software and innovation; logistics and e-commerce," Lacouture said.  

With regard to the updates that Colombia requires to enter the fierce competition that exists today around the world to attract foreign investment, AmCham's directive noted that, "the country requires an infrastructure that allows it to access international markets, adopt new technologies and prepare for Industry 4.0, as well as have a qualified workforce that is relevant versus labor costs".