Openness to Foreign Investment
The Government of Colombia actively encourages foreign direct investment. In the early 1990s the country began economic liberalization reforms, which provided for national treatment of foreign investors, lifted controls on remittance of profits and capital, and allowed foreign investment in most sectors. Generally, foreign investors may participate in privatization of state-owned enterprises without restrictions. Colombia imposes the same investment restrictions on foreign investors that it does on national investors. Since 2002, the Uribe administration has stepped up efforts to open up the economy. Liberalization has progressed furthest in telecommunications, accounting/auditing, energy, mining, and tourism, and to a lesser extent in legal services, insurance, distribution services, advertising, and data processing.
Foreign investors face exceptions and restrictions in the following sectors: television concessions and nationwide private television operators, radio broadcasting, movie production, maritime agencies, national airlines, and shipping. Portfolio investment in financial, hydrocarbon, and mining sectors are subject to special regimes, such as investment registration and concession agreements with the Colombian government, but are not restricted in the amount of foreign capital permitted. Foreign investors can participate without discrimination in government-subsidized research programs. In fact, most Colombian government research has been conducted with foreign institutions.
The Ministry of Trade, Industry, and Tourism formulates foreign investment policy in coordination with the Ministry of Finance and Public Credit, taking into account the guidelines of the Council on Economic and Social Policy (CONPES). The primary regulations governing foreign investment in Colombia are Law 9 of 1991, Decree 2080 of 2000, CONPES Resolutions 51, 52, and 53, and Resolution 21 of the Board of Directors of the Central Bank.
A commercial presence in the country (defined as a registered place of business, a branch, or an agent) is a standard requirement for conducting business in Colombia. All foreign direct investment that involves the establishment of a commercial presence in Colombia requires registration with the Superintendent of Corporations ('Super Sociedades') and the local chamber of commerce. Colombian law regulates the number of foreign personnel in several professional areas, such as architecture, engineering, law, and construction. For firms with more than ten employees, no more than 10 percent of the general workforce and 20 percent of specialists can be foreign nationals.
Investment screening has been eliminated, and the registration requirements that still exist are generally formalities. Under Decree 1844 of 2003, the type of investment, its ultimate destination, and the type of currency determines the registration requirements. Foreign investments must be registered with the Central Bank’s foreign exchange office within three months of the transaction date to ensure repatriation of profits and remittances and to access officially-registered foreign exchange.
Colombia has a comprehensive legal framework for business. Colombia’s judicial system defines the legal rights of commercial entities, reviews regulatory enforcement procedures, and adjudicates contract disputes in the business community. The judicial framework includes the Council of State, the Constitutional Court, the Supreme Court of Justice, and the various departmental and district courts, which are also overseen for administrative matters by the Superior Judicial Council. The 1991 constitution provided the judiciary with greater administrative and financial independence from the executive branch. However, the judicial system remains hampered by time-consuming bureaucratic requirements and corruption. Colombia’s foreign direct investment legal framework also incorporates binding norms (Decisions 291 and 292) resulting from its membership in the Andean Community of Nations (CAN), as well as other free trade agreements.
According to the United Nations Conference on Trade and Development (UNCTAD), a high level of legal instability, arising from the frequent issuing of regulations and administrative rulings, has impeded investment in Colombia. To address the issue, Colombia’s Congress passed Laws 962 and 963 in 2005. Law 962 simplified existing administrative procedures and provided for the review of new procedures. Law 963 offers investors the opportunity to enter into so-called “legal stability contracts” with the State. These contracts guarantee that the laws applicable to the investment at the time the investment is entered into will remain in effect for a period between three and 20 years, depending on the type and amount of the investment. The minimum dollar value of the investment must reach USD 1.2 million, and those seeking such a contract must pay a fee based on the investment. The law applies to investments in manufacturing, agriculture, tourism, mining, petroleum, telecommunications, construction, electricity production and transmission, port and railroad development, and other activities approved by a special committee.
In November 2006, the United States and Colombian Governments signed the United States-Colombia Trade Promotion Agreement (CTPA). In June 2007, the United States and Colombia signed a protocol of amendment regarding labor, environment, and intellectual property. The Colombian Congress ratified the agreement and the protocol in 2007. The Colombian Constitutional Court certified the CTPA as conforming to the Colombian Constitution in July 2008. The U.S. Congress has not yet ratified the CTPA. The U.S. trade accord would improve legal security and the investment environment and eliminate tariffs and other barriers in goods and services trade between the United States and Colombia. The agreement would grant investors the right to establish, acquire, and operate investments in Colombia on an equal footing with local investors and investors of other countries. It also would provide U.S. investors in Colombia protections that foreign investors have under the U.S. legal system, including due process and the right to receive fair market value for property in the event of an expropriation. Protections for U.S. investments would be backed by a transparent and binding international arbitration mechanism. Investor-state arbitration would be available for breaches of investment agreements.
Currently, the Andean Trade Preference and Drug Eradication Act (ATPDEA) provides duty-free treatment for approximately 6,500 product categories from Colombia entering the United States. Goods must meet a value-added requirement of 35 percent, of which up to 15 percent may be accounted for by U.S. content in terms of cost or value. In December 2009, the U.S. Congress renewed ATPDEA benefits for Colombia through December 31, 2010.
Total Colombian exports to the United States were USD 13.9 billion in 2008, up 39.1 percent compared to the previous year. Under the ATPDEA preference program in 2008, Colombia exported goods worth USD 7.3 billion, representing a 109 percent increase from 2007 and 56 percent of total Colombian exports to the United States. U.S. exports to Colombia totaled USD 11.3 billion in 2008. The following sectors have restrictions on foreign direct investment:
Accounting, Auditing and Data Processing: In order to practice in Colombia, providers of accounting services must register with the ‘Central Accountants Board’ (‘Junta Central de Contadores’); have uninterrupted domicile in Colombia for at least three years prior to registry; and provide proof of accounting experience in Colombia of at least one year (Law 43 of 1990, Article 3).
No restrictions apply to services offered by consulting firms or individuals. A legal commercial presence is required to provide data processing and information services in Colombia.
Advertising, Radio and Television Services: For National Open Television and Nationwide Private Television Operators, only Colombian nationals or legal entities, organized as ‘Public Corporations’ (‘Sociedades Anónimas- S.A.’) may be granted concessions to provide television services. Foreign capital in any open television concession venture is limited to a maximum of 40 percent (Law 014 of 1991, article 37; Law 680 of 2001, articles 1 and 4; Law 335 of 1996, articles 13 and 24; Law 182 of 1995, articles 37, 47 and 48). The decision to offer new concessions for the provision of open national television is based on an economic-needs test.
Open television programming is subject to the following restrictions: 70 percent of programming between 7:00 p.m. and 10:30 p.m. (Prime Time) must be nationally-produced; the rate is 50 percent of programming broadcast between 10:30 p.m. and midnight, as well as between 10:00 a.m. and 7:00 p.m. There are no local-content requirements for advertising on Colombian open television, but the National Television Commission charges foreign-made ads double the national rate for airtime.
Foreign investors must be actively engaged in television operations in their country of origin in order to participate in programming activities in Colombia (Law 182 of 95 and Law 375 of 1996). Television, radio broadcasting, movie production, and movie reproduction fall under national-treatment limits.
A maximum of 10 percent foreign participation in local TV productions is allowed and the participation of foreign artists in local TV productions is dependent upon reciprocity requirements. National TV programs can be directed by foreign directors, in which case the screen writers and starring actors must be Colombian nationals (if the director is Colombian then some writers and/or starring actors may be foreign nationals).
Regional television services may only be provided by State-owned entities, while regional and local television operators are compelled to have their broadcasting consist of at least 50 percent nationally-produced content. Community television services may only be provided by organized communities, legally constituted in Colombia as foundations, cooperatives, associations or corporations, subject to civil law (Law 182 of 1995, article 37).
Only Colombian nationals or legally constituted legal entities may provide subscription-based television services, and must offer Colombia’s national, regional and municipal open-television channels at no extra cost to subscribers (Law 680 of 2001, articles 4 and 11; Law 182 of 1995, article 42; Law 335 of 1996, article 8). Satellite television service providers are only obliged to include within their basic programming the broadcast of government-designated public interest channels. If non-satellite subscription service providers broadcast advertisements different from those of the original broadcast, they are subject to comply with the minimum percentage of nationally-produced content established for open television concessions.
In August 2008, the National Television Commission (CNTV) chose the European (DVB-T system) standard for Land Digital Television (TDT); the TDT will be free and open, and may cover about 90 percent of the population. Separately, in 2009 Colombia opened a public tender for a third private TV channel.
Concessions to provide radio broadcasting services can only be granted to Colombian nationals or private entities legally constituted in Colombia (Law 80 of 1993, article 35; Decree 1447 of 1995, articles 7, 9, and 18). Foreign operators are limited by law to 25 percent ownership of radio broadcast programs.
Newspapers published in Colombia covering domestic politics must be directed and managed by Colombian nationals (Law 29 of 1994, article 13).
Banking: Foreign companies may own 100 percent of financial institutions in Colombia, but are required to obtain approval from the ‘Financial Superintendent’ (under article 88 of the Financial System’s Basic Statutes) before making a direct investment of 10 percent or more in any one entity. Portfolio investments used to acquire more than 5 percent of an entity also require authorization. Foreign banks must establish a local commercial presence and comply with the same capital and other requirements as local financial institutions. Colombian legislation limits the operation of banks and other financial institutions by separating fiduciary, investment banking, commercial loans, leasing, and insurance services from banking services. Current legislation (Law 389 of 1997) permits banking institutions to develop such activities in the same office/building, but the management of such services must be separate.
The use of foreign personnel in financial institutions is limited to administrators, legal representatives, and technicians. Foreign banks may establish a subsidiary or representation office in Colombia, but not a branch. All foreign and national banks, as well as foreign subsidiaries, must be constituted as ‘Mercantile Public Corporations’ (‘Sociedades Económicas Mercantiles’) or ‘Cooperative Associations.’
Banks operating in Colombia are subject to a minimum capital requirement. The government has the right to intervene in institutions that fail to meet minimum performance requirements (Law 510 of 1999, Law 795 of 2003 and article 80 of the Financial System’s Basic Statutes). Institutions are also required to register with the Financial Institutions Guarantee Fund, FOGAFIN (similar to the U.S. Federal Deposit Insurance Corporation).
All portfolio investments of foreign capital in Colombia must be done through the Foreign Capital Investment Fund; all foreign investments, either new or additions, must be registered with the Central Bank (Banco de la Republica), along with the ‘Currency Exchange Declaration” (Decree 2080 of 2000, articles 26 and 27).
Customs Services: A person or his legally-responsible representative must be domiciled in Colombia to engage in the following customs services: customs brokerage, postal and courier services, merchandise warehousing, merchandise transportation under customs control, international cargo agent, ‘Permanent Customs User’ or ‘High Frequency Exporter’ (Decree 2685 of 1999, articles 74 and 76).
Electricity: Only companies legally constituted in Colombia prior to July 12, 1994, may engage in the simultaneous generation, distribution, and/or transmission of electricity (Law 143 of 1994, article 74).
Fishing: A foreign vessel may engage in fishing and related activities in Colombian territorial waters only through association with a Colombian company holding a valid fishing permit (Decree 2526 of 1991). If a ship’s flag corresponds to a country with which Colombia has a complementary bilateral agreement, this agreement shall determine whether the association requirement applies. The costs of fishing permits are greater for foreign flag vessels.
Hydrocarbons and Mining: In order to provide services directly associated to exploration and exploitation of minerals and hydrocarbons in Colombia, any legal entity constituted under the laws of another country must establish a branch, affiliate or subsidiary in Colombia, unless the service will be provided for less than one year (Law 685 of 2001, articles 19 and 20).
In 2003, the Colombian government separated regulatory responsibilities from Ecopetrol, the state-owned oil company, and assigned them to the National Hydrocarbons Agency (‘Agencia Nacional de Hidrocarburos’ – ANH). The ANH administers Colombia’s competitive process, allowing Ecopetrol to compete side-by-side with foreign firms for hydrocarbon contracts. Foreign companies may assume up to 100 percent of investment and risk activities in all exploration and production contracts. Oil companies may obtain the right to exploit fields for 30-years or until depleted, as well as extend previous association contracts.
A sliding-scale royalty rate on oil projects establishes a 5 percent royalty rate on the smallest oil fields and an upper limit of 30 percent on larger fields. The lower royalty rate encourages investments by small- and medium-sized operators, since more than 80 percent of Colombia’s fields contain less than 50 million barrels. The reforms have helped to renew interest in Colombia’s oil exploration sector, with a record 64 exploration and production contracts signed as of November 2009.
Insurance: Colombia permits 100 percent foreign ownership of insurance firm subsidiaries. Firms must have a local commercial presence to sell policies other than those for international travel or reinsurance. Colombia sets annual minimum capital requirements to establish an insurance company. In July of 2009, Colombia passed Law 1328 to modify market access of foreign insurance companies in specific sectors. The law also allows Colombian residents to purchase abroad various types of insurance policies, except for four specific cases outlined within the law pertaining mostly to social security and mandatory insurance policies. Under Law 1328 foreign companies can now offer insurance for maritime international transportation, international commercial aviation and space launching and transportation. The new law further allows local insurance agents and foreign insurance brokers to carry out insurance brokerage activities in Colombia and with each other, but with exceptions in the aforementioned cases.
Legal: Provision of legal services is limited to those firms licensed under Colombian law. Foreign law firms can enter the market by forming joint ventures with local law firms.
Private Security and Surveillance Companies: Only those companies constituted under Colombian law as ‘Limited Responsibility Societies’ or ‘Private Security and Surveillance Cooperatives’ may provide security and surveillance services in Colombia. Their shareholders may only be Colombian nationals. Those companies constituted with foreign capital prior to February 11, 1994, cannot increase the share of foreign capital. Those constituted after that date, can only have Colombian nationals as shareholders (Decree 356 of 1994, articles 8, 12, 23 and 25).
Public Services: A ‘Domestic Public Services’ company (‘Empresa de Servicios Publicos- ESP’) must be domiciled in Colombia and legally constituted under Colombian law as a corporation (Law 142 of 1994, articles 1, 17, 18, 19 and 23). The category ‘public services’ encompasses sewage and water works, waste disposal, electricity, gas and fuel distribution, public telephony and complementary activities (public long distance and mobile telephone services in rural areas).
Special Air Services: Only Colombian nationals or legal entities domiciled in Colombia may offer special air services within Colombian territory and own any aircraft registered to provide special air services (Commercial Code, articles 1795 and 1864). Special Air Services include any non-transportation air services, such as aerial fire-fighting, sightseeing, and surveying.
Telecommunications: Only companies legally constituted in Colombia may be granted concessions to provide telecommunications services in Colombia (Law 671 of 2001, Decree 1616 of 2003, articles 13 and 16; Decree 2542 of 1997, article 2; Decree 2926 of 2005, article 2). Colombia currently permits 100 percent foreign ownership of telecommunication providers. However, in WTO negotiations, Colombia specifically prohibited “callback” services. Barriers to entry in telecommunications services include high license fees (USD 150 million for a long distance license), commercial presence requirements, and economic needs tests.
The Ministry of Communications may require an economic needs test for the approval of licenses in voice, facsimile, e-mail, and other value-added services. The parameters that determine “an economic needs test” are not clearly established in Colombian legislation. Colombia also maintains a system of subsidies where, for example, long-distance telephone service subsidizes local telephone service. Low (subsidized) prices of local telephony and high restrictive costs in the provision of long-distance service limit the entry of new competitors.
The CTPA would liberalize the sector by prohibiting anti-competitive cross-subsidies, requiring transparent licensing procedures, ensuring interconnection at reasonable rates, and protecting the confidentiality of commercially sensitive information obtained as a result of interconnection arrangements. Under the CTPA, U.S. firms would be able to lease lines from Colombian networks on non-discriminatory terms and re-sell telecommunications services of Colombian suppliers to build a customer base.
Transportation: Foreign companies can only provide multimodal freight services within or from Colombian territory if they have a domiciled agent or representative legally responsible for its activities in Colombia. International cabotage companies can provide cabotage services (i.e. between two points within Colombia) “only when there is no national capacity to provide the service,” according to Colombian law. Cargo reserve requirements in transport have been eliminated. However, the Ministry of Commerce reserves the right to impose restrictions on foreign vessels of those nations that impose reserve requirements on Colombian vessels. Trans-border transportation services are also restricted in Colombia.
In December of 2009 a new Postal Law was passed by Congress and is set to be sanctioned by the president in 2010. The law regulates the full spectrum of postal services, defining key elements such as the universal postal service, the official postal operator, licensed postal and money order service operators, postal objects and services, sector regulators, as well as the rights and responsibilities of postal operators and users. To become a postal or money order operator it is required to establish a commercial entity in Colombia with the statement of purpose of providing postal services, and to sign up under the Postal Operators Registry managed by the Ministry of Information Technologies and Communications. There are concerns that some provisions contemplated by the law may have a negative impact, such as a modification of certain weight caps, minimum capital requirement modifications, and increases in registry fees.
Article 1458 of the Commercial Code of 1971 prohibits any foreign ownership interest in commercial ships licensed in Colombia. Article 1490 of the Commercial Code restricts the percentage of FDI in maritime entities to 30 percent, and Article 1426 restricts foreign ownership in national airline or shipping companies to 40 percent.
The owners of a concession providing port services must be legally constituted in Colombia as a ‘Public Corporation’ (Law 1 of 1991, articles 5.20 and 6). Only Colombian ships may provide port services within Colombian maritime jurisdiction; however, vessels with foreign flags may provide those services if there are no Colombian-flag vessels capable of doing so (Decree 1423 of 1989, article 38).
Travel and Tourism Agencies: Foreign investors must be domiciled in Colombia to provide travel and tourism agency services within Colombia (Law 32 of 1990, article 5). This does not apply to the services provided by tour guides.
Waste Disposal Services: No foreign investment is allowed in activities associated with the processing or disposal of non-Colombian, toxic, dangerous, or radioactive waste material (Decree 2080 of 2000, article 6).
Other factors which may impact investment: Colombia’s 1991 Constitution (articles 334 and 335) grants the Colombian government the authority to intervene directly in financial or economic affairs. This authority, initially developed through Law 550 of 1999 and extended through Law 922 of 2006, provided solutions similar to U.S. “Chapter 11” filings for companies facing liquidation or bankruptcy. These laws were replaced by Law 1116 of 2006, which establishes the current ‘Company Insolvency Regime’ and revises the company liquidation Law 222 of 1995.
Under Law 1116 of 2006, the creditors of a company can request ‘Judicial Liquidation’, which can be requested by a company’s creditors, and replaces the forced auctioning of the company’s assets. Now, inventories are valued, creditors rights are taken into account, and a either a direct sale takes place within two months or all assets are assigned to creditors based on their share of the company’s liabilities.
Privatization regime: In recent years, Colombia has privatized State-owned enterprises under article 60 of the Constitution and Law No. 226 of 1995. This Law stipulates that the sale of State holdings in an enterprise should be offered to two groups: first, to cooperatives and workers associations of the enterprise; and second, to the general public. During the first phase, special terms and credits have to be granted. In the second phase, foreign investors may participate along with the general public.
Colombia’s main privatizations have been in the electricity, mining, hydrocarbons, and financial sectors. The government has attached a high priority to stimulating private sector investment in roads, ports, electricity, and gas infrastructure concessions. Public-private partnerships are increasingly the government’s favored option for infrastructure development. Per Law 80, such partnerships must include a Colombian company.
Municipal enterprises operate many public utilities and infrastructure services. These municipal enterprises have engaged private sector investment through concessions. There are several successful concessions involving roads (e.g., the urban transportation integrated system in Pereira -- Dosquebradas -- La Virginia metropolitan area), water, sanitation, ports (Port of Cartagena), and electricity services (Empresas de Medellín). These kinds of partnerships have helped promote reforms and create an attractive environment for private national and foreign investment.
Conversion and Transfer Policies
No restrictions apply to transferring funds associated with foreign direct investment. However, foreign investment into Colombia must be registered with the Central Bank in order to secure the right to repatriate capital and profits. Except for special instances, direct and portfolio investments are considered registered when the exchange declaration for operations channeled through the official exchange market is presented. If investments are registered, repatriation is permitted without any limits. The government permits full remittance of all net profits regardless of the type or amount of investment (previously limited to 100 percent of the registered capital). Recent tax reform eliminated the 7 percent tax on profit remittances. There are no restrictions on the repatriation of revenues generated from 1) the sale or closure of a business, 2) a reduction of investment, or 3) transfer of a portfolio. Colombian law authorizes the government to restrict remittances in the event that international reserves fall below three months’ worth of imports. Reserves have been well above that level for decades.
Expropriation and Compensation
Article 58 of the Colombian Constitution governs indemnifications and expropriations. This article guarantees the rights of holders of legally-acquired property. However, it does allow for assets to be taken by eminent domain. Colombian law provides a right of appeal both on the basis of the decision itself and on the level of compensation.
However, the constitution does not specify how to proceed in compensation cases, which remains a concern for foreign investors. The Colombian government has sought to resolve such concerns through the negotiation of bilateral investment treaties and strong investment chapters in free trade agreements, such as the CTPA.
Law 315 of 1996 authorizes the inclusion of an international binding arbitration clause in contracts between foreign investors and the GOC, and Decree 1818 of 1998 permits alternative dispute resolution. The law allows contracting parties to agree to submit disputes to international arbitration, provided that the parties are domiciled in different countries, the place of arbitration agreed to by the parties is a country other than the one where they are domiciled, the subject matter of the arbitration involves the interests of more than one country, and the dispute has a direct impact on international trade. The law allows the parties to set their own arbitration terms including location, procedures, and the nationality of rules and arbiters. International arbitration is not allowed for the settlement of investor-state disputes arising from the Legal Stability Contracts (Law 963 of 2005, mentioned above), even for foreign investors.
Foreign investors have found the arbitration process in Colombia complex and dilatory, especially with regard to the enforcement of awards. Despite Colombia’s commitment to international arbitral conventions and its domestic legal framework for arbitration and resolution of disputes, foreign companies continue to endure lengthy dispute settlement processes. Colombia is a member of the New York Convention on Investment Disputes, the International Center for the Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency (MIGA).
Performance Requirements and Incentives
There are no performance requirements explicitly applicable to the entry and establishment of foreign investment in Colombia. However, there are export incentives relating to the operation of special or free trade zones.
Incentives: In 2002, Colombia accepted the WTO Committee on Subsidies and Countervailing Measures’ decision to phase out all export subsidies in free trade zones by December 31, 2006. However, free trade zones and special import-export zones maintain their special customs and foreign exchange regimes, per Law 1004 passed in 2005, which also grants a 15 percent income tax on free zones (lower than the normal 33 percent tax) after December 31, 2006.
Since 1983, Colombia has had in place a trade promotion mechanism known as CERTs (‘Tax Rebate Certificate’), which was initially conceived to help promote exports but was later transformed into an instrument to counter the negative effects of exchange rate fluctuations on exporters’ cash flows. CERTs are freely negotiable instruments issued by Colombia’s Central Bank (Banco de la República), whose purpose is to reimburse sums equivalent to the full or partial tax payments made by an exporter; CERTs can be used for the payment of income taxes, customs duties, VAT, or other form of taxes or contributions.
The framework for government support of agricultural products, including flower, coffee, and bananas, takes the form of incentive/subsidy programs that reward producers either for hedging against exchange rate exposure, implementing sanitary programs, maintaining their workforce, or for obtaining credits to support their activities. The Exchange Rate Hedge Incentive (‘Incentivo de Cobertura Cambiaria’- ICC) was created in 2004 to counter the negative effects of peso appreciation on exporters’ cash flows by paying beneficiaries an amount equal to approximately 10 percent of FOB exports hedged against exchange rate fluctuation. The Sanitary Measures Incentive (‘Incentivo Sanitario Flores y Follaje’- ISFF) was started in 2007 as a direct subsidy to improve phytosanitary conditions and protect employment by paying producers approximately USD 3,514 for every hectare of cultivated flowers as long as they provided proof of retention of at least 80 percent of their workforce. The Income Protection Program for Producers of Exportable Agricultural Goods (‘Programa Protección Ingresos Productores de Bienes Agrícolas Exportables’) was developed in 2008 to subsidize the purchase of hedging instruments for up to 90 percent of their cost. Finally, the ‘Special Credit Line for Exporters’ subsidizes part of agricultural exporters’ interest payment on bank loans and guarantees the liabilities undertaken through the program.
In January 2007, the Ministry of Agriculture (MOA) started the ‘Agriculture Guaranteed Income Fund’ (‘Agro Ingreso Seguro- AIS’) with the aim of protecting local producers, as well as to improve the overall competitiveness of the agricultural sector. AIS is comprised of four main programs: 1) a special credit line to finance investments by all agricultural producers interested in modernizing and increasing their competitiveness, which guarantees an interest rate of DTF (Colombia’s reference term-deposit savings rate) minus 2 percent, for up to fifteen years; 2) the ‘Rural Capitalization Incentive’ (‘Incentivo a la Capitalización Rural- ICR’), through which discounts are granted for credits issued to undertake new investments in infrastructure construction, acquisition of machinery and equipment, and water resource management, among others; 3) the ‘Irrigation and Drainage Program’ (‘Convocatoria Pública de Riego y Drenaje’), through which up to 80 percent of the costs of all projects destined to improve water resource management is covered by the MOA; and 4) the ‘Technical Assistance Incentive’ (‘Incentivo a la Asistencia Técnica’), which covers up to 80 percent of all technical assistance costs incurred by agricultural producers in project and credit structuring, good practices implementation, adequate sanitary and phytosanitary management, and post-harvest management.
In 2007-2008, the AIS program awarded approximately USD 450 million, and in 2009 the total budget amounted to approximately USD 280 million. In 2009 a serious scandal undermined the program, as allegations of corruption and favoritism towards prominent, wealthy families surfaced.
Export credit: The foreign trade bank (BANCOLDEX) provides funds for working capital and equipment purchases dedicated to the production of exported goods. BANCOLDEX also provides discount loan rates to foreign importers of Colombian goods. In 2009 BANCOLDEX played an important role in providing credit to Colombian companies affected by dramatically reduced exports to Venezuela. Import Licenses: All imports must be registered, and a small percentage requires prior import licenses. The “Registro de Importación” required for all imports is for record keeping/statistical purposes and is available at the Ministry of Commerce, Industry and Tourism and online. Import licenses apply to closely monitored, sensitive products such as precursor chemicals and weaponry.
Colombia imposes discretionary import licensing to restrict imports of powdered milk and poultry parts. The Colombian Government also has local purchase requirements for rice, yellow corn, white corn, and cotton. The CTPA would reduce or eliminate these requirements for U.S. exports. Imports of most “used” goods, such as personal computers, cars, tires, and clothing, are effectively prohibited, and those allowed (e.g., used medical equipment) are subject to import license approval. The CTPA’s provision to open the market for remanufactured goods would establish precise rules for transactions of this nature and enable a better return on investment for investment projects related to mining, infrastructure and hydrocarbons.
Promotion: PROEXPORT is the Government’s foreign investment, tourism and export promotion agency. It provides information on market access and business opportunities and organizes international trade shows and missions. During the last few years, PROEXPORT has made efforts to diversify Colombian exports, which have been traditionally concentrated in coffee, petroleum, coal, and flowers. PROEXPORT provides planning and training strategies for medium and small companies to overcome obstacles of exporting goods and services. There are 14 PROEXPORT offices and four commercial representatives abroad, as well as eight regional offices in Colombia. These offices attend and organize events, fairs, and provide commercial guides for Colombians entering foreign markets and foreigners doing business in Colombia.
Taxes: Companies and individuals in Colombia are subject to national and regional taxes. At the national level the most important are the corporate profit tax (33 percent); the value added tax (16 percent on most products); the tax on financial transactions (0.4 percent); a progressive personal income tax; and the temporary “wealth” tax, which ranges between 0.6 percent and 1.2 percent of asset values and is applicable to corporations and individuals with assets greater than USD 1.5 million. At the regional level there is the Industry and Commerce tax, which taxes industrial, commercial and services activities at a rate that ranges between 0.2 percent and 1 percent, and the property tax (Impuesto Predial), which ranges from 0.1 percent to 1.6 percent.
The government offers different types of tax incentives such as preferential import tariffs, tax exemptions, and credit or risk capital. Other incentives include the deductibility of income from new investments in the cultivation of fruits, anchovies, rubber, and cacao and in environmental enhancements and controls. The latter need an environmental authority accreditation. Some fiscal incentives are available for investments that generate new employment or production in areas impacted by natural disasters. Companies apply for fiscal incentives directly with participating agencies.
One of Colombia’s most important tax incentives is the 40 percent deduction of the value of any productive fixed-asset investment, which a company can claim when filing its income tax. This deduction is in addition to regular depreciation, and is codified within article 158-3 of Colombia’s Tax Code (created by Law 863 of 2003, Article 68). It applies to any investment in tangible goods that are incorporated as part of a company’s fixed assets, that can be depreciated, and that becomes a direct part of the company’s income-producing activity. Current proposed legislation is likely to reduce the deduction rate to 30 percent, and eliminate this benefit for Free-Trade Zone users, who, as of December 2009, could take advantage of the deduction in addition to the preferential profit tax rate of 15 percent, versus the ordinary 33 percent rate.
Tax and fiscal incentives are often based on regional considerations. Border areas have special protections because of currency fluctuations in neighboring countries, which can harm local economies. National and local government also offer special incentives such as tax holidays to attract specific industries. For example, Decree 2755 of 2003 exempts investors from corporate profit taxes on all revenues derived from: electricity generation through resources such as wind, biomass or agricultural residue; hotel services rendered by new, expanded or renovated hotels; and ecotourism, forestry, river transportation services, software development, medical products with new patents, and oil-related seismic activities, among others. These tax incentives have been in force since 2003 and range between 10 and 30 years.
Service Barriers: Legal services are limited to law firms licensed under Colombian law. Foreign law firms can operate in Colombia only by forming a joint venture with a Colombian law firm and under the licenses of the Colombian lawyers in the firm. Economic needs tests, which calculate the impact of a firm's entry into the market, are required when foreign providers of professional services operate temporarily in Colombia. Moreover, residency requirements restrict trans-border trade of certain professional services, such as accounting, bookkeeping, auditing, architecture, engineering, urban planning, and medical and dental services. For firms with more than ten employees, no more than 10 percent of the general workforce and 20 percent of specialists may be foreign nationals. Companies seeking to sell information provision services must establish a commercial presence in Colombia. Foreign educational institutions must have resident status in Colombia in order to receive operational authority from the Ministry of Education.
Tariff Barriers: Most duties have been consolidated into three tariff levels:
• Level 1: 0 to 5 percent for capital goods, industrial goods and raw materials not produced in Colombia,
• Level 2: 10 percent on manufactured goods with some exceptions,
• Level 3: 15 to 20 percent on consumer and “sensitive” goods.
Exceptions include automobiles (35 percent duty) and many agricultural products, which are subject to a variable “price-band” import duty system. When international prices rise and surpass the price-band ceiling, tariffs are reduced; when prices drop below the price-band floor, tariffs are raised. Colombia's free trade agreement partners are subject to lower or no duties, which makes imports of U.S. products into Colombia less competitive. The CTPA would dismantle most remaining barriers upon entry into force, or after a transition period.
Protection of Property Rights
Piracy continues to threaten legitimate intellectual property markets in Colombia, which has been on the Special 301 “Watch List” every year since 1991. The registration and administration of intellectual property rights (industrial property and copyrights) in Colombia are carried out by three different government entities. The Superintendent of Industry and Commerce (SIC) acts as the Colombian patent and trademark office. The agency has had to deal with inadequate financing, a high personnel turnover rate, and a large backlog of trademark and patent applications. Obtaining a patent can take from 3 to 5 years. The SIC has made efforts and some progress in providing electronic registration services for patents, industrial designs and trademarks. The Colombian Agricultural Institute (ICA) is in charge of issuing plant variety protection and agro-chemical patents. The National Copyright Directorate is responsible for issuing literary copyrights. Each of these entities suffers from financial and technical resource constraints. Moreover, the lack of uniformity and consistency in IPR registration and oversight procedures limits the transparency and predictability of the IPR enforcement regime.
The CTPA provides improved standards for the protection and enforcement of a broad range of intellectual property rights. Such improvements include state-of-the-art protections for digital products such as software, music, text, and videos, stronger protection for U.S. patents, trademarks, and test data, including an electronic system for the registration and maintenance of trademarks, and deterrence of piracy and counterfeiting by criminalizing end-use piracy.
Optical disc piracy of music and film entertainment product is extensive. The publishing industry also suffers from widespread piracy, mostly in the form of illegal photocopying of academic textbooks in and around university and school campuses. Although Colombia has one of the lowest software piracy rates in Latin America, piracy of both business and entertainment software continues to cause commercial harm to legitimate industry.
Colombia has taken steps to increase penalties for the circumvention of technological protection measures. Unfortunately, law enforcement raids have not created a deterrent effect. Pirated products are distributed through hundreds of stalls in flea markets. Industry representatives have complained about judges’ perceived lack of knowledge of intellectual property protection. In 2009 the National Copyright Directorate spent considerable resources in modernizing its technological platform to allow for the online registration of works subject to copyright and related rights. These efforts allowed for 43 percent of all registries from January through September of 2009 to be carried out online.
Patents and Trademarks
The patent regime in Colombia currently provides for a 20-year protection period for patents; a ten-year term for industrial designs; and 20- or 15-year protection for new plant varieties, depending on the species. However, U.S. companies have expressed concern that the GOC does not provide patent protection for new uses of previously known or patented products. In 2002, the GOC issued Decree 2085, which improved the protection of confidential data for pharmaceutical and agro-chemical products. Colombia is member of the Inter-American Convention for Trademark and Commercial Protection. Various procedures associated with industrial property, patent and trademark registration have been made available online and can be accessed through SIC’s
Since 1995, Colombia’s National Anti-Piracy Campaign has raised public awareness, conducted training, and promoted consumer education. Law enforcement agencies cooperate with industry, and enforcement actions have concentrated in Bogotá, Barranquilla Cartagena, Cúcuta and Medellín. There are often lengthy delays in processing cases following arrests.
In 2000, Colombia enacted enforcement legislation (Law No. 603) that requires Colombian corporations to include in their annual reports certification of their compliance with copyright laws. The Superintendent of Companies (Super Sociedades) has the authority to audit the company and penalize it in case of non-compliance. Any corporation that falsely certifies copyright compliance could face criminal prosecution. In addition, the legislation treats software piracy as a form of tax evasion and empowers the DIAN (Colombia’s Customs and Income Tax Office) to inspect software licenses during routine tax inspections.
Amendments to Colombia’s 1982 copyright law have increased criminal penalties for piracy and expanded police authority to seize infringing products. Colombia has deposited its instruments of ratification for both the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT).
Colombia’s criminal code includes copyright infringements as a crime with jail terms. In 2006, amendments to the Criminal Code increased the maximum prison term from five to eight years, with a corresponding rise in the minimum term from two to four years. The code also contains provisions on the violation of technological protection measures and rights management, both key obligations of the WIPO Treaties, but these violations are only punishable by fines.
Transparency of Regulatory System
Colombian legal and regulatory systems are generally transparent and consistent with international norms. The commercial code and other laws cover such broad areas as banking and credit, bankruptcy/reorganization, business establishment/conduct, commercial contracts, credit, corporate organization, fiduciary obligations, insurance, industrial property, and real property law. The civil code contains provisions relating to contracts, mortgages, liens, notary functions, and registries.
Enforcement mechanisms exist, but historically the judicial system has not taken an active role in adjudicating commercial cases. The 1991 Constitution provided the judiciary with greater administrative and financial independence from the executive branch. Colombia has completed its transition to an oral accusatory system to make criminal investigations and trials more efficient. The new system separates the investigative functions assigned to the Office of the Attorney General from trial functions. Lack of coordination among government entities as well as insufficient resources complicate timely resolution of cases.