Colombia trade policies creating favourable investment conditions for foreign trade

Re-elected with a slim majority, Colombia’s president Juan Manuel Santos vows to keep up the reforms – and that’s good news for business, says our Colombian office.

Colombia’s latest presidential race saw the return of Juan Manuel Santos last month, re-elected with a 50.80% majority in the second round and ensuring a continuation in economic reform.

Throughout his presidency, Santos has overseen a period of economic reform that has been well received throughout the international community and has positioned the country as an attractive destination for foreign investment. According to the National Administrative Department for Statistics (DANE), GDP grew 4.3% in 2013, and during the first quarter of 2014 Colombia had the highest GDP in the region and the world’s second-highest following China. It registered $16.288m in foreign direct investment (FDI), a record figure for Colombia.

Protections for investors, integration with international markets and the reforms have all been key reasons for the investment increase. Tax reform has to date included the cutback of the corporate income tax to 25% from 33%, positioning Colombia as the second-best tax environment in the region according to the latest Latinvex rankings. In addition, there are tax incentives for specific sectors such as tourism, hospitality, agriculture and some of the river transport sector.

Reforms bring business benefits to Colombia

In 2010, the Santos government enacted a law to encourage job generation, giving tax and commercial benefits to companies created since 29 December 2010. Among the law’s benefits is the escalation of income tax payments, where companies could skip this payment for the first two years of operation and for the next three the payments would be: 25% in the third year, 50% in the fourth year and 75% in the fifth year. Likewise, they would have discounts in parafiscal charges up to 100% during the first two years of operation, then 75% in the third year, 50% in the fourth year and 25% in the fifth year.      

To encourage foreign investment, Colombia has 13 free trade agreements in place, are subscribed to five more and are negotiating a further two; additionally, there are eight double taxation agreements in place, which give Colombia a privileged access to international markets.

There is also a regional initiative to integrate Latin countries interested in more trade openness; the Santos government joined Colombia to this in 2011 alongside Chile, Mexico and Peru. In its first few years of operation, there have been two presidential summits, six high level group meetings with International Affairs and Commerce Ministers and five negotiation rounds. One of the first announcements made by the alliance was the constitution of a Latin American Integrated Market (MILA), which aims to integrate the stock market of every country involved.

But it’s not all smooth sailing for Santos; this next presidential term does bring some challenges. The international community will expect FDI promotion to continue, as well as implementation of good practice from the OECD and maintenance of economic growth – the IMF has put a target of 4.5% for this year; 4G technology will contribute 1% of this growth, says Finance Minister Mauricio Cardenas.

The historic peace negotiations between the revolutionary armed forces FARC and the government, carried out in Havana, Cuba, were one of the most crucial reasons for the re-election of Juan Manuel Santos. The talks are now seen to symbolise a hope that Santos will bring permanent political and economic security to Colombia. Strong growth and FDI would seem to show that hope is coming to fruition.

Find out more about doing business in Colombia.

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