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Free Trade Zones in Colombia after the 2016 Tax Reform

 

The last tax reform in Colombia was approved in December 2016 as Act 1819 of 2016. One of the most significant aspects of this law regarding foreign investment, is the preferential tax treatment for companies (foreign or national), operating in Free Trade Zones.

There are three types of Free Trade Zone users:

  1. Those dedicated to the provision of services
  2. The ones that manufacture or transform goods
  3. Companies with commercial activities such as marketing, shipping or storage.

The tax advantages described below are applicable to users dedicated to services and/or goods, not to commercial activities.

While the income tax rate for corporations (foreign or national) established in ordinary customs territory was set at 34% [1], the income tax rate for corporations in free trade zones was set at 20%. Additionally, such companies will be exempt from payroll taxes.

Another tax benefit that in fact existed before the tax reform is that Free Trade Zone users do not pay VAT on purchases, raw materials or finished products, only if the purchases are related to the commercial purpose of the company.

Finally, from the customs point of view, a Free Trade Zone user does not pay customs duties on raw material or finished products imported into the Free Trade Zone. There would be customs duties only when the Free Trade Zone user sells products to clients in the Colombian customs territory.

[1] The income tax rate for 2017 will be 34%, plus a surcharge of 6% for companies with profits of more than COP 800’000.000. For fiscal year 2018 the income tax rate will be 33% and 4% surcharge (same profit bracket), and for 2019 there will be a unified income tax rate at the 33%.

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