05 Sep Structuring Duty Free Zone operations taking advantage of Colombia´s flexible legal frame
Colombia is categorized by the ANDI as the country with most free trade zones in south America, 28 permanent free zones and 62 special permanent free zones, with a total of 100 free trade zones functioning throughout the country. During 2016, it was estimated that 817 companies where function in free trade zones.
The main sectors of activities found in free zones under Colombia’s legislation are: industrial with a 53% of the total share, followed by services with 34% and 13% of the agro-industry sector.
For the years 2015 and 2016, 2.432 million USD were registered in goods entered and 2.108 million USD for exports, generating 62.732 direct jobs and 164.742 indirect jobs per year. The data presented by the ANDI, presented above has demonstrated that Colombia is a very competitive country in special economic areas. For this, Colombian legislation has classified free trade zones as economic development platforms to attract investment and generate employment.
The special economic areas have been created with three main purposes, first to generate development by promoting competitiveness in the regions where they are established. Second, develop highly productive and competitive industrial processes under the concepts of security, transparency, technology, clean production and good business practices. Third, to promote economies of scale within the country by simplifying procedures for trade in goods and services.
To fulfill its purpose of an organized development, Colombian legislation has generated a meticulous legal system describing specifically the processing in free zones. The decree 2147 of 2016 has permitted the operator user to authorize the temporary exit of goods and services such as raw materials, inputs and intermediate goods to the rest of the territory, with the ultimate purpose of performing part of the industrial process in the rest of the national customs territory. This type of system is known as partial processing.
During the time that the partial processing is executed, it is necessary that the user located in a free trade zone understands that he can only manufacture 40% of the total product outside the free zone headquarters. Once the operator user authorizes the departure of the good to the national custom territory, the company shall inform the customs authority of the jurisdiction of the free zone the period the good would remain outside the free zone for its production. Free trade zone companies who are planning on developing the partial processing, have an obligation to establish he term during which the good may remain outside the area, because this period must not exceed six (6) months.
It is very important to mention that the re-entry of raw materials, inputs and intermediate goods that were authorized for the temporary exit, does not constitute export.
The partial processing is an excellent mechanism to make production of raw materials more flexible, even reducing the prices to the final consumer. In addition, it generates indirect jobs outside the free zone and reaches small independent micro-entrepreneurs who specialize in jobs that companies in free trade zones do not develop.
Another mechanism of the decree 2147 of 2016 is the ability for industrial users of goods, services and companies, whether located in the same free zone or not, to enter into business relations related to their activities.
With the partial processing and operations mechanism implemented in the decree 2147 of 2016, the government wishes to generate an increase in the productivity and competitiveness of the free zones in Colombia. The primary objective is to continue improving external sales, because investors can see that the country has a flexible but structural legal system for economic interactions. Also, the law is very precise and descriptive of the operational mechanism, thus generating a sense of reassurance in investors.