The opportunities brought by the new Free Zone regime

The opportunities brought by the new Free Zone regime

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By: Leydi Ortegón García/Manager Lord Company S.A.S.

The opportunities brought by the new Free Zone regime

Since 19 November last year, the Ministry of Commerce, Industry and Tourism(MINCIT) made public the draft Decree that will adjust some aspects of the current free trade zone regime. This Decree would provide additional tools that would allow free trade zones to consolidate themselves as a source of income.

Investment

 generation of new investments and jobs.

This new Decree, which is expected to be issued in the first months of this year, contemplates, among others, the following measures, which will undoubtedly serve the purpose of making them more efficient and technological:

1. Increase in the number of sectors eligible for the scheme:

The new Decree will allow new activities to be carried out under the free trade zone regime. free zones. These include the development of logistics infrastructure such as airports and railway terminals under state concession contracts. It should be noted that this is currently only possible for port concessions.

It will also allow for the declaration of special agro-industrial free zones more broadly. The draft Decree extends this figure to all projects involving the industrial processing of agricultural sector products, according to the WTO Agreement on Agriculture, and not only biofuels and the reduced number of sectors allowed under the current regulations.

Similarly, it would allow the special free zones for services to eventually become permanent free zones (multi-company), solely dedicated to the provision of services. In this way, the possibility of locating new companies that carry out work in these free zones is expanded , with the consequent generation of new investments and employment. This will encourage the creation of service clusters, especially in the areas of technology and telecommunications, such as call centres or BPOs, and other business services. The new regulation would maintain the possibility of declaring permanent, multi-business free zones, dedicated exclusively to the provision of services in areas of less than 20 hectares in municipalities and districts with less than one million inhabitants.

Similarly, modifications to the economic activity initially proposed in the Master Plan for the Development of the Free Zone. Such modifications may relate to an extension of the same or a different activity for which the declaration of the free trade zone. This will make it possible to maintain the free trade zone in the event that, due to economic or financial circumstances, it becomes necessary to change the industrial activity or to diversify the focus of the free zone, thereby also generating new economic activities.

2. Simplification of declaration procedures: 

The aim is to reduce the time taken to declare free trade zones. Firstly, the Intersectoral Commission for Free Trade Zones, which is the body in charge of approving the Master Development Plan for each new free trade zone, is restructured. This commission will be made up of high-level delegates from the ministries and entities involved in the process (deputy ministers and sub-directors), which should facilitate the frequency and efficiency of meetings at which projects for the approval of new free trade zones and adjustments to the Master Development Plan of existing ones are analysed. 

It is also proposed to reduce the deadlines for entities such as the DIAN and the DNP to issue their concepts on the fiscal and economic impacts, respectively, of the projects. Similarly, it is intended to speed up the start of implementation of investment projects. Investments that are made from the moment the application for the free zone declaration is filed with MINCIT will be counted as new investments, so it will no longer be necessary for the investor to wait for the completion of the declaration process in order to start the investment schedule.

Finally, it should be noted that the user (company) qualification process in free zones The permanent is simplified. This is because the requirement to submit an economic feasibility study, which did not make much sense for this type of qualification in these free zones multi-business.

3. Intangible Assets

Up to 20% of intangible assets (patents, trademarks, copyrights, internet domains, goodwill, franchises, etc.) will be allowed to count as new investments, which recognises their importance in the new type of free zones, with a higher technological content towards which the regime has evolved.

4.Work outside the free zone area:

The performance of work outside the area declared as a free zone shall be permitted. free zone. This by direct employees of the industrial users of services; from their domicile or a different place, under the use of any system that involves mechanisms of electronic processing of information and the permanent use of some means of telecommunication for the contact between the worker and the company located in the free zone.

The new regulation contemplates important changes to the process of requesting an extension of the deadline for the declaration of free trade zones. Firstly, it establishes that the investment requirements are no longer counted in current legal monthly minimum wages but in Tax Value Units - UVT.

This alone will lower the commitment of new investments considerably. By way of example, a permanent free trade zone seeking an extension of its declaration period under the current regulation would have to make new investments of around $41.8 billion (46 thousand smmlv), whereas under the new Decree this new investment would be $33.6 billion (924,224 UVT), which means a reduction of almost 20% in the requirement, more than $8 billion.

In the same vein, the user who requests the extension is allowed to start the implementation of their new investments before the authorization of the same; and eliminates the concept of the DNP on the economic impact of these projects.

5. Adjustments to the extensions of the term of free zones:

The new regulation contemplates important changes to the process of requesting an extension of the deadline for the declaration of free trade zones. free zones. Firstly, it establishes that the investment requirements are no longer counted in current legal monthly minimum wages but in Tax Value Units - UVT.

This alone will lower the commitment of new investments considerably. By way of example, a permanent free trade zone seeking an extension of its declaration period under the current regulation would have to make new investments of around $41.8 billion (46 thousand smmlv), whereas under the new Decree this new investment would be $33.6 billion (924,224 UVT), which means a reduction of almost 20% in the requirement, more than $8 billion.

In the same vein, the user who requests the extension is allowed to start the implementation of their new investments before the authorization of the same; and eliminates the concept of the DNP on the economic impact of these projects.

6. Free trade zones 4.0, boosting e-commerce and retail sales:

One of the objectives of the new Decree is for the free trade zone regime to move towards the 4.0 model (environments of maximum competitiveness through artificial intelligence projects, process automation and analytics). To this end, users will be allowed to make sales through the internet by means of postal traffic and express shipments.

In short, the new Decree will increase the free trade zone regime, which is ultimately one of the few instruments for the promotion of new investments and jobs with tangible customs and tax benefits available in our legislation. In this sense, it will be necessary for this regime to be analysed and accepted by investors in the execution of their new projects.

Leydi Ortegon Garcia
Manager
Lord Company S.A.S.

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