Much has been said in recent months about the changes that will be made to Free Trade Zones in Colombia. For example, it has been stated in the media that "the rules of the game will change for some users." It is worth noting that Colombia stands out for its focus and goal of promoting trade and investment through its Free Trade Zone regulations.
ANDI presented a document outlining its internationalization plan so that new and existing users can apply for the 20% rate in Free Trade Zones.
These special areas, geographically delimited within the country, are vital to boosting the national economy by attracting investment and creating jobs, while also playing a crucial role in Colombia's integration into the global economy.
On the other hand, it was highlighted that the National Government issued Decree 047/2024, which seeks to regulate internationalization plans. It now has a flexible and practical Free Trade Zone regime, with a 20% income tax rate on exports to any part of the national territory.
Specifically, ANDI explained that “instead, a dual tax system will be applied: a preferential rate of 20% for income from exports of goods and/or services, and a standard rate of 35% for other income. To maintain the preferential rate, companies must develop an internationalization plan and meet revenue targets established annually.”
The Ministry of Commerce, Industry, and Tourism (MinCIT) will oversee the subscription of these plans. Companies must submit applications to subscribe to the plan within specific deadlines and meet certain conditions. The implementation of this new Internationalization Plan model must be aligned with policies to promote exports and attract investment in free trade zones. The export of services for taxable income will be limited to certain specific cases. It is important to begin work on the plan as soon as possible and meet key deadlines.
One of the most important points is that Free Trade Zone Operators have been given a new role as export promoters. As such, they will now be obligated to support permanent users in their internationalization plans. “ Furthermore, auditing firms must certify these efforts. To access the 20% rate, new industrial users must meet the amounts and percentages of external sales stipulated in their internationalization plans.”
Free Trade Zones have been designed to promote sustainable economic development, offering tax and customs incentives that stimulate foreign and domestic investment, technological development, and competitiveness in key sectors. These incentives are defined in the Free Trade Zone regime. They become engines of growth for the regions where they are located. They also offer local and foreign companies a unique platform for expansion, innovation, and access to international markets.
This approach, outlined in the Free Trade Zone regulations, is part of Colombia's economic strategy, positioning the country as an attractive investment destination in Latin America. From the Western Free Trade Zone , we will delve into the Free Trade Zone regime, exploring its regulatory framework, the benefits it offers, how companies become part of this ecosystem, and the transformative impact it has on the Colombian economy.
What are Free Trade Zones?
These are geographical areas within a country where a specific economic activity is carried out under a special tax and customs regime. Depending on their activity, they can be different types of users : industrial, commercial, and operators.
Regulatory framework
The regulations for Free Trade Zones in Colombia are carefully designed and regulated by a set of laws and decrees that establish guidelines for their creation, operation, and administration. This regulatory framework seeks to promote the country's economic development and international competitiveness, as well as ensure transparency, legality, and compliance with international standards in these special areas.
Key laws and decrees
- Law 1004 of 2005: Known as the "Free Trade Zone Law," this is the cornerstone of the Free Trade Zone regime in Colombia. It establishes the general framework for the creation and operation of free trade zones in the country, promoting investment, technological development, and job creation. The law defines the types of free trade zones, the requirements for their creation, and the tax, customs, and trade benefits for companies established within them.
- Decree 2147 of 2016: This decree is a crucial complement to Law 1004, updating and clarifying several of its aspects. It introduces important modifications that facilitate the operation and expansion of Free Trade Zones, adjusting the regime of the Free trade zone to the dynamics of global trade and international practices.
The decree details administrative processes, conditions for users, operators, industrial and commercial operators, and refines the criteria for the evaluation and approval of new Free Trade Zones, thus strengthening all regulatory requirements.
- Decree 390 of 2016: Known as the "Single Customs Decree," it comprehensively regulates customs procedures in Colombia, including those specific to Free Trade Zones. This decree is essential for understanding customs operations and the specific benefits that Free Trade Zones offer in terms of importing, exporting, and handling goods, providing even greater clarity to Free Trade Zone regulations.
Updates and modifications
The Free Trade Zone regime is dynamic and has been adjusted over the years to respond to changes in the global economic environment and the country's needs. This means that both legislators and regulators periodically update Free Trade Zone regulations to ensure they remain competitive and effective in meeting their economic development objectives.
Importance of the regulatory framework
The detailed regulatory framework is essential to providing an environment of legal certainty and stability, which is crucial for attracting foreign and domestic investment. By understanding the set of laws and decrees that regulate them, companies maximize the benefits offered by the Free Trade Zone regime while ensuring compliance with their tax and customs obligations.
Benefits of the Free Trade Zone Regime
The Free Trade Zone regime is designed to boost economic development, attract foreign investment, and promote the export of goods and services. To achieve these objectives, the Colombian government offers a range of tax, customs, and trade incentives to companies that establish themselves within these zones.
These positive aspects of the Free Trade Zone regulations reduce operating costs and improve business competitiveness, which also promotes job creation and technological development.
Zona Franca de Occidente has a wide range of customs, tax and logistics benefits for those who decide to set up their project here.
Fiscal benefits
- Reduced income tax rate: Companies operating in Free Trade Zones benefit from a preferential income tax rate of 20%, considerably lower than the general rate applicable to companies outside these Zones. *For qualified users after December 13, 2022, the Internationalization Plan applies.
Along these lines, no tariffs or VAT are charged on the import of equipment and raw materials related to the user company's economic activity.
Customs benefits
- Duty-free imports and exports: Goods entering the Free Trade Zone from abroad or from the national customs territory are exempt from all types of tariffs and customs fees, thus facilitating the import of raw materials and the export of finished products.
- Facility in handling goods: Storage, processing, assembly and any other industrial process are permitted without the goods being subject to the usual customs procedures, until they are nationalized or re-exported.
Business benefits
- Streamlining customs procedures: Free Trade Zone regulations require that operations within Free Trade Zones be subject to a special customs regime that simplifies and streamlines procedures, reducing the time and costs associated with foreign trade.
- Access to international markets: Being strategically located and having first-class infrastructure, Free Trade Zones offer an ideal platform for expansion into international markets, taking advantage of Colombia's trade agreements with other countries and regions, which is a positive point for free trade zone regulations.
Social and economic impact
- Employment generation: investment and economic activity encouraged by the benefits of the regime Free trade zone They contribute significantly to the creation of direct and indirect employment in the regions where they are located.
- Technological development and training: Companies in Free Trade Zones frequently invest in technological development and staff training, contributing to the advancement of Colombian industries and improving the quality of life of their workers, which is why this is a strong point of free trade zone regulations.
Requirements for operating in Free Trade Zones
To take advantage of the benefits of the Free Trade Zone regulations, companies must meet a series of established requirements designed to ensure that they contribute to the country's economic development and the fulfillment of their objectives. The main ones are detailed here:
Company Classification
Industrial users of goods and services: These are users that carry out production activities of goods or provision of services within the Free Trade Zones. They are classified as industrial users of goods, industrial users of services, and commercial users.
Legal requirements and documentation
- Formal request: Submission of a formal application to the relevant authority, including a detailed business plan, feasibility studies, and financial projections.
- Single Tax Registry (RUT): They must be registered in the RUT and have the classification corresponding to their economic activity within the free zone.
- Regulatory compliance: Ensure compliance with all applicable Colombian regulations, including labor, environmental, and safety regulations.
Minimum economic conditions
- Minimum investment: A minimum investment in fixed assets is required, the amount of which varies depending on the type of Free Zone and the economic activity.
- Employment generation: commitment to create a minimum number of direct jobs, thus contributing to the economic and social development of the region.
Approval process
- Evaluation and approval: The application to operate in a Free Trade Zone is evaluated by the Free Trade Zone Committee of the Ministry of Commerce, Industry and Tourism, which verifies compliance with all requirements.
- Operating authorization: Once approved, the company receives an operating permit from the competent authority, allowing it to begin operations under the special Free Trade Zone regime.
Ongoing commitments
- Reports and monitoring: It is necessary to submit periodic reports on its operation, investments, employment generated and compliance with applicable regulations.
- Renewal of authorizations: Authorizations to operate in Free Trade Zones have a specific validity period, after which they must be renewed, demonstrating continued compliance with the requirements.
- Operator user: must oversee all activities within the free trade zone to ensure compliance with all relevant national and international regulations.
At the same time, they are authorized to manage and administer free trade zones, which entails managing and complying with applicable customs and trade regulations. Operators are also expected to contribute to regional economic development by creating jobs.
And as mentioned above, with the changes that were made, the user operator will have a more active role in promoting exports from companies established within the free trade zone.
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