What are Free Trade Zones in Colombia and how do they work?
Free Trade Zones in Colombia

What are Free Trade Zones in Colombia and how do they work?

You may be interested in

Table of Contents

Free Trade Zones play an indispensable role in Colombia, since they function as an incentive for exports that allows the proper development of commercial, industrial and service activities. This, under special regulations on foreign exchange, customs, tax and foreign trade matters. Today we are going to tell you all about free zones in Colombia and how they work.

Definition of free zone in Colombia

In Colombia, Article 1 of Law 1004 of 2005 defines Free Trade Zones as: "geographic spaces within the national territory (Colombia) that allow the development of industrial activities, goods and services, or commercial activities, with special tax, customs and foreign trade regulations" .

This means that raw materials, goods, machinery and merchandise that enter the free zone companies are immediately considered to be outside Colombia, even though they are within the territory included within the geographical limits.

Due to the special regulations that are handled in the free trade zones, we can say that they function as an instrument for development, employment, competitiveness and the attraction of new capital investments in the places where they are established.

On the other hand, it should be noted that free trade zones contribute to the development of highly productive and competitive industrial processes in the domestic and international markets. This, based on the concepts of good business practices linked to transparency, safety and clean production.

It is worth mentioning that Colombian regulations also apply within the free trade zones, such as commercial regulations, bank credits, compliance with commercial contracts, police requirements, ICA and INVIMA.

How do free trade zones work in Colombia?

The companies installed in the Free Trade Zones have a maximum investment commitment of 3 years for medium and large companies and an initial investment commitment for micro companies, accompanied by minimum commitments of new jobs of 7, 20, 30 and 50 depending on the range of investment, commitments that must prove to be executable from the first day they are authorized as a Free Trade Zone company.

Free zone companies may be either publicly owned, mixed capital or privately owned. There are two main criteria to which special attention should be paid. On the one hand, taxation and on the other hand, exports.

In this regard, it is important to keep in mind that in free zones, there is always a single income tax rate of 20%.

At the same time, it is not necessary to pay VAT and customs duties on imports, thus facilitating the existence of incentives to develop this type of procedures and to bet on them. It is necessary to clarify that all Free Trade Zone companies must pay VAT and customs duties when selling their products in Colombia, and there is a company in each Free Trade Zone defined as "User Operator", which controls that the companies comply with the payment of taxes when applicable through the inventory system of the Free Trade Zone.

Through these incentives, companies located in Free Trade Zones are able to generate an economy of scale, while facilitating sales and simplifying the entire process of distribution of goods and services.

Regarding exports, those that are carried out with the free trade zones as a starting point, operate under different benefits of international trade agreements, which makes all exchanges can be developed in a better way and promotes exports in general, generating better economic conditions for the country.

In addition, goods of foreign origin are able to remain in these free zone areas for indefinite periods of time.
The area where they operate must have a continuous extension of not less than 20 hectares; it must have the necessary conditions to be equipped with infrastructure for the industrial, commercial or service activities to be developed.

Regarding the minimum area requirement, it should be noted that this does not apply to the declaration of the existence of Special Permanent Free Trade Zones (Source: Ministry of Commerce, Industry and Tourism): Ministry of Commerce, Industry and Tourism).

Don't forget thatĀ 

Considering the above, Colombia is one of the countries with the largest number of free trade zones in South America, with an estimated 122 throughout the country, of which 42 are estimated to be permanent or also known as multi-company zones.

The free trade zone generates an important positive impact on the economy and also on logistics within the national territory, while generating employment for the national labor force.

Through the free trade zones spread throughout the country, companies based in Colombia, both of national origin and those that come to the country to settle, are motivated through the aforementioned benefits to promote manufacturing and production projects to supply the domestic market with competitive final products and increase exports.

Subscribe

To our biweekly newsletter Zona Franca.

You may be interested in

Do you need more Information about our Free Trade Zone?