Free Trade Zones play an essential role in Colombia, serving as an export incentive that allows for the proper development of commercial, industrial, and service activities. This is done under special regulations regarding exchange, customs, taxation, and foreign trade. Today, we're going to tell you all about free trade zones in Colombia and how they operate.
Definition of free zone in Colombia
In Colombia, Article 1 of Law 1004 of 2005 defines Free Zones as: “geographic spaces within the national territory (Colombia) that allow the development of industrial, goods and services activities, or commercial activities, with special tax, customs and foreign trade regulations.”
This means that raw materials, goods, machinery, and merchandise entering companies in free trade zones are immediately considered to be outside Colombia, despite being within the territory covered by the geographic boundaries.
Due to the special regulations governing 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.
Furthermore, it should be noted that free trade zones contribute to developing highly productive and competitive industrial processes in the national and international markets. This is based on the concepts of good business practices linked to transparency, safety, and clean production.
It's worth mentioning that Colombian regulations also apply within free trade zones, such as commercial regulations, bank credit, compliance with commercial contracts, and police requirements, as well as the ICA (Spanish Institute of Statistics and Census), and INVIMA (National Institute of Victims of Crime).
How do free trade zones work in Colombia?
Companies located in Free 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 according to the investment range, commitments that must be shown to be executable from the first day they are authorized as a Free Zone company.
Companies in free trade zones can be public, mixed-capital, or private. There are two key criteria that require special attention: taxation and exports.
In this regard, it is important to keep in mind that in free trade zones, there is always a single income tax rate of 20%.
At the same time, VAT and customs duties are not required on imports, thus creating incentives to develop and implement these procedures. It is important to clarify that all Free Trade Zone companies must pay VAT and customs duties when selling their products in Colombia. Each Free Trade Zone has a company defined as the "User Operator" that monitors companies' compliance with applicable tax payments through the Free Trade Zone's inventory system.
Through these incentives, companies located in Free Trade Zones achieve economies of scale, while facilitating sales and simplifying the entire distribution process for goods and services.
Regarding exports, those carried out through free trade zones operate under various international trade agreement benefits. This allows all trade to develop more effectively and promotes exports in general, generating better economic conditions for the country.
In addition, goods from foreign origin are able to remain in these spaces of free zone for indefinite periods of time.
The area where they operate must have a continuous extension of no less than 20 hectares; it must have the necessary infrastructure for the industrial, commercial, or service activities to be carried out.
Regarding the minimum area requirement, it should be noted that this does not apply to the declaration of existence of Special Permanent Free Zones (Source: Ministry of Commerce, Industry and Tourism ).
Do not forget that
Taking into account 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 it is estimated that 42 are permanent or also known as multi-company.
The free trade zone generates a significant positive impact on the economy and also on logistics within the national territory, while also generating employment for the national workforce.
Through the free trade zones spread across the country, companies based in Colombia, both domestic and new, are motivated by the aforementioned benefits to promote manufacturing and production projects to supply the domestic market with competitive finished products and increase exports.