Francisco A. Laguna
In October, I gave a lunch presentation at Keller and Heckman’s TSCA and International Chemical Regulatory Law Seminar in Washington, DC. The discussion centered on 5 Latin American countries: Argentina; Brazil; Colombia; Mexico; and Venezuela. We’re converting my speech into a five-part blog series. This third article focuses on Colombia.
Despite years of drug violence, guerilla movements and corruption, Colombia has exhibited significant economic resilience. The country’s economic policies are pragmatic, and so are its regulatory approaches.
Colombia is increasingly adopting international standards either to promote itself in the global market place or as a result of its free trade agreements. Products approved and sold in the United States and the European Union are typically accepted in Colombia, subject to relatively painless procedures to obtain product authorization and import permits, as applicable.
An ongoing development in Colombia is the Pacific Alliance, a trading bloc comprised of Chile, Colombia, Mexico and Peru. More than a free trade area, the Alliance hopes to achieve economic and social integration – think a mini EU, a comparison Alliance representatives seem to like. Costa Rica and Panama have already applied for full Alliance membership. Canada, China, India, Germany, Japan, Korea, the UK and the US, among others, have observer status.
Although discussions have been on-going since 2011, the Alliance is still in the formative stages. Currently, talks on market harmonization are on-going. If true harmonization occurs, the Pacific Alliance will be an effective competitor to Mercosur. Mercosur allows its individual members, including Argentina and Venezuela, to impose requirements beyond common market guidelines.
Colombia can use its membership in a fully-integrated Pacific Alliance, plus its numerous free trade agreements, to attract FDI. Of course, it will only be successful in attracting investments if it offers a better business environment with greater ease of doing business than the other members.
Two tax considerations may affect a company’s decision to establish a subsidiary in-country. The Colombian economy has been affected by a decline in crude oil production as well as the global price of crude. To cover projected deficits, the Colombian Congress is currently considering a bill to extend the existing “wealth” tax until the end of 2018. Individuals with patrimony / assets exceeding 1 billion Colombian pesos (~ US$ 480,000) are subject to a sliding tax between 0.2 – 1.5%.
Companies will be subject to an increased tax of 12% for profits over 1 billion pesos and 9% for profits up to 1 billion.
In addition, the bill also extends a “financial transaction” tax, the so-called “4 per 1,000” fee – a tax of 4 pesos is charged for each 1,000 pesos withdrawn from a financial institution. Everyone using Colombian financial institutions is subject to this tax. It is expected that the Congress will approve the bill before year’s end.