In the following report, we will give an overview of why there has been a growth in the demand for professional accounting services in Colombia. The overview will briefly summarize the economic outlook and trends in the Andean nation, most notably in the Mergers and Acquisitions(M&A) market, explain the recent changes in taxation laws in Colombia and the opportunities and challenges they present as well as let you know what you can expect for the future of the economy.
Outsource Accounting Services in Colombia: Increase in Mergers and Acquisitions Market in Colombia
Colombia is the fourth-largest economy and fourth most active Mergers and Acquisition (M&A) country in Latin America, behind only Brazil, Mexico, and Chile. In recent years, Colombia has worked on diversifying its economy, which has lead to its macroeconomic stability and projected growth rates of between 2% and 4% for the second half of 2017. Although implementation of a peace accord with the FARC guerrilla will dominate the political and policy agenda, we currently assume policy continuity. GDP growth should accelerate in 2018 thanks to infrastructure spending, higher oil prices and some pickup in private investment.
Starting 2015, and going into 2016, Colombia had been involved in about 39 mergers and acquisitions valuing $5.6 billion USD. The mergers and acquisitions did not stop there, and since then, high-profile mergers like that of the $100 billion USD beer merger between Anheuser-Busch InBev and SABMiller and that of the $2 billion USD privatization of the public power utility company ISAGEN by the Canadian company Brookfield Asset Management have shown the power of the M&A market in Colombia. Another expected acquisition is that of ExxonMobil by the company Terpel, which would give Terpel control of up to 50% of the oils and lubricants market in Colombia.
As for regulatory changes, On December 29, 2016, Congress in Colombia enacted Law 1819 of 2016, reforming the Colombian tax code. Notably, this law added processes intended to align the Colombian tax system with the OECD’s Base Erosion and Profit Shifting (BEPS) guidelines. Other changes were that it increased the general corporate income tax rate, added a new income tax withholding on dividends, and eradicated the income tax for equality (CREE) and related CREE surcharge.
What are the opportunities and challenges for outsourcing accounting services in the Colombian market?
The recent changes to the IFRS in Colombia should be seen as an opportunity for companies to present their financial statements in the same language as the rest of the world, and stay ahead in business management. This newly adopted accounting standard in Colombia opens the country to other markets in the world, and at the same time, helps with strategic and innovative tools of financial information.
However, a challenge for Colombia is the country’s legal and regulatory requirements on accounting, which is not always in line with high-quality financial reporting standards. Colombia has multiple legally established sources of accounting standards and rules, and some of the accounting requirements conflict with each other. As a result, preparers and auditing/accounting firms are often confused about the applicability of particular accounting methods and disclosure obligations, which can lead to the deterioration of the quality of the financial statements.
In many cases, tax accounting rules require accounting treatments that conflict with financial reporting requirements in such areas as inventory costing, valuation of inventories under the retail method, accounting for leasing contracts, depreciation of fixed assets, provision for bad debt, and inflation adjustments. As a result, accounting/auditing firms that prepare and audit such financial statements face a challenge when they are trying to avoid triggering a difference of opinion and a misinterpretation of the statements with taxation authorities.
What are the expectations for the future of Colombia’s economy?
Colombia’s adoption of free-market policies, its positive regulatory environment, and its growing middle class of nearly 50 million people has helped it attract more merger and acquisitions than other Latin American countries. In the past, buyers normally targeted the region’s energy and infrastructure sectors, but there has been an increase in investment in the pharmaceuticals, technology, finance, and real estate sectors. This all proves more desirability and diversification of investment into the Colombian market, which will increase demand for outsourcing accounting services in the future.
If you are interested in investing or incorporating a company in Colombia and have more questions about how valuable an accounting service can be for your business, please feel free to contact David here. Our team of local and foreign experts at Biz Latin Hub offer a wide range of professional multilingual market entry and back office services that can help you start your company in Latin America.
If you want to know more about our accounting services and how we can help you do business in Colombia, watch this video: