On 27 December 2019, Colombian President Ivan Duque signed the country’s new Economic Growth Law, called ‘Ley de Crecimiento Económico’, a stimulus package aimed to support business and low income households. The law introduces new tax discounts for businesses in Colombia, among other reduced taxes and contributions for households.
Colombia is one of the most promising countries in Latin America for foreign investors and entrepreneurs, and offers stable legal frameworks for businesses. Despite recent political events, Colombia remains a strong contender for foreign investment and shows consistently positive economic growth.
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Tax discounts for business in Colombia
Colombia’s Congress approved the Economic Growth Law (Ley de Crecimiento Económico), and President Duque promptly signed it in late December. From 2020 onwards, the government expects the law to boost foreign direct investment into the country, thanks to new tax discounts for business in Colombia.
Businesses can enjoy reduced taxes on certain imported capital goods. The Law promises easier tax filing processes for smaller businesses.
Additionally, the Law also implements changes to:
- Goods and services tax
- National consumption tax
- Individual income tax
- Dividends and participations
- Standardization Tax
- Income tax
- Declaration of assets abroad
- Financial transactions tax (GMF in Spanish)
- Procedural aspects of business.
Notably, company income tax will be reduced from 33% to 30% over three years, and dividend tax will drop from 15% to 10%. The Economic Growth Law also intends to provide incentives for companies to offer employment to people aged 18-28 years.
On an individual level, the poorest 20% of Colombian households will experience an offset value-added tax, and a smaller mandatory health contribution.
Additional tax incentives in Colombia: the Orange Economy
The ‘Orange Economy’, a concept coined by President Duque, highlights the potential of the economy’s creative sectors, and offers tax incentives for businesses working in arts, technology, and innovative industries.
Specifically, the Orange Economy in Colombia targets development in the following areas:
- Media, including software creation and development, video games and advertising
- Cultural activities, such as television, cinema, photography, printed media, radio and libraries
- Visual arts, including architecture, design, dance, theatre, museums and fashion.
Currently representing around 3.3% of Colombia’s economy, President Duque aims to boost Orange Economy industries to contribute 10% to GDP.
‘Orange’ industry tax exemptions
President Duque aims to improve outputs of creative industries by offering the following tax incentives:
- Income tax exemption for 5 years (if income is less than USD$900,000 per annum)
- Value-added tax exemption on importation, production or purchase of fixed assets
- Easier access to seed capital and credit.
In order to access these tax and other benefits, there are certain conditions businesses must comply with:
- They must reside in Colombia, and be fully operational before 31 December 2021
- Their constitution must specifically focus on the development of one of the creative or technological areas recognized under the Orange Economy scheme
- The business must have at least 3 employees directly involved in the company’s commercial activities
- They must invest approximately US$46,000 within 3 taxable years.
Alongside offering tax discounts for business in Colombia under the Orange Economy scheme, Colombia is ramping up its intellectual property laws to offer more solid protection for these creative industries. This further stimulates business confidence and foreign investment in Colombia.
The Ministry of Culture has now established an Orange Economy Committee to support business growth in creative industries.
Supporting foreign business and investment in Colombia
Colombia shows a consistent effort to draw new business into the country. The government understands the value of foreign investment in Colombia, and how it contributes to the country’s overall economic growth and development.
The Economic Growth Law and Orange Economy are demonstrations of the country’s commitment to its National Development Plan, which outlines around US$325 billion in public spending. Besides pushing the growth of creative industries under the Orange Economy, this plan aims to create 1.6 million new jobs, promote greater international trade and connectivity, and more than double the country’s commercial rail network (expansion from 420-1077 kilometers).
Now is the best time to invest in Colombia for business. Make the most of tax benefits, pro-business policies, a valuable geographic location for trade, and highly educated workforce.
Get expert advice on tax discounts for business in Colombia
Colombia continues to surge ahead as one of Latin America’s regional powers, offering attractive commercial conditions and tax discounts for businesses expanding into the country. Its international connectivity and wide range of tax incentives support its strong legal frameworks for supporting commercial success.
Expand into Colombia and enjoy its commercial offerings with the help of a local legal expert who can guide your business through company formation, accounting and tax compliance, and other corporate processes.
At Biz Latin Hub, we’re your single point of contact for your market entry and back-office needs. Our team of local and expatriate professionals in Colombia offer customized business solutions in company formation, corporate compliance, hiring and PEO services, visa processing and due diligence.
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The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.
