Foreign Investment Rules
Colombia, along with Bolivia, Ecuador, Peru, and Venezuela, is a member of the Andean Pact. The main principles and rules established by decisions issued while the pact was being developed were incorporated into Colombia's Foreign Investment Statute and its complementary regulations.
Foreign investments in Colombia are divided into direct investments and portfolio investments.
Direct investments occur when foreign individuals or companies invest directly in a business entity constituted in Colombia or when foreign individuals or companies acquire participations, shares, or social quotas with the intent of permanency. A direct investment in a company may also be executed for the development of collaboration, concession, service, management, license, or technology transfer agreements. This investment strategy is allowable, provided that the investment does not involve the acquisition of shares and that income received by the foreign investor comes from the Colombian company's profits, as specified in its corporate purpose.
In portfolio investments, foreign capital contributions are made to acquire shares, bonds, and other negotiable securities listed by the Foreign Investment Statute.
Foreign investment is expressly prohibited in national defense and security activities and in activities dealing with the disposal of toxic, radioactive, or dangerous waste not produced in Colombia. It is also prohibited in companies devoted exclusively to the sale and rental of real estate and in securities issued on the basis of real estate construction or real estate assets.
Foreign investors have the right to remit profits abroad that are obtained from their investments. Foreign investors may also remit abroad invested capital and gains, once corresponding taxes have been paid, in compliance with the Tax Code.
Sectors Open to Foreign Investment
Foreign investments are treated as national investments. As such, foreign investors are allowed to participate, without restriction, in all industrial and economic projects. Foreign investments do not require prior approval, except in specific sectors, such as utilities (energy, water, and sewerage systems), postal services, public health (including garbage collection), communications (including television and radio stations but not cellular telecommunications), financial institutions (in the circumstances described below), oil, and mining.
Obtaining these approvals does not hamper most investments. For example, foreign investors may engage in the generation, production, and commercialization of power; in telecommunications services; and in the mining and oil industry, as long as they comply with the laws related to the performance of these activities and with the exchange regulations described later in this chapter. The national constitution, enacted in 1991, enhances the role that private entities play in providing public services, and foreign investment regulations do not restrict foreign investment in private entities that provide public services.
Foreign investors are not restricted from acquiring any number of shares, obligatory bonds convertible into shares, other bonds, or social quotas of financial entities. However, these acquisitions must be authorized by the Super-intendency of Banks (Superintendencia Bancaria) when they exceed 10% or more of the subscribed shares owned by a financial institution.
Local Participation or Management Requirements
Colombian enterprises may be wholly owned by foreign investors, except in the oil sector; in this sector, association with an official entity, Ecopetrol, is required. The law does not require Colombian participation in the management of an enterprise incorporated in Colombia, but foreign employees may not make up more than 10% and 20% of the skilled and unskilled personnel, respectively, of any company incorporated in Colombia (see 5.04).
A foreign investor is not allowed to invest directly in Colombian companies engaged in the sale and rental of real estate; however, an investor may buy real estate to establish offices in Colombia and employee housing.
Foreign investors are allowed to negotiate and acquire shares, obligatory bonds convertible into shares, other bonds, and other securities listed by the Foreign Investment Statute. These activities must be conducted via a foreign investment capital fund, which must be administered by a local trust company or a stockbroker company that has been authorized to do so by the Superintendency of Securities. These funds must be used for the exclusive purpose of initiating securities transactions in the Colombian securities markets.
Foreign investment capital funds are not allowed to acquire 10% or more of the total amount of a Colombian company's outstanding shares. For omnibus funds (that is, funds constituted as collective accounts with an undivided participation over the institutional investor's net worth), the limitation applies to each subaccount.
Foreign Exchange Policy
Foreign exchange controls have been significantly reduced in recent years. Some have been removed, and others have been transferred from the central bank to the authorized foreign exchange intermediaries (that is, banks), allowing the regulation in this area to be more flexibly applied. Foreign investments must be registered with the central bank, however, to secure the right to repatriate capital and annual profits. If investments are registered, repatriation is permitted without any limits.
Under the general foreign exchange policy, foreign capital investors remit abroad net profits generated by their Colombian investments in freely convertible currency. To purchase and sell foreign currency, the investor must submit a certificate, issued by the statutory auditor. This certificate indicates the investment's amount and net profits generated. These transactions must be carried out through authorized institutions.
Projects performed by companies with foreign capital for the exploration and exploitation of oil, natural gas, coal, ferronickel, and uranium are subject to a special foreign exchange policy. Under the special policy, investors are not bound to repatriate export-generated foreign currency. Companies devoted to technical services inherent to hydrocarbon exploration and exploitation activities may carry out operations in a foreign currency with no repatriation obligation. Furthermore, foreign investors are not obligated to reimburse Colombia with foreign currency obtained from the sale of products from these operations. Expenses incurred abroad that are related to the development of these projects must be paid in foreign currency. Companies interested in being covered by these special provisions must notify the central bank.
Foreign Currency Markets
Colombia has two types of foreign currency markets: the exchange market and the free market. Foreign currency operations conducted via the exchange market must be processed through financial institutions. Foreign currency operations conducted via the free market can also be processed through the exchange market. However, these free market foreign currency operations may be used only to make payments for specific operations indicated under the law (see "Operation of the Free Market" below).
Operation of the Exchange Market
The following operations must be processed through the exchange market:
- Importing and exporting of goods (see also 4.03)
- Foreign loan and debt operations made by Colombian residents within the country and financial costs inherent to these operations
- Foreign capital investments made in Colombia and their related earnings
- Colombian capital investments made abroad and their related earnings
- Financial investments in issued stock, bonuses, debentures, or assets located abroad and their related earnings
- Endorsements and guarantees in foreign currency
- Derivative operations and peso foreign currency transactions, such as forwards, futures, options, and swaps
Operation of the Free Market
Foreign currency received by Colombian residents for services performed abroad, payments for insurance premiums agreed to in a foreign currency, payments of international credit cards, and payments for tourist activities are allowed to be transferred to the country through the free market.
Agreements in Foreign Currency
Agreements made in Colombia in foreign currency that are not considered exchange operations must be paid in Colombian legal currency. Agreements entered into by a resident and a nonresident that are considered exchange operations must be paid in the foreign currency agreed upon by the parties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information contact Mario Andrade, Deloitte & Touche, Santafe de Bogota, Colombia on Tel: +57 1 256 1548, Fax: +57 1 256 1557