Free Trade Zones in Colombia: what are they, how many are there and what are their advantages for companies?
The Free Trade Zones enjoy benefits that other companies do not have and most of them are companies that have this regime regardless of the place where they are installed.
How many Free Trade Zones are there in Colombia?
According to the Ministry of Commerce in Colombia, there are 42 permanent Free Trade Zones and 78 special permanent Free Trade Zones, for a total of 120. The 42 permanent ones are multi-companies and the 78 special ones are single-companies.
Free Trade Zones are characterized for being territories or companies in which economic activities are developed, either for the production or commercialization of goods and services. They also have special tax, customs and foreign trade regulations.
What benefits do companies established in Free Trade Zones obtain?
In tax matters, the Free Trade Zones have an income tax with a single rate of 20%, that is, 15 percentage points less than the regular rate. In addition, the purchases that they make and that are necessary for the development of their corporate purpose are exempt from VAT.
In the customs field, they are exempt from paying customs duties and VAT, provided that the goods with which they work are within the Free Trade Zone.
The goods coming from abroad that are introduced into the Free Trade Zone are not considered an import and the operator may export them without the need of a shipment authorization or export declaration.
The Free Trade Zones may temporarily withdraw raw materials outside the zone for processing and there is no mandatory time of permanence of the goods entering the zone.
In addition, there is no restriction for the sale of goods or services produced in Free Trade Zones to third countries or to the national territory.
All these benefits led many companies to take advantage of them to produce goods or services that are marketed in the country, thus denaturalizing their purpose and in a certain way giving them an advantage that other companies competing in the domestic market did not enjoy.
What has been the role of the Free Trade Zones in the country’s foreign trade?
Although a tax, customs and foreign trade regime has been established for years for the Free Trade Zones, their contribution to foreign trade is small compared to the total volume of imports and exports.
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According to DANE, in April 2023, merchandise exports from Colombian Free Zones registered a decrease of 22.8%, going from USD $295.1 million FOB, in April 2022, to USD $227.9 million FOB in the same month of 2023.
Exports from Free Trade Zones went from USD 343.2 million, in April 2019, to USD 227.9 in April 2023. Meanwhile, their imports went from 152.9 to 172.0 in the same period.
In 2022, the countries of origin of most of the imports to the Free Trade Zones were the United States, China, Venezuela, Canada and Barbados, according to DANE.
The main destination countries for the largest shipments from the Free Trade Zones in 2022 were the United States, Venezuela, Puerto Rico, Egypt, the Netherlands, Suriname and China.
According to the Free Trade Zones Association of the Americas (AZFA), there are some 3,500 Free Trade Zones in the world, of which 400 are in Latin America, 11.4% of the total.
Colombia has almost 25% of the Free Trade Zones in Latin America
Of the 400 that exist in Latin America, Colombia has almost 25% of the Free Trade Zones in Latin America. This is a little more than 25%.120
Undoubtedly, Colombia is one of the countries with the largest number of Free Trade Zones. Despite this, they have a recurring trade deficit and a languid export performance, concentrated in a few commodities, the vast majority of which are not exported from them.
According to DANE, Free Trade Zones in 2022 exported a total of USD $2,787.5 million and imported USD $2,258.8, for a surplus in that year of USD $528 million. Exports from Free Trade Zones represent only 5% of the country’s total exports, which in 2022 were USD $56,910 million.
With respect to imports in 2022, which were USD $77,413 million, the participation of Free Trade Zones was only 3% of the total.
In the last tax reform, the 20% income tax was maintained and not the general 35%. The condition was that they had to present an export plan, in order to fulfill the purpose for which they were created.
According to the last tax reform, domestic trade activities will be taxed at the general rate, in a process to be carried out between 2023 and 2024.
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