Of all of the Latin American countries, the legal and financial system of Colombia has the best record in the protection of foreign investment. With the repeal of the law that permitted the Colombian government to consficate property owned by foreigners (without compensation) they now have the same basic rights as if they were Colombian. You can buy and sell real estate or other investment tools and repatriate your money, providing you have paid any associated taxes on your capital gain.
Moving funds in and out of the country can be done through a bank, providing you have an account or through a brokerage house. This will be a subject of an article at a latter date.
Since 1810, currency in Colombia has been the Colombian Peso. Through international wires you can not bring any other currency into this country unless it is in pesos, so an exchange will have to be made through an external source. You can personally carry in up to $10,000 USD in cash.
Between 2001 and 2007, there was a 14 fold growth in the Colombian Stock Exchange – the BVC. In April of 2012 Morgan Stanley called it ”the best stock market in the world”. In 2011, J.P. Morgan rated Colombia as the 2nd most promising Latin American country for the following 3 years.
In 2011, the United Nations Conference for Commerce and Development indicated the country reached the fifth place in Direct Foreign Investment in the world. In 2012, Colombia was listed as the third best country in Latin America and the Caribbean for business and investment by the World Bank’s Doing Business report. In addition in March 2012, the Bloomberg Market, ranked Colombia in 12th position, above countries such as Mexico
The Colombian financial system is based on a model of specialized banking. The central bank, of the Bank of the Republic, administers the legal reserves, the circulation and emission of the currency.
As a result of the specialized bank model, Colombia has different types of financial institutions depending on their economic activity. General business is managed by the banks. There are specialized financial institutions that deal with corporate credit and investment banking and commercial financial institutions that manage the acquisition of consumer goods through financial leasing.
The US dollar in 2103 has rallied slightly against the peso but many question how long the Central Bank can sustain this rate. Ideally the Colombian government would like to see it at 1.900.000 COP to the dollar to aid exports but with the massive of amounts of foreign investment entering the country this may be difficult to maintain. As of June 6, 2103 the rate is 1.899.000 COP to the dollar. Below is a chart of the average historic rates against the dollar.
In March 2013, the Colombian Finance Minister announced that inflation was at its lowest rate in 6 decades and as a result the government would be focusing on boosting economic growth. The hope is to be able to accelerate the growth of the economy to its potential rate of 4.8 % per year. The prediction is that 2013 will end with an inflation rate of less than 3 %.
There have been new tax laws passed in Colombia as of 2103. The taxable rates for 2013 – 2015 with be at the rate of 34%. As an individual you are allowed to earn approximately 27.000.000 COP before you pay taxes. If you are generating an income from a rental source for example, you can deduct your expenses from your gross income.
The very good news is that on a nonrecurring gain, the rate has dropped from 33% to 10%. You must however have owned the asset for 2 years. Additionally if the profit was generated by an individual on the sale of a home or apartment, the first 201.397.500 COP will be exempt, providing the property value – does not exceed 402.615.00.
For personal taxation you are considered a resident for tax purposes if you are present in the country for more than 183 days (cumulative) in a 365 day period. This means you will be taxed on your worldwide income. Taxes must be filed singly, not jointly. If you own property jointly, this will allow you to reduce your tax exposure.
Most income is subject to taxes. In principle pension funds are not taxed and 25% of labour income is exempt. Capital gains, that is inheritance, gifts and sales of real estate are taxed at 10%. The sale of Colombian stocks, through a stock exchange are exempt as long as they are not more than 10% of the total shares of the issuing company. There are provisions for health expenses up to a maximum of 32.209.000 COP in 2013, providing the individuals income does not exceed 96.000.000 It is also possible to deduct the interest related to a purchase of a home.
As tax avoidance is not uncommon in Colombia, the government assesses an annual 3% tax on a resident’s net worth, based on the previous year. Assets such as shares in Colombian stocks and the individual’s residence, up to a certain value, are exempt.
It is important when you transfer funds into Colombia that any money to be used for investment be recorded on a Form 4 from the Bank of the Republic. Any of these funds registered in this manner can be repatriated without an issue or without any taxes. If you have made capital gains on your investment in Colombia, then before your funds can be transferred out of Colombia, you will need documentation from your accountant that the appropriate taxes have been paid.
We at ESCAPE ARTIST COLOMBIA highly recommend that you speak with a knowledgeable accountant and/or lawyer to manage these situations.