COLOMBIA: Draft Decree Proposes changes to Foreign Investment Rules

Tuesday August 30 2016

The Colombian Ministry of Commerce, Industry and Tourism has proposed measures to amend the existing Colombian foreign investment regime, which will be consistent with international standards and with Colombia’s international commitments.

Draft regulations designed to replace the current regime, Decree 2080 of 2000, have been published.

Existing Decree 2080 of 2000 provides for two types of foreign investments:

• investments made by Colombian residents abroad, and
• investments made by non-Colombians residents in the country.

Both types of investors, are required to register their investments with the Colombian Central Bank (CCB). Investments are defined as transactions made by residents or non-Colombian residents. However, currently it is not clear when a person is a Colombian resident for currency purposes. This has led to a variety of interpretations that produce lack of certainty. The proposed regulation clarifies this concept by defining a natural person, Colombian or foreign, as a Colombian resident if she or he remains in the country on a continuous or interrupted basis for more than 183 calendar days during a period of 365 consecutive calendar days, and therefore provides greater certainty in relation to who has access to currency rights.

Registration before the Colombian Central Bank gives rise to currency rights. Currently, the funds for a portfolio, or for a direct investment, must come into the country through a commercial bank. This registration is automatic and does not represent any additional steps for the investors. However, difficulties arise when for example, there is an acquisition of shares through a merger whereby the investor is transferring funds to acquire the shares. In such cases, the registration is not automatic and requires the investor to take additional steps. The proposed amendments intend to additionally automate this transaction.

Additionally, under the proposed Decree, a portfolio investment is defined as any investment made in mutual funds or in securities registered with the National Registry of Securities and Issuers, or with a foreign securities settlement system. In contrast, the definition of a direct investment includes a list of six transactions, though there are several transactions that can lead to the ownership of an asset in Colombia that are not included in the list. As a result, they are not considered foreign investments for the purposes of the rights and obligations attributable to such.

Other changes include:

• Broadening of the definition of foreign investment.
• Borrowing and lending activity between parent and subsidiaries classified as direct investments
• Direct investments being clearly distinguished from Portfolio investment by consideration of the percentage of ownership. E.g. When ownership reaches or exceeds 10%, this will be considered direct investment, in line with the International Monetary Funds standards.
• Amendments to how fines can be imposed, with the intention of reducing the amount of penalties imposed. E.g. the proposed regulation does not treat registration as an obligation. However, without registration, the investment loses its currency rights, accordingly the investor would not have the right to remit abroad in freely convertible currency the profits and sums derived from the sale or liquidation of the foreign investment.

Click on the above link for information on the existing Decree 2080 of 2000