There are three types of free Trade Zones. They are permanent, special or single-business, and transitory.
Permanent Free Zone
It is an area in which multiple companies are installed and which is managed by an operator. They are also called industrial parks and must be equipped with the necessary infrastructure for companies to settle there and carry out their industrial activity. Currently, about 31 permanent free zones are distributed throughout Colombian national territory. These companies enjoy special tax, customs, and foreign trade rules and regulations.
Special Permanent Free Trade Zone
This type of free zone allocates the space to a single company. Regardless of the geographical area where it is located, the benefits of the free zone apply to its activities. These companies must work with projects with a high social and economic impact on the country. The company occupying this type of free zone in Colombia enjoys special tax, customs, and foreign trade rules and regulations.
Currently, in Colombia, there are approximately 71 special permanent free zones. Types of companies in these special zones include manufacturers of goods, services, health services, agro-industrial projects, and port companies.
Transitory Free Zone
Among the types of free zones in Colombia, this is the one designated for certain defined periods that are temporary in nature. These are zones for international fairs, exhibitions, congresses, and seminars of importance to the country’s economy and international trade
The land where this type of event takes place is temporarily granted the treatment of a commercial-free zone to allow the entry of goods from abroad free of tariffs and VAT. The maximum permanence time of the goods in the Transitory Free Zone includes the duration of the event plus two additional periods: one of three months before its initiation and another of six months after its termination.
Free zones in Colombia are geographically defined spaces where one or several companies are located. In such a zone, inhabitant firms receive multiple tax and customs advantages. The special districts, as they are also known, have been in operation in Colombia since 1958 and are currently favored by a legal framework that guarantees their sustainability in various regions of the country.
According to information provided by Colombia’s Ministry of Commerce, Industry and Tourism and the country’s Chamber of Free Zones of the National Association of Businessmen of Colombia (ANDI), companies located in an area that has been established as a Free Zone in Colombia, whether permanent, special or transitory have access to three kinds of benefits. These benefits are in the areas of taxation, customs rules and regulations, and foreign trade statutes. Let us examine the information pertaining to each of these areas:
Tax benefits for free zones in Colombia:
According to Andi and the Chamber of Free Zones, “companies established within a Colombian free zone pay a special income tax rate of 20%. Additionally, companies located in free zones in the country, whether foreign or domestic, do not have to pay VAT tax related to purchasing and selling raw materials, inputs, and finished goods. This is a significant benefit considering the high VAT tax burden (19% on average) applicable to the rest of Colombian national territory.
Companies located in free zones in Colombia “are exempt from paying customs taxes (tariff and VAT) for the importation of goods that they introduce into the free zones. However, when a good produced in a Colombian free zone is sold in the national territory, such a transaction is considered an import. Therefore, at that moment, companies must pay these taxes and comply with the requirements of all imports.
Furthermore, although merchandise sold from Colombia to a free trade zone must carry out the export process, it is possible to enter national goods into a free trade zone so that they can be processed or transformed and returned to Colombia. In these cases, customs procedures are not required, only authorization of the user, operator, or administrator of the Free Zone.
In turn, damaged or poorly maintained merchandise that is within a free zone in Colombia does not have to be nationalized. Such items can be removed or destroyed within the free zone without paying taxes.
Foreign trade benefits:
In this realm, companies in free zones in Colombia have access to seven specific benefits. These are:
- Goods from abroad brought into the free zone do not require an import declaration. The goods are only required to appear on the transport document as consigned to a free zone user where the items brought from abroad will arrive.
- Raw materials, capital goods, inputs, and any merchandise entering a free zone are not considered imports. Therefore, companies in free zones in Colombia do not have to pay duties or VAT while they are inside the designated area. However, if they leave Colombian national territory, they must be imported. Once this is done, an import declaration must be presented, the tariff and VAT must be paid, and the other requirements demanded by customs and foreign trade legislation must be met.
- Exiting merchandise to another country from a free zone in Colombia does not require submitting an export declaration because the merchandise transit form acts as this document. Departures to another country only need authorization from the free zone operator.
- Companies located in free trade zones, domestic and foreign investors, can temporarily enter raw materials and intermediate goods into Colombia for partial processing without this implying import costs or prior customs authorizations.
- Merchandise entering a Free Zone may remain within the Free Zone indefinitely. This is a benefit since companies can carry out the nationalization or import when they have a specific need for the goods.
- There are no restrictions on selling goods or services produced in a free zone in Colombia, in third countries, or in the national territory.
- The companies installed in a Free Zone can have offices and staff outside the Free Zone in the national territory.