Tax and customs benefits: Obtained from investing in Non-Conventional Sources of Energy (NCSE) in Colombia

Abusaid Gómez y Asociados present a brief description of the benefits for local and foreign companies of Act 1715 of 2014 that was enacted with the intention to attract companies and individuals to invest in renewable energy projects

By: José Abusaid, executive Director Abusaid Gómez & Asociados

Published in Amcham Colombia Business Express, available here 


Act 1715 of 2014 was enacted with the intention to bring diversity to the actual energy supply system, and to attract companies and individuals to invest in renewable energy projects, by granting them tax and customs incentives. This document conducts a brief description of the benefits:

Abusaid

1. Income Tax

Incentives are exclusively directed to those investors who invest directly in the research, development and production or generation of non-conventional energies in the country. This benefit consists in deducting, in a period no longer than 5 years after the investment is made, up to 50% of the amount invested, from the income tax liability.

Besides, the annual deducted tax cannot exceed 50% of the net income of the taxpayer for that specific year. In addition, to obtain this incentive it is necessary to have an approved environmental certification from the Ministry of Environment and Sustainable Development.

The general requirements to access to this incentive are:

1. Investors must obtain the Certification of Environmental benefit issued by the Ministry of Environments and Sustainable Development according to the terms of the article 158- 2 of the Tax Code, and other related rules to this disposition. Moreover, investors must obtain a certification from the “Mining and Energy Planning Unit” (UPME in Spanish), which is part of the Ministry of Mines and Energy of Colombia.

The incentive will not be applicable when:

1. The investment is made through a lease back agreement or any other method that doesn´t imply the transfer of ownership of the assets.

2. The contracts that were used to get the deduction are cancelled or rescinded. In this case, taxpayers will have to refund the incentive by incorporating the amount of the benefit as a liquid rent for recovery of deductions, under the terms of article 195 of the tax code and taking into account the taxable year in which the contract was cancelled or terminated.

3. If the assets subject to the investment are disposed of before the end of the depreciation time or the amortized period, the beneficiaries of the deduction must return the incentive, by returning it as a liquid income for the recovery of the deductions under the terms of the articles 195 and 196 of the tax code, taking into account the taxable year in which the alienation was perfected.

2. Value Added Tax (IVA in Spanish)

In addition to this, the law grants an exception of the VAT in any purchase related to the equipment needed in the pre-investment or investment phases of the project. To obtain this incentive, the investor must have a certificate of all the equipment and services issued by the Ministry of Environments and Sustainable Development (specifically ANLA, or division of environmental licenses) where the reduction is recognized, and therefore, it can be applied.

As the spirit of this act is to promote the use of NCSE, this incentive applies to the purchase of national or imported equipment, elements and machinery, or the acquisition of services inside or outside the national territory, that are destined to new investments and pre- investments for the production and use NCSE. As a result, the Colombian government expects to foster new investments, research and development projects in NCSE, as well as those destined for the measurement and evaluation of potential resources of energy.

3. Customs Duties

This law also grants an import duty waiver on imported equipment and supplies intended exclusively for pre-investment and investment projects.

As a result, this exemption can only be applied to NCSE generation projects and must be requested to the Colombian tax and customs authority (DIAN in Spanish) within a minimum of 15 working days before the import of the good, in accordance with the project documentation endorsed by the UPME certification.

Additionally, the Free Trade Agreement (FTA) between Colombia and the United States includes special protections to foreign investors that ensure that their investments will not be subject to illegal discrimination, and expropriation. If needed, the FTA allows the investor and the states to resolve disputes at an international arbitration panel.

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