Article by Adrian F Rodríguez1 and Andrés González2, Lewin&Wills Abogados, Bogotá Colombia.
The Investment stability Act, that allows investors to maintain the legal framework that motivated them to invest by establishing that as long as such framework was included into an agreement signed with Government it will not be adversely modified, could be subject to important reforms in the following weeks.
Since 2006 the Government has signed more tan 65 Investment Stability Agreements with individual investors.
Investment Stability Act Background.
In an effort to promote an increase in both domestic and foreign investment in 2005, Colombian Congress enacted the Investment Stability Act. [Investment Stability Act: Colombian Congress, Act No. 963-2005]
Pursuant to this act the Congress authorized the Colombian Government to enter into individual Investment Stability Agreements with new and already existing investors, both domestic and foreign. The purpose of these agreements is to guarantee to each individual investor a specific legal framework deemed by the investor as determinative for her new investment or for increasing an already existing investment. The duration of the agreement must be at least 3 years and no longer than 20 years. Portfolio investments do not qualify for this treatment.
Although its scope can go beyond the tax framework, this type of Investment Stability Agreements can cover all the sorts of issues related to national level direct taxes, ranging from applicable rates to tax incentives, and even positions adopted by the Colombian Tax Service in its rulings. Nevertheless, indirect taxes, welfare regime, and temporary taxes enacted under State of Economic Emergency (and other extraordinary constitutional states), cannot be subject to Investment Stability Agreements.
With the execution of an Investment Stability Agreement the Government guarantees to the specific investor the permanence of the selected legal and tax framework for a specific period of time, even if such framework changes in the future. In exchange, the investor must make or increase an investment in the minimum amount of US$2.2 million3 and pay to the Governmental Finance Agency a consideration equal 0,5% (unproductive periods) or 1% (productive periods) of the amount of the investment.
The legal framework that the investor wants to benefit form during the duration of the agreement needs to be included in the Agreement. Rules, regulations or rulings left...