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Colombia

New foreign exchange regulations were recently introduced in Colombia and a regulation project intended to facilitate foreign investment in the country is pending.

Foreign exchange regulation
Resolution 8 of 2000 sets out the new regulation regarding foreign exchange, replacing Resolution 21 of 1993. Among the most important changes introduced by Resolution 8 are the following:

  • Intermediaries of the foreign exchange market(intermediarios del mercado cambiario). Financial cooperatives (cooperativas financieras) and stock broker companies have been enabled to operate as intermediaries of the foreign exchange market. With regards to financial cooperatives, those with an amount of paid-in capital and reserves exceeding the minimum required by credited financial corporation are granted broader faculties than those with a paid-in capital and legal reserve below the minimum requirement. These companies may carry out the same transactions as stock broker companies with a net worth that exceeds Ps3.5 billion ($1.6 million). The transactions allowed for foreign exchange bureaux (casas de cambio) - which were already considered as intermediaries of the foreign exchange market under Resolution 21 - have been broadened. The recently issued Resolution 9 of 2000 eliminated the powers of foreign exchange bureaux to manage and administer systems of international credit and debit cards systems. In addition, savings and loan housing corporations (corporaciones de ahorro y vivienda) are no longer authorized to act as foreign exchange intermediaries.
  • Derivative transactions. Resolution 21 authorized residents to perform basic product hedging transactions, dollar-to-other currency hedging transactions and, on the other hand, to perform dollar-to-peso futures transactions. Resolution 8 clarifies these derivative transactions by authorizing residents, with the exception of foreign exchange market intermediaries, to execute basic product derivatives and financial derivatives transactions. The purpose of the new regulation is to make derivatives transactions more flexible. Resolution 8, for example, does not require residents who intend to carry out hedging transactions to be involved in activities which involve a variation risk in the basic product prices.
  • Hydrocarbons. Resolution 21 set out a special regime to which the following entities could decide to be subject to: (i) companies with foreign capital dedicated to the exploration and exploitation of oil and natural gas; and (ii) branches of foreign companies involved in oil, natural gas, carbon, ferronickel (ferroniquel) or uranium operations. In other words, only companies with foreign capital which were involved in oil and natural gas exploration and exploitation could choose to be subject to the special regime, pursuant to which they would not be obliged to redeem currencies raised from sales made in foreign currencies. Resolution 8 extends this special regime to companies with foreign capital (including companies with any percentage of foreign capital participation) and branches involved in carbon, ferronickel and uranium operations.
  • Head offices and branches. Under Resolution 21, branches of foreign companies were not allowed to reimburse their overseas head offices with the revenue from imports. Imported goods therefore had to be sent to the branches' "assigned capital" or "supplementary capital" accounts. Resolution 8 allows branches to pay their head offices for every import. It is no longer necessary to account for the value of such goods in the capital accounts.
  • Currency sale-purchase. Resolution 21 prohibited individuals from being involved in the sale or purchase of currency. Resolution 8 authorizes residents to do so on a professional basis, the only condition being that they join the trade registry. It is important to note that this authorization applies to the sale-purchase of currency on the free market, because the currency which must be channeled through the foreign exchange market must be purchased or sold through authorized intermediaries of the foreign exchange market, or through the compensation account mechanism.

Reform of the foreign investment statute
In accordance with the National Development Plan, and taking into account the importance of promoting foreign investment in Colombia for the purpose of reactivating the economy, the Council of Economic and Social Politics (CONPES) recently approved the issuance of a regulation project containing a new foreign investment statute. This statute would adopt a series of changes to foreign investment regulation in order to provide more reliability to foreign investors. It would also simplify and facilitate understanding of the regulation in force at present, maintaining the essential principles of foreign investment in Colombia such as universality, automaticity and equality in treatment.

According to the regulation project, the new statute basically incorporates the following changes to foreign investment regulation:

  • A new form of direct foreign investment is included, consisting of the acquisition of fiduciary rights that derive from trusts established by fiduciary contracts as a form of developing an enterprise, increasing the spectrum of entities that may be subject to foreign investment.
  • Regarding portfolio foreign investments, limitations on the acquisition of shares with voting rights by a fund (which corresponded to 40% in omnibus funds and 10% in other funds) were abolished, giving funds more options in the management of their portfolio investments.
  • The definition of individual funds was introduced to portfolio investments.
  • The requirements needed for investment funds to obtain authorization to operate in Colombia were reduced and simplified, leaving only the automatic authorization as a mechanism of authorization. In addition, an electronic format for the presentation of information required by the Superintendent of Securities was established.
  • The prohibition was abolished under which local administrators of investment funds could not perform functions in various funds simultaneously unless they had acquired both the previous consent of the foreign administrator or legal representative and the authorization of the Superintendency of Securities.
  • The management of Colombian investments abroad will have a similar structure as that applied to foreign investments in Colombia.
  • Terms used in other legal dispositions related to foreign investment are unified, and unnecessary references to specific dispositions are eliminated in order to facilitate understanding.

Jean Pierre Lenaerts

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