|Carlos Fradique-Méndez||Maria Andrea Calero Tafur|
The legal developments described here are placing Colombia in an increasingly favourable position. This is part of a trend in line with a sustained effort to attract foreign investment. The World Bank has classified Colombia as a country whose legal reforms have significantly contributed to its economic growth. The reforms and the resultant increase of foreign capital inflows have substantially raised the levels of employment and further strengthened various industry sectors in Colombia.
The Colombian Central Bank recently rewrote the foreign exchange regime to relax certain requirements and proceedings. Some of the most important changes to the regime were as follows:
- Certain time limits for registration of foreign direct investment were amended to establish a period of 12 months as of the date of the relevant document to register such operations (for example, contributions in kind, the acquisition of shares in capital market operations financed by local credit, and other types of operations that may be subject to specific regulation requirements). Similarly, the registration deadline for certain types of Colombian investments abroad and for substitution and cancellation of both the registration of foreign investment in Colombia and Colombian investment abroad was extended.
- The new regulations also modified the registration requirements applicable to foreign portfolio investments. Local administrators (stock brokerage firms, trust companies and investment management companies, also known as sociedades administradoras de inversión) must be appointed as representatives of foreign portfolio investors, who then are required to carry out the applicable registration requirements. This would greatly facilitate capital and banking market transactions, particularly in the context of the Bogotá, Lima and Santiago stock exchange integration.
- A wider range of permitted portfolio investments was introduced. For instance, the international investment regime (Decree 2080 of 2000) previously classified as "portfolio investments" any investments in American Depositary Receipts and Global Depositary Receipts. With the issuance of the new amendments, the scope of the certificates' underlying securities was expanded beyond equity securities to cover all types of securities. The new regulations specifically include, as a type of portfolio investment, investments in Global Depositary Notes. We anticipate that market conditions would likely facilitate a development of new transaction structures in the near term.
- The new regulations established, with respect to foreign trade, that the only transactions that constitute foreign indebtedness are the following: (i) credits for the pre-financing of exports made by residents and users of free trade zones; (ii) the financing of payments in advance for the purchase of goods by free-trade-zone users and imports of goods by residents; and (iii) the financing of imports of goods through financial leases. As a result, the financing of imports with a term of more than six months and an amount exceeding $10,000 will not be considered as a passive foreign indebtedness and consequently will not have to be reported as such to the Colombian Central Bank. Likewise, the financing of exports for a term exceeding 12 months and an amount greater than $10,000 will not be considered as an active external indebtedness and consequently will not have to be reported as such to the Colombian Central Bank.
- The modification eliminated the restriction pursuant to which foreign exchange declarations could only be replaced within 15 business days from the filing of the relevant foreign exchange declarations. Consequently, foreign exchange declarations from now on can be clarified and/or replaced at any time. The recent amendments set out the applicable procedures for clarifications and replacement of foreign exchange declarations that have been filed on or after February 8 2011.
These reforms should represent a significant improvement as to the flexibility of forex-related rules and procedures and would contribute to the implementation of innovative, local and international financial structures.
Maria Andrea Calero Tafur and Carlos Fradique
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