The Financial System Statute lays down that leasing services can only be offered by certain companies known as Commercial Financing Companies (CFCs). CFCs require prior authorization from the Banking Superintendency, and are subject to a special regime. CFCs must be organized as stock companies. They cannot be branches of foreign companies, but they may be subsidiaries. CFCs may effect active credit transactions up to the equivalent of 35% of total assets.
There are three main ways of organizing leasing operations with clients in Colombia:
- direct leasing between the principal outside Colombia as lessor and the clients in Colombia, under the 'international leasing' alternative;
- establishment of a subsidiary in Colombia to carry out leasing transactions within the country; and
- use of an existing corporation to carry out leasing transactions in the country.
The implications of the first two options are considered below. The other is only of interest from a commercial point of view and in the context of the particular interests of a foreign leasing company.
Leasing directly through international leasing. Foreign companies, authorized to carry on this activity in their own jurisdiction, can also effect leasing transactions in Colombia. These transactions are described as 'international leasing' and can be carried out only with foreign assets. Under international leasing rules in Colombia, temporary import approval for the leased property must be obtained. Lessees may defer the payment of custom duties and VAT in equal instalments up to a maximum five-year term.
A VAT exemption applies for the temporary importation of heavy equipment for basic industries, provided the equipment is not manufactured in the country. The concept of heavy equipment includes all complementary elements or accessories of the main equipment. Because most machinery and other heavy equipment for basic industry is not made in Colombia, most likely the property in an international leasing will enjoy exemption. When the lessee exercises the purchase option, any temporary import ends, and the lessee must then pay the rest of the duty and VAT on the value of the goods.
Additionally, the lessor, who usually would have to pay income tax on its earnings from the agreement, is exempted from this tax, provided the agreement is to finance investment on machinery and equipment related to activities considered of economic and social benefit to the country. The exemption only applies to foreign companies.
On the other side, the lessee may treat the VAT as an income discount, provided an irrevocable purchase option has been agreed. This implies the lessee enjoys this discount only when the agreement is of the financial leasing or leasing type.
Leasing through a new commercial company in Colombia. CFCs are the only companies authorized to carry out leasing transactions in Colombia among Colombian residents. The incorporation of a CFC can take a minimum of two months, because a permit from the Banking Superintendency is required. The minimum capital contribution required to establish a CFC is Ps5.1 billion (US$ 5.1 million).
A CFC cannot carry out leasing transactions with goods that are not its property. Therefore, the CFC must purchase and import the goods, which means that it has to pay duties and VAT (if applicable). It will enjoy neither the advantages of a temporary import nor the VAT exemption mentioned above.
But, in a normal import (non-temporary), if the goods have a CIF value above US$500,000, 40% of the VAT payment can be made along with the import declaration, and the rest of the payment in two equal instalments within the two years after the nationalization of the goods. For this purpose the importer will have to sign a payment agreement with the tax authorities.
Luis E Nieto
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