Decree 1295 of 1996, enacted by the Colombian Government on July 24, approved several modifications to the international investment regime. The decree simplifies and expedites procedures and requirements in this area.
Decree 1295 eliminated prior authorizations, formerly granted by the National Planning Department for public services (ie energy and public sanitation) and for investments in the processing and disposal of waste (an area which does not include investments in the processing of disposal of toxic or radioactive waste, in which foreign investments are completely prohibited).
In relation to the foreign investment regime for mining and hydrocarbons, prior authorization, formerly granted by the Ministry of Mines and Energy, was also abolished, as was authorization, formerly granted by the National Planning Department, for projects in these areas where the investment was worth over US$100 million.
Additionally, supplementary investment in the assigned capital of all types of branches of foreign companies is now permitted. Previously this was only allowed in branches of companies working in mining and hydrocarbons.
It is important to mention that Article 19 of Decree 1295 establishes an amnesty for those investors who, before the decree entered into force, carried out foreign investments without the authorizations required by the International Investment Statute, allowing them to request the corresponding registration without committing a foreign exchange offence.
Foreign investment for the purchase of real estate for housing or offices of foreign companies is allowed, but the Decree makes clear that no other purchase of real estate by foreign legal entities or individuals will be deemed foreign investment.
Finally, Decree 1295 also simplifies and clarifies the requirements for the incorporation and operation of foreign investment funds and eliminates various investment restrictions on portfolio investments.
Foreign Capital Investment Funds are now allowed to invest in documents issued in a real estate securitization or in construction projects. Funds may invest freely in securities issued or guaranteed by financial institutions under the supervision of the Banking Superintendency other than shares and mandatory convertible bonds. However, in the case of fixed-income securities with a term less than three years the investments may not exceed 20% of the total registered investment. An important change under the Decree is that individual funds do not now have special restrictions and therefore may invest in the same securities as institutional funds.
The procedures for obtaining authorization to invest in the Colombian stock exchange markets for institutional funds were also simplified and funds which comply with certain requirements may now be approved automatically. All other funds must go through the normal approval process, which involves the presentation of documentation on the goodwill and experience of the fund itself and of its investment manager before the Colombian Superintendency of Securities.
In addition, after the enactment of Decree 1027 of June 7 1996 issued by the Colombian Foreign Ministry, Colombia will begin to enjoy the benefits of the Multilateral Investment Guarantee Agency (MIGA). The main purpose of MIGA has been to promote private foreign direct investment for economic and social developments in the World Bank member countries. MIGA's insurance programme includes investor protection against losses in currency transfer, expropriation and similar measures, breach of contract by the host government, war and civil disturbance, and any other risk agreed by the investor and the host country.
MIGA was ratified by the Colombian Congress in Law 149 of 1994, which was declared legal by the Colombian Constitutional Court in 1995. MIGA would play an important role in Colombia in the encouragement of foreign investment, complementing national and regional investment guarantee schemes (especially in regards to breach of contract by the host government), and would therefore enhance the flow of capital and technology into Colombia, on the basis of fair and equitable standards for the treatment of foreign investment.
Additionally, Law 266 of 1996 approved the adhesion of Colombia to the ICSID International Centre for the Settlement of Investment Disputes, adopted in 1965 as part of the Washington Convention. The ICSID, which is also part of the World Bank group, administers arbitration procedures arising from international investment contracts where the parties are a member state and a national or other member state.
Finally, Law 315 of September 12 1996 approved a new international arbitration regime in Colombia, paving the way for total acceptance of this important dispute-resolution tool for international companies doing business in Colombia.