Tax incentives for the Colombian agricultural sector

Last December 27, Law 2010 of 2019 (Economic Growth Law) was enacted, a law that, like the last Financing Law, incorporated benefits for different sectors to which the National Government is betting on, among them, those related to the hotel and theme park sector, orange economy and investments in the agricultural sector.

Particularly, regarding the agricultural sector, paragraph 2 of article 235-2 of the Tax Statute (E.T.), modified by the above-mentioned Growth Law, provided for a benefit consisting in the exemption, for up to 10 years of the income derived from investments in the Colombian countryside.

According to the explanatory memorandum of the Growth Law, this type of incentives does not generate a negative fiscal impact for the State "since these benefits are granted to new or already established productive units that make a minimum investment and generate a minimum number of jobs specific to each of these benefits, which would not be realized in the absence of these incentives".

This benefit would allow companies that meet the following requirements to make the necessary investments to carry out their agricultural projects, free of income tax, for the period:

a. The company must be incorporated between January 1, 2019, and December 31, 2022, and start its operation before the latter date. The company must be registered in the RUT as a taxpayer of the general income tax regime.

b. They must have as their corporate purpose any of the activities that increase the productivity of the Colombian countryside, detailed in Section A (divisions 01, 02, 03) and Section C (divisions 10 and 11) of the International Standard Industrial Classification in force in Colombia, which are summarized below:

(i) Agriculture, Livestock, Hunting, and related service activities.

ii) Forestry and timber extraction activities.

iii) Fishing and aquaculture activities.

iv) Food processing activities or.

v) Beverage processing activities.

c. The direct hiring of employees with the intention of permanence must be complied with, who work in functions directly related to the activities, without counting the administrators, partners, shareholders, consortium members, associates, cooperators, co-owners or co-participants of the company.

The number of direct jobs will be determined in relation to the total income obtained each year in which the benefit is applied and may range between 1 and 52 jobs (without prejudice to the possibility of hiring additional employees).

d. An amount of investment in property, plant and equipment must be complied with within a maximum term of 6 years in accordance with the Regulations issued by the National Government. It is worth mentioning that the minimum investment is 1,500 UVT ($53,410,500).

e. An investment project must be submitted to the Ministry of Agriculture and Rural Development, justifying its financial viability and convenience. This must be done considering that the Entity must issue an act of conformity and confirm that the investments increase the productivity of the agricultural sector before December 31, 2022.

On the other hand, it should be mentioned that the current conditions to access the benefit are less burdensome than those set forth in the Financing Law (declared unconstitutional by the Constitutional Court), since: (i) the minimum amount of investment and the number of direct jobs were reduced in the current rule, in addition they will be increased, only, in relation to the gross income obtained by the beneficiary; (ii) the corporate purpose of the entity applying for the incentive must not be exclusive, allowing it to exercise other commercial activities and; (iii) currently the company is not required to have its main domicile and administration and operation headquarters in the municipalities where the productivity of the field is increased, allowing it to establish itself in any other place.

Finally, it is evident that, although the modifications provided by the regulation are favorable for those persons who decide to invest in the Colombian countryside, it is necessary that the benefit be regulated as soon as possible by the National Government, since this would allow to have full certainty regarding matters such as: the conditions of the investment project, the number of employees, total amount of investment, among others.