|Doing Business in Colombia
CAPITAL : Bogotá D.C.
POPULATION : 41.5 Million
AREA : 1,138,910 sq km (439,735 sq mi.)
LARGEST CITIES : Medellín, Cali, Barranquilla, Cartagena,
LANGUAGE : Spanish
RELIGION : Roman Catholic 95%
CURRENCY : Peso
Import Climate : Colombia has signed several multilateral and bilateral free trade agreements. The most important of these are: a) the Andean Community (ANCOM) with Venezuela, Ecuador, and Bolivia (Peru withdrew in April 1997); b) the Latin American Integration Association (LAIA) with Argentina, Brazil, Mexico, Chile, Paraguay, Uruguay, El Salvador, Costa Rica, Guatemala, Nicaragua, Honduras and Cuba, which was later renegotiated country by country on a bilateral basis; c) the G-3 (Colombia, Mexico, and Venezuela); and d) the Colombia-Chile bilateral agreements. Full implementation will take several years, but once achieved, would give Colombia access to a free market of over 200 million people. Colombia has also requested admission to NAFTA.
Under the ANCOM agreement, the signatory countries must assign a common external tariff (CET) for imports coming from third countries and, at the same time, eliminate duties for products manufactured and traded within the region. There are four tariff levels in the CET: 5, 10, 15, and 20 percent. As these member countries grow and modernize, foreign firms may consider the expanded ANCOM market attractive enough to initiate local production for the regional market.
Due to a number of integration agreements with various countries, a complex system of tariffs are applied according to the different treaties. The prior import-licensing requirement has been virtually eliminated. Approximately 97 percent of the 5,162 items in the Colombian Harmonized Tariff Schedule are now on the free import list (i.e., no license required). Import prices are now undergoing closer scrutiny (for duty collection purposes), as is the entry of foreign currency. U.S. dollars can be exchanged freely through banks and financial corporations.
Import regime : Imports may be classified as ordinary, under franchise, temporary, re-importation, guaranteed import, temporary import for re-exportation, special import-export systems, for assembly or transformation, postal, express and courier, and travelers.
Free import list : The majority of HS tariff categories do not require prior import license approval by the Ministry of Foreign Trade (MINCOMEX). However, customs duties and all other taxes must be paid. An import request or registration form is still required.
Prior import list : The prior import-licensing requirement has been virtually eliminated; import registrations are common for most imports. Import licenses are valid for six months; twelve months for capital goods. Requests for extensions are complicated and are permitted only for official imports and capital goods with valid justifications, for successive periods of three months per extension.
Tariffs : Import duties are ad valorem and are assessed on the CIF value of shipments. Colombia's tariffs conform to the 5-20 percent Common External Tariff (CET) in effect for the Andean Community. Government entities are no longer exempt from import duties.
Special taxes, fees and/or surcharges : Most imports of consumer goods, consumer electronics, and apparel (in addition to a 15 percent estimate for freight and insurance FOB costs), are subject to a 1.2 percent surcharge on the FOB value of products for a so-called "Customs Services Fund" which was introduced recently under Article 56 of Law 633 of December 29, 2000.
VAT : A 16 percent VAT (value-added tax) is levied on the CIF duty-paid value of imports, with only a few exceptions.
Courier or express shipments : Courier or express shipments not exceeding US$1,000 in value and 20 kilograms in weight are freely imported into Colombia. These shipments are classified under HS 98.08.00.00.00, and are subject to a 10 percent CIF tariff and 16 percent value-added tax assessed on the CIF-duty-paid value of most merchandise shipments, plus 1.2 percent FOB surcharge for Customs services. Rules apply to either air or surface courier shipments contemplated under the new Customs Code that entered into effect on July 1, 2000.
Subsidies/bounties : Export incentives include the "Plan Vallejo" (drawback) or "Maquila", "Plan Vallejo, Jr.", and the CERT (Tax Reimbursement Certificate), soft credit lines, and export credit insurance policy.
Under the "Plan Vallejo" or "Maquila", imports of raw materials, inputs, and semi-finished items, as well as machinery, equipment and parts for the production, transformation, or assembly of exportable goods are exempt from any prior import license requirement, customs duties, taxes, surcharges, or fees (provided they are later re-exported in the form of finished products). Imports under these plans should be authorized by the DIAN (Internal Revenue & Customs Service) and must enter into a special arrangement with MINCOMEX, the government entity that establishes the minimum local content and export percentage requirement on a case-by-case basis.
The "Vallejo, Jr." plan allows for duty-free importation of raw materials used in the production of exportable goods, as well as the replenishment of foreign-origin raw materials.
The CERT is a tax-reimbursement certificate which can be applied to taxes on income, customs duties, and certain other taxes. The amount of the CERT is calculated as a percentage of the value of the exported goods, and varies by product and country of destination. CERT values range from 2.25 percent to 2.50 percent. Exports from designated free-trade zones now qualify for the CERT program, depending on percentages of national content.
Legislation in effect encourages the establishment, operation, and maintenance of free industrial and commercial trade zones (most of which are located by seaports) so as to increase assembly operations (U.S. 807/807A), transformation or manufacturing of exportable goods, and bonded warehousing.
Bans/prohibitions : No tariff categories appear on the prohibited import list, except for used bags and sacks of vegetable fibers. Items previously prohibited are now permitted under license. However, no import licenses are approved for used automotive vehicles of any kind, used parts and accessories for tractors and automotive vehicles, or used tires, which in practice are all considered as prohibited items for import into Colombia. Furthermore, imports of old or used clothing, closeouts, irregulars, rags, and scrap cordage of textile material wastes are subject to prior import license approval which, in practice, is not granted.
Certificate of Origin requirement : Only imports from countries with trade preferences are required to have certificates of origin.
Language requirements on documents : Import registrations, license forms, and accompanying documents must be in Spanish.
Import procedures and documents : The following documentation is required by MINCOMEX to register imports and/or for the approval of an import application:
(1) completed import registration or license form, with a complete description of the goods including the commercial, technical, or scientific designations, marks, model, size, contents, end-use, etc., for proper identification and tariff classification (a tariff classification decision and price lists certified by a chamber of commerce and notarized by the Colombian Consulate in the country of origin may be required for proper identification of goods and tariff classification);
(2) proforma invoice;
(3) catalogs, sketches, and diagrams;
(4) foreign exchange declaration, proof of payment abroad and/or valid letter of credit;
(5) proof of a down payment or prior import deposit, which is required in the case of payments that will be made abroad against loans of foreign origin or import financing.
Customs procedures : A new Customs Code, which entered into effect on July 1, 2000, has introduced a few changes, the penalties chapter being the most important one. The Code is still subject to different interpretations and complaints from affected parties, which may lead to additional changes. For nationalization, or customs clearance, the following documents and procedures are required for ordinary or common imports:
(1) import registration or license form approved by MINCOMEX, when required;
(2) import declaration accompanied by the bill of lading or air waybill and the commercial or proforma invoice;
(3) proof of payment of import duties, value-added tax, surcharges and other fees collected through commercial banks;
(4) phytosanitary, mercerization and other certificates, when required;
(5) packing list;
(6) customs valuation and inspection, if necessary;
(7) an Andean declaration for all imports (with few exceptions) with an FOB value of US$5,000 and over; and,
(8) certificate of origin, when required.
Customs procedures have been simplified significantly; fewer forms are required, as import/export procedures and customs clearance have become practically virtual - import, export and custom transit declarations are to be presented to Customs through electronic or magnetic media and passwords are assigned to users.
- The SIAs or Customs Intermediary Entities have been established to act on behalf of importers, exporters and custom transit operators. However, anyone may also act without a SIA directly before Customs, in the cases outlined in the Customs Code, i.e, foreign trade operations under US$1,000, diplomatic possessions, international organizations' shipments, travelers' possessions, etc. The SIAs must meet numerous legal and capital requisites to become operative.
- The Permanent Customs Users, as well as the High-Volume Exporters, are those organizations and/or private firms so identified for their large import and export volumes. They both enjoy some benefits that help expedite their shipments through Customs.
All incoming shipments shall be transferred to either bonded warehouses or free trade zones (or accredited private warehouses for product transformation, processing or industrial manufacture), under Customs custody. This transfer must be done within two days from airport arrival or five days from seaport arrival. The goods may remain for a maximum of two months from the arrival date, while undergoing customs clearance. This initial period may be extended for two additional months, but after that extension expires, merchandise shall be declared as abandoned by Customs authorities if goods are not cleared for consumption. Merchandise rescue procedures are time-consuming and expensive considering warehousing and handling charges, in addition to a 15 percent penalty charge on the custom value of goods.
Importers are responsible for placing a correct value on imported merchandise and paying corresponding duties and fees through commercial banks. The drastic reduction in paperwork has simplified and accelerated the customs clearance process from weeks to a matter of hours. However, pilferage in customs warehouses continues to be a problem. Certificates of conformity may be required for sensitive imports and other categories of products suspected of being imported through smuggling and/or fraud.
Warehousing charges : Imported goods stored in customs warehouses are subject to fines if an import manifest is not presented within two working days from their arrival.
Samples : Samples usually require the same documents as commercial shipments; they may be imported without an import license, registration form, or payment of import duties if they are consigned to a designated free trade zone, bonded warehouse, or imported on a temporary basis in-bond.
Prior authorization requirements : Phytosanitary clearance, as well as permits or proof of compliance, are required by government entities when importing raw cotton, cotton yarns, and other vegetable fibers.
Labeling : Textile care, percentages of fiber content, and country of origin or manufacture must be listed on the labels of apparel and other textiles imported into Colombia. Name of product and contents, warnings, date of manufacture, expiration dates, and country of origin are to be shown on all other imported articles.
Sizing/metrification : The metric system is used in Colombia. Sizes may be identified as small, medium, large, extra-large, etc., and/or by European size numbers.
Financing/payment : Most products are imported through letters of credit and/or time drafts. Soft and long-term financing is an important sales tool, especially for government imports or public tenders. Imports may be financed by foreign suppliers, financial intermediaries in Colombia, and/or foreign financial institutions.
Colombian importers may freely negotiate payment terms with their suppliers, but importers must list the agreed-upon payment terms on the import documents and may not subsequently change them. These are generally between one and six months for imported products for immediate consumption, including raw materials, intermediate goods, and consumer goods, with almost no term limitations for capital goods, which are payable within the timetables set on the import documentation, plus a grace period of three additional months. Foreign payments may be authorized in installments, but in no case can the original terms listed on the import documents be changed. Often changes on monetary measures may limit amounts, advance deposits, and payback timetables for direct external loans.
U.S. exporters should be alert to financial market competition and be prepared to offer soft and long-term financing after verifying the customer's credit status and the guarantees offered. Local importers usually obtain trade financing from commercial banks or credit agencies. Colombian exporters have access to credit offered by the Colombian Foreign Trade Bank (Banco de Comercio Exterior - BANCOLDEX), which replaced the former Export Promotion Fund - PROEXPO. This credit is granted at competitive commercial rates and may be requested at any stage of a foreign trade transaction (including raw material purchase, technical assistance, marketing and promotion, shipment, etc.). This credit is now being extended to Colombian importers--namely for industrial imports.
Prior import and foreign financing deposits : Loans of foreign origin and/or foreign financing of imports are permitted, but are subject to a prior import deposit (with a few exceptions, i.e. capital goods) of ten percent for six months from the date of the bill of lading or air waybill and registration with the Central Bank (Banco de la Republica). The Central Bank may also establish other limitations and/or conditions, i.e., interest rates, end-uses, quantity limits, terms and other pertinent conditions to avoid undue pressures on and/or inconveniences to the Colombian exchange market.
Direct Import Costs : Consumer articles including, electronics, audio/video equipment, data processing, communications items, storage devices, electric/electronic household appliances, etc., from around the world now appear in Colombian stores. Although an increasing percentage of these products is legally imported, a significant amount comes in through contraband, which is a major problem, especially for consumer goods. Over US$5.0 billion in all kinds of products (mainly consumer goods) is estimated to enter the country illegally.
One of the causes for so much contraband is the fact that most imports of consumer goods, consumer electronics, and apparel (in addition to a 15 percent estimate for freight and insurance FOB costs), are subject to an FOB 1.2 percent surcharge, plus a 20 percent CIF import duty and a 16 percent value-added tax (VAT) assessed on the CIF-duty-paid value of imported products. This approximate 62 percent margin over the basic FOB price of legally imported goods encourages contraband.
U.S. exporters should note that consumers in Colombia usually end up paying an additional 80 to 120 percent over the FOB price of imports. Final retail prices usually depend on profit margins agreed on between U.S. suppliers and their Colombian representatives.