incentives tourism and hotel sector

PROCOLOMBIA.CO

I NCEN T I VES FOR DO ING BUS INESS IN

COLOMBIA 2016

TOURISM AND HOTEL SECTOR

Santa Teresa Hotel - Cartagena de Indias

PROCOLOMBIA.CO INCENTIVES FOR DOING BUSINESS IN TOURISM AND HOTEL SECTOR 32

In order to enhance the advantages of Colombia in tourism and to encourage investment and job creation in all of the regions, the Colombian government established a series of tax incentives addressed to do business this sector. ProColombia presents a general view of such incentives as well as the procedures and requirements for its application.

DISCLAIMER

The purpose of this document is purely informative and it is not intended to provide legal advice. Therefore, those using this document shall not be entitled to bring any claim or action against ProColombia or its directors, officers, employees, agents, advisors or consultants arising from any expense or cost incurred into or for any commitment or promise made based on the information contained in this document.

We strongly advise that the investors, companies and in general, readers who make use of this document, consult their own legal advisors and professional consultants regarding investment in Colombia.

SUBSECTOR INCENTIVE REGULATION

Hotels

Income tax exemption for hotel services provided in new hotels totally or partially built in at least a 61% between january 1, 2003 and december 31, 2017

Tax Code. Article, 207-2 num 3.

Income tax exemption for hotel services provided in hotels remodeled, reshaped or extended between january 1, 2003 and december 31, 2017

Tax Code. Article, 207-2 num 4.

EcotourismIncome tax exemption for ecotourism services certified by Ministry of Environment or the competent authority until december 31, 2022.

Tax Code. Article, 207-2 numl 5.

Tourismservices

provided tonon-residents

IVA tax exemption with refund bimonthly for tourism services provided to non-residents, used in colombian territory and derived from:

• Packages sold by operator agencies or hotels registered in the Tourist Nacional Registry,

• Tourist packages sold by hotels registered in the Tourist Nacional Registry to operator agencies provided that such services shall be used in te Colombian territory by non-residents.

Tax Code. Article 481 lit. d.

Specialincentive –San Andres

Income Tax exemption for the provision of tourist services among others, by companies constituted and established in San Andrés Islands since january 1, 2013.

Law 1607 of 2012

INCENTIVES FOR DOING BUSINESS IN TOURISM AND HOTEL SECTOR 5PROCOLOMBIA.CO

INCOME TAX EXEMPTION FOR HOTELS

Labor incentives

Income Tax deduction of payroll contributions and others derived from the labor contracts of:

• New employees under 28 years old.• New employees in disability, displacement or reintegrate situations.• New female employees up to 40 years old, unemployed for more

than 1 year.• Employees with less than 1.5 minimum legal monthly wage.

Law 1429 of 2010

subsidy granted in order to promote the first employment for people between 18 and 28 years old with any level of education without previous formal related experience. The subsidy is granted for 6 months in a range from USD$ 225 and USD$ 309 aprox.

Resolution 347 of 2015 from the Ministry of

Labor

Income Tax deduction of the 200% of the salary and social benefits paid to employees with no less of 25% of disability certified.

Articles 24 and 31 Law 361 of 1997

Santa Clara Hotel - Cartagena de Indias

San Fernando Plaza Hotel - Medellín


1.1. INCOME TAX EXEMPTION FOR HOTEL SERVICES IN NEW HOTELS BUILT ENTIRELY OR AT LEAST IN A 61% BETWEEN 1 JANUARY 2003 AND 31 DECEMBER 2017:

1.2. INCOME TAX EXEMPTION FOR HOTEL SERVICES PROVIDED IN REMODELED HOTELS AND/OR EXPANDED BETWEEN THE 1ST OF JANUARY 2003 AND THE 31ST OF DECEMBER 2017:

• Since 2003, the hotel services provided in new hotels built before December 31 of 2017 are exempt from Income Tax for a period of 30 years (Tax Code Article 207-2 number 3).

• Considering the significant investments that have been made in the hotel sector and that the deadline to access this incentive is about to expire, the government decided that the hotels that have not finished building before the 31st of December of 2017 but achieve at least a 61% of its hotel infrastructure construction before that date, are eligible for acceding to this benefit (Decree 463 of 2016).

• This means that, hotel services provided, not only in the new hotels built between the 1st of January 1 of 2003 and the 31st of December 31 of 2017, but also those who prove 61% of hotel infrastructure construction within the same period are exempted from tax income for 30 years.

• Since 2003, hotel services provided in hotels remodeled and/or expand before the 31st of December 2017 are exempted from rent for a period of 30 years (Tax Code Article 207-2 numeral 4).

• This exemption is equivalent to the proportion of the value of the renovation and/or expansion in the fiscal cost of the property remodeled and/or expanded, for which prior approval of the project by the Urban Curator and the City Hall, the domicile of the remodeled property and/or expanded. is required In all cases, for the approval of the exemption, certification of the Ministry of Commerce, Industry and Tourism is required.

• The percentage of 61% construction of hotel infrastructure will be certified by the Ministry of Trade, Industry and Tourism. However, it is still pending that the Ministry issues a resolution in which the procedure and criteria to be taken into account for this aspect shall be established.

• The 30 year exemption begins to run from the taxable year when operations begin at the respective hotel.

61%

30


• For the application of the two incentives, hotel services means accommodation, feeding and all other basic and/or complementary services and accessories provided by the operator of the hotel establishment.

• Incomes derived from services of motels, nursing homes and similar establishments are not covered by the exemption of income tax under these two incentives.

• That the given activity corresponds to duly authorized hotel services; • That the value of income tax requested as exempt in the respective tax year correspond to hotel services provided in new hotels built from the 1st of January 2003 on; • That maintains accounting records separated of the revenue of hotel services and other activities.

Registration in the National Register of Tourism of the Ministry of Commerce, Industry and Tourism.

Certification issued by the Ministry of Commerce, Industry and Tourism, on the provision of hotel services in the new establishment or remodeled establishments and/or expanded as concerned. For these purposes, the taxpayer must apply annually to the Ministry of Commerce, Industry and Tourism or to the delegated entity for this purpose, verification of

1.3. TYPE OF HOTEL SERVICES COVERED BY THE BENEFITS:

1.4. REQUIREMENTS FOR THE APPLICATION OF THESE INCENTIVES (DECREE 2755 OF 2003):

the provision of hotel services in the facilities of the new, remodeled or expanded hotels, as appropriate, from which a Act will be signed by the parties, the terms and conditions will be established by the Ministry.

Certification issued by the Urban Curator, the Mayor's Office, the Ministry of Planning or the entity acting in its place of property domicile, in which establishes the approval of the construction project of the new establishment or approval of the remodeling project and/or hotel extensions as appropriate.

In the case of hotel services in new hotels built fully or partially in at least 61%, must additionally be certified by the Legal Representative and the Auditor and/or Certified Public Accountant, which establishes:


In the case of hotel services provided in remodeled hotels and/or expanded must additionally have:

Signed certification by an architect or civil engineer with professional license in force that confirms the realization of the remodeling and/or extension made, when these do not require construction license and urbanism license.

Certification of the Legal Representative and the Auditor and/or Public Accountant taxpayer beneficiary of the exemption which establishes:

• Tax cost of the property remodeled and/or expanded;

• Total value of the investment made by the renovation and/or expansion;

• The proportion representing the value of the renovation and/or expansion in the fiscal cost of the remodeled property and/or expanded;

• That maintains accounting records separated of the revenue of hotel services and other activities.

INCOME TAX EXEMPTION FOR ECOTOURISM

Visus Hotel Boutique & Spa - Coffee Cultural Landscape


2.1. CONCEPT AND SCOPE OF APPLICATION OF THE BENEFIT

• The ecotourism services certified by the Ministry of Environment or competent authority are exempt from income tax until the 31st of December of 2022 (Article 207-2 paragraph 5)

• For purposes of this benefit, ecotourism services will be understood as the organized activities directly related to the care and training of visitors in areas that are especially naturally attractive (Decree 2755 of 2003 article 10 and following):

Accommodation and lodging services: The lodging and accommodations provided in infrastructures whose construction and operation is governed by sustainability and low environmental impact, among other things, design, materials used in construction and maintenance, power generation, management of wastewater and solid waste and use of inputs.

Interpretation of natural heritage: It is the communication process designed to reveal meanings and interrelationships of the natural heritage and cultural manifestations associated with this. This process can be supported by infrastructure such as trails, environmental

interpretation centers, of heritage, of sustainable management of natural resources and knowledge of nature. The interpretation of natural heritage infrastructure must be developed in which the design, construction and operation is governed by sustainability and low environmental impact, also interpreters must be trained in the knowledge of the dynamics of ecosystems and their conservation area.

Transport: It is that developed as part of the ecotourism activity in the natural area and direct access to it, to operate using systems and fuels of low noise, atmospheric and terrestrial environmental impact, in accordance with the rules governing the matter.

Food: The supply to the visitors finished or natural food products whose origin is local or of the surrounding natural areas and for the processing or production preferably using organic or low environmental impact methods.

Eco-activities: These are designed as part of an ecotourism trip to offer visitors recreation, properly coordinated by a guide or a professional of the activity and environmentally compatible with the natural values of the respective area.


2.2. REQUIREMENTS FOR THE APPLICATION OF THE INCENTIVE (DECREE 2755 OF 2003):

• Registration in the National Registry of Tourism, when the activity is developed by tourism service providers, in accordance with the provisions of Law 300 of 1996 and its regulations.

• Certification stating that the ecotourism services rendered meets the purposes specified in Decree 2755 of 2003 for which the taxpayer must apply annually the corresponding certification to the Ministry of Environment, Housing and Territorial Development or the competent environmental authority, as follows:

• Certification issued by the Legal Representative and the Auditor and/or Public Accountant, as appropriate, on the value of the income earned in providing ecotourism services during the respective fiscal year.

• Certification Auditor and/or Public Accountant of the company in which it is established that there is separate accountability of the generated revenue by the provision of services of exempt ecotourism of the income tax and income arising from other activities accounting by the company.

• When ecotourism services are provided fully or partially in areas of the System of Natural National Parks or the Nature Reserves of the Civil Society duly registered, the certificate shall be issued by the Ministry of Environment, Housing and Territorial Development through Special Administrative Unit of the System of National Parks;

• When ecotourism services rendered in protected natural areas of municipal, regional or departmental level and in other areas with special natural attraction, certification will be issued by the Regional Autonomous Corporation or Sustainable Development, by environmental authorities of the Big Urban Centers or by the District environmental authorities dealing Law 768 of 2002 in the area of their respective jurisdictions. In the case in which such activities take place in jurisdictions of more than one of these authorities, the taxpayer may apply for certification to any of them. In this case the environmental authority must request a favorable concept to the other competent environmental authorities in the area where the mentioned ecotourism services are provided.

INCENTIVES FOR DOING BUSINESS IN TOURISM AND HOTEL SECTOR 17PROCOLOMBIA.CO

EXEMPTION FROM VAT FOR TOURISM SERVICES PROVIDED TO NON-RESIDENTS

3.1. CONCEPT AND SCOPE OF APPLICATION OF THE BENEFIT

In accordance with the Tax Code (Article 481 literal d.), the tourism services provided to non-residents are VAT exempted with refund bimonthly provided that such services are derived from:

For purposes of this exemption, the quality of non-resident is proved with passport, Andean card or MERCOSUR, together with the respective valid visa TP7 (pensioners, medical treatment, etc.), TP11 (tourism/recreation) or TP12 (attendance to events or meetings) or permits PIP3 (medical treatment), PIP5 (tourism/recreation), PIP6 (attendance to events or meetings), PIP10 (granted to foreigners of European nationalities). The Colombian nationals may prove the non-resident quality by submitting documentation issued by the authorities of the country of residence (Decree 297 of 2016).

• Sold packages by operating agencies or hotels registered in the National Register of tourism,

• Tour packages sold by hotels registered in the National Register of tourism to operating agencies, when tourism services are being used in the national territory by non-residents.

Marriott Hotel - Cali


3.1. REQUIREMENTS FOR THE APPLICATION OF THE INCENTIVE (DECREE 297 OF 2016):

• For the application of this benefit, hotels must invoice to the operating agencies the hotel services provided in the country, discriminating each one of them and liquidating VAT at a rate of zero (0%), as long as the beneficiary is a non-resident, and regardless of whether considered individually rendered gratuitously or onerous.

• For control purposes, the hotels must keep a record of hotel services sold to non-residents in package tours, either directly or through operating agencies, with the corresponding billing and photocopy of the mentioned documents Decree 297 of 2016. Also, operating agencies should keep a register of tourist services sold in the form of plans or touristic package to abroad residents, with the corresponding billing package.

• For cases of tourist services originating in packages purchased through e-commerce or any other means, after the entrance of the non-resident to the country, the service provider will be responsible for obtaining and keeping a copy of the documents that proves the non-resident quality. Without such documents it, the corresponding exemption or refund shall not be applicable.

SPECIAL INCENTIVES FOR TOURISM IN THE ARCHIPELAGO OF SAN ANDRES

Casa Harb Hotel Boutique - San Andres Islands


4.1. CONCEPT AND SCOPE OF APPLICATION OF THE BENEFIT (LAW 1607 OF 2012)

4.1. REQUIREMENTS FOR THE APPLICATION OF THE INCENTIVE:

The provision of tourism services and other economic activities, provided by new companies that are formed, effectively install and develop the activity in the archipelago department of San Andrés, Providencia and Santa Catalina, are exempted from Income Tax from the 1st of January 2013.

The exemption applies until the year 2017.

• Applicant companies to the benefit, through employment contract must link a minimum of twenty (20) employees and increase annually by ten percent (10%) jobs in relation to the number of workers in the previous year.

• Employees must be raizal link and residents of the archipelago. It is understood that a resident is whose residence permit has been issued by the respective departmental authority.

• For the application of this benefit it should be observed the provisions of the Decree 2763 of 2012 APPLICABLE LABOR

INCENTIVES

JW Marriot Hotel - Bogotá


New employees under 28 years old.

New employees in disability, displacement or reintegrate situations.

New female employees up to 40 years old, unemployed for more than 1 year.

Employees with less than 1.5 minimum legal monthly wage.

It is a subsidy granted by the Government to companies legally constituted under Colombian laws and with at least, one year of existence, which provide employment for young people within 18 and 28 years old with no previous labor experience.

The subsidy is granted until six months provided that the company maintains the labor contract with at least the 60% of the employees appointed for the vacant positions.

According to Law 391 of 1997, wages and social benefits that a company pays to disabled employees may be deducted from income tax by 200%, provided they meet the following requirements:

* The disability must consist of a limitation of not less than 25%, duly verified by the Ministry of Labor.

* The limitation of the disability must remain during the term in which payments of wages and social benefits are made.

* Employers are required to submit tax returns.

It is possible to discount from tax income, the payroll contributions and other contributions derived from labor contracts:

5.1. INCOME TAX DEDUCTION FOR PAYROLL CONTRIBUTIONS, AND OTHER CONTRIBUTIONS (LAW 1429 OF 2010)

5.2. INCENTIVE FOR THE FIRST JOB

5.2. DEDUCTION OF 200% OF THE INCOME TAX FOR LABOR PAYMENTS TO DISABLED EMPLOYEES:

LEVEL OF EDUCATION OF THE EMPLOYEE

SUBSIDY GRANTED TO THE COMPANY FOR EACH EMPLOYEE

High school 1 SMLMV + transportation subsidy and social benefits

Technical professional COP$ 700.000 + transportation subsidy and social benefits

Technical COP$750.000 + transportation subsidy and social benefits

University COP$900.000 + transportation subsidy and social benefits

PROCOLOMBIA.CO24

Estructura organizacional de la compañía: número de trabajadores en cargos de gerencia, administrativos y operarios;

Hojas de vida de los socios de la compañía;

La autorización de ensamble es emitida dentro de los 90 días después de la presentación de la solicitud completa. La autorización inicial tiene una validez de 3 años14.

3.5. ¿CUÁNDO PUEDO EXPORTAR O INGRESAR AL TERRITORIOADUANERO NACIONAL LOS BIENES TERMINADOS?

Una vez que los bienes han sido procesados o ensamblados, estos podrán ser exportados o vendidos dentro del territorio nacional (mediante su importación ordinaria).

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