Orange economy: Search for tax incentives.

By means of a draft decree, the Ministry of Finance seeks to regulate the tax incentives for “orange economy” companies, in order to establish the rules for business reorganizations by companies that opt to access the benefit of exempt income.

The Financing Law 1943 of 2018, through its Article 79, amended Article 235-2 of the Tax Statute -ET-, granting the benefit of exempt income for a period of seven years to companies of the so-called “orange economy” that obtain income from the development of technological value-added industries and creative activities, for which they must meet the requirements described in numeral 1 of the article in question.

Now, by means of the draft decree published on its web portal on May 10, 2019, the Ministry of Finance seeks to regulate the tax incentives that will apply to orange economy companies, thus making clarifications that must be taken into account by companies that choose to avail themselves of this benefit. Below we talk a little about these clarifications:

What activities would be understood to refer to cultural tourism?

According to paragraph c) of numeral 1 of the new version of article 235-2 of the ET, companies wishing to access the benefit of exempt income for orange economy companies must develop some of the economic activities listed in the table contained in that paragraph, which in turn must be considered with technological and creative added value (in which you can consult the codes of the activities listed for this benefit). However, within the list of such activities, reference was made to cultural tourism, without describing the ISIC code corresponding to that activity. For this reason, the draft decree made it clear that the activities related to cultural tourism would include:

-Activitiesof production and commercialization of Colombian handicrafts, and cultural heritage crafts aimed at the protection of movable and immovable property considered tangible cultural heritage.

–Activitiesof administration and promotion of cultural attractions, included in the inventory of the Ministry of Commerce, Industry and Tourism, and declared as assets of cultural interest, or that are part of the intangible cultural heritage of the country.

-Gastronomicfairsorganized by the Ministry of Culture, associated exclusively with the production and commercialization of traditional Colombian dishes according to the food base and the manifestations of the policies of this Ministry.

-Tourist transportationactivitieswith themes associated with Colombian cultural heritage that are provided exclusively in chiva navigation of traditional rivera, jeepaos, carriages and horseback riding.

-Interpretation and guideservicesprovided in tourist resources and attractions.

What is the minimum number of employees that orange economy enterprises would hire?

The orange economy companies must hire a minimum of three employees through a labor contract, who must perform functions directly related to the income-producing activity (this must provide technological and/or creative added value). However, they may not serve as legal representatives, managers, deputies or assistant managers, nor may they be members of the board of directors of the company as holders or deputies.

The draft decree established the number of jobs that the company would be obliged to generate according to its total gross income.

It should be noted that although the table does not specify the number of employees that the entities must hire when their gross income is less than 6,000 UVT ($205,620,000), it is understood that in such case the companies would have a minimum of three employees as specified in the aforementioned paragraph.

On the other hand, taking into account that the limit of 80,000 UVT ($2,741,600,000) to the annual gross income indicated in paragraph 1 of Article 235-2 of the ET does not apply to companies whose corporate purpose are activities corresponding to ISIC code 5911 (production activities of cinematographic films, videos, programs, programs, commercials and television commercials), the draft decree states that these entities would have a minimum number of employees during the time of production, depending on their gross income, as follows:

As can be observed, these companies would have to progressively increase the number of workers hired depending on the amount of annual gross revenues obtained up to the amount equivalent to 600,000 UVT ($20,562,000,000,000). However, for each additional 100,000 UVT of gross income ($3,427,000,000,000) they would be obliged to hire three more employees.

What is the minimum amount of investment that these companies would make?

“the companies must comply with a minimum investment amount of not less than 4,400 UVT ($150,788,000) within a maximum term of three taxable years as from the approval of the project by the Orange Economy Committee.”

According to literal f) of numeral 1 of article 235-2 of the ET, the companies must comply with a minimum investment amount of not less than 4,400 UVT ($150,788,000) within a maximum term of three taxable years as from the approval of the project by the Orange Economy Committee (the taxpayer will lose the benefit of exempt income as from the third year if the investment amount is not complied with in the stipulated time). Likewise, the draft decree states that the acquisition of property, plant and equipment, intangibles of numeral 1 of article 74 of the ET and investments made in research, development and innovation dealt with in numeral 3 of article 74-1 of the ET would be considered investment, provided that the above are not made through economic related parties or related parties.

Source: Actualícese