Incentives for entrepreneurs
Bogota region is developing a dynamic entrepreneurship ecosystem that stimulates the creation of sustainable businesses and seeks the greatest articulation of the actors involved. Thus, it is crucial to know the regulatory framework that allows innovative projects to enhance their growth, including the scope of the new measures issued by the National Government that seek to counteract the harmful economic effects derived from the pandemic.
Please find below the list of the most relevant incentives and stimuli for entrepreneurship in Colombia, along with some links that will allow you to expand your research.
When creating a company, the entrepreneur must know how to formalize it, to scale up the business idea to larger dimensions. To do this, among other measures, he/she must choose what type of company should constitute according to its corporate purpose.
In Colombia, there are Limited Liability Companies (Ltda.), Collective Partnerships, In Comandita and Joint Partnerships Per Share (comandita o en comandita por acciones), and the most common, Corporations (S.A., sociedad anónima) or Simplified Joint Stock Companies (S.A.S., sociedad por acciones simplificada). This last one is the most common corporation due to its flexibility in terms of incorporation, partners, capital, organization, and administration .
Law 1901 of 2018 created the condition of Benefit and Collective Interest Society (BIC, Beneficio e Interés Colectivo), regulated by Decree 2046 of 2019. According to this, any company can voluntarily adopt this condition and adjust their business practices to the Sustainable Development Goals of the United Nations, aligned with the national commitments and strategies regarding human rights, the environment and respect for workers (1) rights.
Once the Chamber of Commerce and the Directorate of National Taxes and Customs (DIAN, Dirección de Impuestos y Aduanas Nacionales) constitute the company, the renewal of the business registration must be paid annually before the Chamber of Commerce within the first three months of each year. Due to the situation of COVID-19, the deadline for renewal got postponed to July 3, 2020.
Small businesses are required to pay taxes such as VAT (on products or services sale), consumption tax (for those taxed products and services), income tax (on the profits or income achieved during a year) and the industry and trade tax or ICA (which is municipal and taxes all industrial, commercial or service activities carried out). Due to COVID-19 emergency, the tax schedule for the filing and payment of these taxes got postponed as follows:
(1) If you would like more information about the creation of companies, we invite you to visit chapter 3 of the Invest in Bogota Investment Guide.
"The Orange Law"
According to the paper written by Felipe Buitrago and the current President Of Colombia, Iván Duque, published in 2013 by the Inter-American Development Bank (IDB), called "The Orange Economy: an infinite opportunity" the term "Orange Economy" was defined as the "set of activities that in a chained way allow ideas to be transformed into cultural goods and services, whose value is determined by their intellectual property content.
In accordance with the above, the Orange Economy has been considered by the National Government as a key piece of Latin America´s social and economic development and the Caribbean. In this way, Law 1834 of 2017 (or the Orange Law) was approved to develop, promote, encourage, and protect the country's creative industries.
The creative industries include the sectors that combine creation, production and marketing of goods and services based on intangible cultural content and those that generate protection within the framework of copyright. In general terms, they include the publishing, audiovisual, phonographic, visual arts, performing arts and entertainment, tourism and tangible and intangible cultural heritage, artistic and cultural education, design, advertising, multimedia content, interactive audiovisual content and service software, fashion, news and information services agencies, and creative education sectors.
The Decree 1935 of 2018 creates and regulates the National Council of the Orange Economy (CNEN, Consejo Nacional de la Economía Naranja), which is the advisory and consultative body of the National Government, responsible for the development of the creative economy, and whose Technical Secretariat is provided by the Office of the Deputy Minister of Culture or the agency delegated by him.
Furthermore, to encourage cultural and creative entrepreneurs through financing mechanisms, the Orange Law foresees that the National Government creates credit and technical cooperation options to promote the construction of cultural and creative infrastructure in territorial entities through the Territorial Development Finance (Findeter), which works together with the Ministry of Culture. To find out about these credit options, click here.
At the same time, the Orange Law orders the National Government to promote financing that allows the development of the creative economy through the implementation of credits with favorable terms and rates. The Orange Law seeks to consolidate the “Made in Colombia” seal to disseminate creative goods and services originated in the country. This law also promotes training in educational establishments and through periodic training session provided by the National Learning Service (SENA, Servicio Nacional de Aprendizaje), the National Directorate of Copyright (DNDA, Dirección Nacional de Derecho de Autor), or other administrative entities.
Bancoldex, FITIC and INNpulsa Credit Options
To accelerate high-potential ventures in the country, the National Government's Business Growth Management Unit (iNNpulsa Colombia) agency for entrepreneurship and innovation, provides innovative and financing processes through calls for proposals, which you can find here.
In the same way, iNNpulsa promotes credit options such as "Independent Workers and Entrepreneurs," which supports the commercial activity of the independent workers or entrepreneurs through fintech and allied financial entities. You can access more information about these credits here.
Under the Orange Law guidelines, the Business Development and Foreign Trade Bank (Bancoldex, Banco de Desarrollo Empresarial y Comercio Exterior) provides programs to finance micro, small, medium, and large enterprises in all economic sectors concerning working capital and business support. Besides, iNNpulsa and Bancoldex have developed a series of credit solutions aimed at solving issues of operating costs and expenses, financing, modernization, etc., among which are the following:
- Línea Bogotá Responde aimed at maintaining the liquidity of companies for the payment of payroll, rent, and other cost and expenses (working capital).
- Línea Colombia Emprende e Innova contra los efectos económicos del COVID-19, aimed at companies and enterprises of any economic sector with a minimum of 6 and a maximum of 96 months of turnover, which need to cover working capital costs, through Fintech intermediaries or others financial entities.
- Financial relief program for operations disbursed under traditional credit modalities and for the line of support for the growth of the Orange Economy.
- Línea Colombia Responde select for cultural events, air transport service, and tourism.
Besides, as an alternative for financing through capital funds, the Fund of Funds invest in orange economy enterprises and businesses, designed by the Ministry of Commerce, Industry, and Tourism through Bancoldex and iNNpulsa Colombia. To apply for this investment via capital, entrepreneurs should look for the fund catalog here or in the Association of Private Equity Funds (Colcapital. Asociación de Fondos de Capital Privado).
To further information on the above credit options, as well as their requirements, you can access them here. In case you want to explore non-financial aid such as consulting, virtual training, among others, tap here.
On the other hand, the Mayor´s Office of Bogotá (Alcaldía Mayor de Bogotá) creates, through Decree 394 of 2018, the District Account Fund for Innovation, Technology and Creative Industries (FITIC, Fondo Distrital de Innovación, Tecnología e Industrias Creativas) to promote the development of innovation, new technologies and creative industries in the city. To this purpose, FITIC has advisory lines for business development, innovation and the implementation of initiatives with non-reimbursable resources and access to credit with financial institutions. In this regard, the entrepreneurs will be able to apply for recent calls or programs on this website. Currently, a proposal for entrepreneurs in the creative and cultural industries is available due to the COVID-19 situation. You will find more information here.
Government incentives for entrepreneurs
Law 2010 of 2019 (or Economic Growth Law) and Decree 286 of 2020 established the tax benefit of non-payment of income, for seven years, for orange economy companies that have as their exclusive object any of the activities indicated in the article 235-2 of the Tax Code (E.T., Estatuto Tributario). These companies must comply with the minimum amounts of employment (through a Labor Contract) and have income below 80,000 UVT (about COP 2,848 million) and start their business activities before December 31, 2021. The income exemption can be obtained by applying for the project through the website.
Article 96 of the Economic Grow Law indicates the current tax discounts on income tax, starting in the taxable year 2020. Also, this Law develops the Simple Taxation Regime (RST) (2) , which seeks to reduce the formal burdens of taxpayers, promote formality and facilitate compliance with tax obligations (Art. 903 ET and following). If you would like more information about RST, we invite you to visit our specific web page section of it.
Law 1955 of 2019 (the National Development Plan 2018-2020), allows the creation of a stock market for small and medium-sized companies, negotiated through a system authorized by the Financial Superintendence of Colombia (Superintendencia Financiera de Colombia), to which investors and issuers concur to carry out primary and secondary purchase and sale operations.
Moreover, Law 1780 of 2016 (Youth Entrepreneurship Law) grants benefits such as the exemption of the business registration payment before the Chamber of Commerce and its first-year renewal to companies whom partners or shareholders have between 18 and 35 years old and represent at least half plus one of the quotes, shares, or participation in which the capital is divided. Also, employers who hire new personnel between 18 and 28 years old at the time the employment contract begins, will not have to make contributions to Family Compensation Funds for these affiliated workers during the first year of employment. To learn about the benefits, requirements, and procedures corresponding to Law 1780, tap here.
In turn, SENA provides free capital and advice through its ‘seed capital fund’ (called Fondo Emprender), created by Law 789 of 2002 as an independent and special account . For more information about current calls, tap here.
Furthermore, Law 590 of 2000, which seeks to promote micro, small, and medium-sized enterprises (MIPYME), regulated by Decree 525 of 2009, grants a gradual reduction in parafiscal contributions to these companies. This Law determines that the National Guarantee Fund (FNG, Fondo Nacional de Garantías) will establish the amount and special conditions for the credit options and guarantees aimed to founders of micro, small and medium-sized. To know more about the guarantee options, tap here.
Due to the pandemic, the FNG created the United by Colombia ("Unidos por Colombia") that grants MIPYME, with sales of up to COP 51.951 million, support to access a credit that makes up for the lack of income. It offers the (i) Payroll Guarantee and the (ii) Working Capital Guarantee. Found more information on this FNG program here.
(2) If you want more information about this regime, we invite you to visit the section of the R.S.T. section elaborated with the support of the DIAN.