Colombia offers generous incentives for life sciences startups to conduct R&D and clinical trials

Investments in science, technology, and innovation projects get a 100% tax deduction, a 25% tax discount, a 50% future tax credit, and about $10 million in free government money grants

Overview

Within the last several years, the call for tax benefits in Colombia for investments in R&D has attracted more public attention and resulted in a higher index of projects submitted and approved. In 2013, 54 projects were submitted and 21 approved; in 2019, more than 300 projects were submitted and approximately 220 were approved. On 27 December 2016, Colombia approved a tax reform plan that took effect in the fiscal year 2017. One of the key areas of the plan is the promotion of investments in science, technology, and innovation through tax benefits. Under the plan, the tax deduction that existed until then of 175% for investments in scientific and technological projects was replaced by a 100% tax deduction, a 25% tax discount, and a 50% future tax credit measure that hasve benefited companies and further enhanced the call for tax benefits.

Corporate Tax Rates

  • National companies (i.e. incorporated in Colombia under Colombian law) are taxed on worldwide income. Foreign non-residents are taxed on their Colombian-source income only. The current general CIT rate is 31% for FY 2021, it will decrease to 30% in 2022 in a progressive way. This rate is applied upon taxable income.

  • Taxable income is generally defined as the excess of all operating and non-operating revenue over deductible costs and expenses. The customary costs and expenses of a business are generally acceptable as deductible expenditure for CIT purposes, provided they are necessary, reasonable, and have been realized during the relevant tax year under the accrual or cash method of accounting, as the case may be.

  • The current general capital gains tax rate is 10%.

  • Qualifying businesses located in Free Trade Zones (FTZs) enjoy a reduced rate of 20% (while subject to capital gains tax at 10%, where applicable).

Summary of Tax Incentives Available in Colombia

Discounts and tax deduction on income tax for investments in research, technological development, and innovation

100% tax deduction, a 25% tax discount, and a 50% future tax credit are offered for investments in science, technology, and innovation projects, aiming to solve commercial problems, generate new knowledge, take advantage of new market opportunities or solve internal processes problems. The Colombian tax authorities establish a yearly budget for each round. The authority that makes this definition is the National Commission of Tax Benefits.

VAT exemption for imports in research, development, and innovation

A value-added tax (VAT) exemption applies to equipment imported by research or technological development centers and basic education institutions, including elementary, middle, or high schools or higher education institutions that are dedicated to the development of projects rated as scientific, technological, or innovative.

Revenue not taxed with income tax for natural persons, who work as employees, in the execution
of research, technology, and innovation projects

Income derived from the development of scientific, technological, and innovation projects, according to the criteria and conditions set by Ministerio de Ciencias, may be exempt from tax. The same treatment is applied to the compensation of individuals for the direct execution of work of scientific, technological, and innovation purposes provided that such compensation is derived from the respective resources for the project. The projects must accomplish the criteria and requirements stated by Ministerio de Ciencias.

Financial support (grants) of strategic programs and/or projects of applied research, technological development, and innovation

Ministerio de Ciencias promotes the availability of a range of strategic programs and projects of applied research, technological development and innovation in the form of co-financing and financing.

Eligibility requirements

To apply for the tax benefits, projects that are applicable for the R&D incentives must be preapproved by Ministerio de Ciencias. Qualifying activities include:

  • Projects for investment in science and technology.

  • Software development.

  • Patents.

  • Strategic programs and/or projects of research, technological development, and innovation.

  • Business and external commerce development.

  • Importing equipment and tools under certain conditions, among other activities.

IP and jurisdictional requirements

There are no specific jurisdictional requirements related to IP. 

Technology or innovation zones 

There are no technology or innovation zones providing R&D incentives in Colombia. Nevertheless, the technology or innovation zones that are constituted as Free Zones will benefit from a special rental rate of 20%, in addition to VAT and tariff exemptions.