Colombia offers generous incentives for life sciences startups to conduct R&D and clinical trials: A tax deduction of 175% of the investment, $150 million available for grants and more.
R&D in Colombia is based upon the definitions proposed by the OECD contained in the Standard Practice for Surveys on Research and Experimental Development of 1963 (and updated in 2002), also known as the Frascati Manual.
Under these definitions, R&D is defined as those activities that comprise creative work “undertaken systematically to increase the stock of knowledge, including knowledge of mankind, culture and society, and the use of such knowledge to create new applications.” This definition of R&D was adopted by the Administrative Department of Science, Technology and Innovation (Departamento Administrativo de Ciencia, Tecnología e Información (COLCIENCIAS)) in Colombia.
The concept of technological development refers to the application of research results “or any other scientific knowledge for the manufacture of new materials, products, to the design of new processes, production systems or services, as well as substantial technological improvement of materials, products, processes or legacy systems.” And, finally, the term “innovation” involves “the introduction of a new or significantly improved product (good or service) of a process, a new marketing method, or a new organizational method in business practices, the organization of the workplace or the external relationships.”
The Colombian State has promoted tax incentives to the scientific, technological and innovation development communities, providing different benefits that encourage these activities. In accordance with the Inter-American Development Bank, even though the investment in Latin America in these three concepts is relatively low in comparison with more industrialized countries, the investment has achieved a growing interest in regional governments, representing in Colombian case, around 0.15% of the gross domestic product (GDP). The Government of Colombia has recently announced that it will rise its investment in science, technology and innovation to 1% of GDP; in line with more innovative countries.
Colombia has set an aggressive 2025 goal to become one of the top three science, technology and innovation countries in Latin America, and for that it has partnered with the World Bank on a $41.5 million project to promote human capital for the knowledge economy, R&D and innovation.
The introduction of tax incentives to the scientific, technological and innovation development in Colombia was established with Law 6 of 1992, and the R&D incentives regime has since been expanded to include the following eligible activities: projects for investment in science and technology, and development and new medical products; donations for projects in science and technology, patents, strategic programs and/or projects of research, technological development and innovation; business and external commerce development; and importation equipment and tools under certain conditions, among other activities.
2014 Tax Rates
- Top corporate income tax rate (national and local average) 34%. Top corporate income tax rate consists of two income taxes; an income tax rate for corporations of 25% and the income tax for equity (CREE Tax) at a rate of 8%. For the years 2013 to 2015, the CREE rate will be 9% (Colombia Tax Law 1607 of 2012).
- Standard VAT rate 16%. The rate refers to the general VAT rate. The rates may vary depending on the taxed good or service (Section 468 Tax Code).
Income tax deduction for investment or donations in research and technology development
(Deducción en el impuesto sobre la renta por inversiones y donaciones en investigaciones científicas o tecnológicas)
Description of Benefits
A capital allowance (aka tax deduction) of 175% is available for investments in the science and technology industry (Section 158-1 Tax Code). There is a cap on how much is available in the government budget for this incentive, and in 2013 the cap stood at US$500 million. The tax saving is kept when dividend distribution to the shareholders is made. Institutions and R&D centers must be accepted first by COLCIENCIAS for the application of this tax benefit.
VAT exemption for imports in research, development and innovation
(Exenciones tributarias en IVA para importaciones relacionadas con investigación, desarrollo e innovación)
Description of Benefit
VAT exemption applies to equipment imported by research or technological development centers and basic education institutions, including elementary, middle, high school or higher education institutions that are dedicated to the development of projects rated as scientific, technological or innovative.
Tax exemption on new software with high scientific content
(Renta exenta de nuevo software con alto contenido científico)
Description of Benefit
A five year tax exemption is available from 1 January 2013 to 31 December 2018 for new software, developed in Colombia and covered by new patents registered with the competent authority, provided they have a high content of national scientific and technological research, certified by COLCIENCIAS. New software development has to be produced in Colombia, registered and certified by the relevant authorities, and be a result of a research project.
Exempt income for resources for science, technology and innovation, and payment of work performances related to these concepts
(Ingresos no constitutivos de renta o ganancia ocasional de recursos para ciencia, tecnología e innovación, así como para la remuneración por la ejecución de labores relacionadas con estos conceptos)
Income derived from the development of scientific, technological and innovation projects, according to the criteria and conditions set by COLCIENCIAS, 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, provided that such compensation is derived from the respective resources for the project. The projects must accomplish the criteria and requirements stated by COLCIENCIAS.
Financial support (grants) for strategic programs and/or projects of applied research, technological development and innovation
(Financiación de programas estratégicos y/o proyectos de investigación aplicada, desarrollo tecnológico e innovación)
Description of Benefit
COLCIENCIAS promotes the availability of a bank of strategic programs and projects of applied research, technological development and innovation to support and nance in the form of co-financing and financing.
In order to apply for the tax benefits, projects that are applicable for the R&D incentives must be pre-approved by COLCIENCIAS. Qualifying activities include:
- Projects for investment in science and technology
- Software development
- Donations for projects in science and technology
- 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.
Role of governmental bodies in administering incentives
COLCIENCIAS fulfills an important role in administering incentives, including approving, studying and controlling
the application of the majority of the bene ts by qualifying applicable projects and the bene ted entities. The Colombian Tax Authority (Dirección de Impuestos y Aduanas Nacionales- DIAN) maintains its audit role on incentives with a tax impact. The Department of Agriculture is required to recognize nonpro t entities that gain a tax bene t arising from donations in the agricultural industry. The Department of National Education is required to recognize entities that gain an income tax deduction for investment in the education sector. To obtain the tax exemption on new software with high scientific content, the taxpayer must obtain a patent registration from the Superintendent of Industry and Trade.
COLCIENCIAS administers the pre-approval process mainly through its web page, www.colciencias.gov.co. The information required to be submitted to COLCIENCIAS depends on the type of incentive applied for and the fulfillment of the parameters and conditions established by CNBT (Consejo Nacional de Beneficios Tributarios en Ciencia, Tecnología e Innovación). In addition, COLCIENCIAS, the Superintendent of Industry and Trade, the Department of Agriculture and the Department of National Education administer processes related to certificates.
Articles 57-2, 158-1, 207-2 and 428-1 Tax Code, Decree 2755 of 2003, Resolution 1855, 2010, Law 450 of 2011, Law 1607 of 2012 and Agreements 3 and 4 of2011, 5, 6 and 7 of 2012 (Administrative Department of Science, Technology and Innovation).