Incentives for investing in hydrocarbons and mining in Colombia26/03/2018
On December 29, 2016, the Ministry of Mines and Energy enacted law 1819 which contains the most recent structural tax reform in Colombia. This law includes article 365 on the Incentive for Investments in Hydrocarbons and Mining.
A year later, the Ministry of Mines and Energy issued Decree 2253 of December 29, 2017 “By which the Article 365 of Law 1819 of 2016 is regulated and the Single Decree of the Administrative Sector of Mines and Energy is added, 1073 of 2015, in relation to the incentive for investments in hydrocarbons and mining”.
In Colombia, the National Government created an instrument called the Tax Refund Certificate (CERT as per its acronym in Spanish), which is an incentive designed to stimulate the production of goods and services, exports and investments in the country. This certificate grants a monetary benefit that is a refund of money to be used in the payment of other taxes, contributions and fees.
By means of Article 365, they regulated the CERT, which is granted for increasing the investments in exploration and exploitation of hydrocarbons and mining exploration, when investors comply with the conditions established in the same article. It is important to mention that, for the investors benefited with the CERT, this will be considered as an income excluded from income tax and will not be considered as capital gain.
For the hydrocarbons sector, the CERT may be granted to “investments that aim to discover new hydrocarbon reserves, the addition of proven reserves or the incorporation of new recoverable reserves”.
These projects of addition of proven reserves or incorporation of new recoverable reserves can be given through exploration activities or activities aimed at increasing the recovery factor in basin projects on solid ground (including the respective pilot tests).
For the mining sector, the CERT may be granted to investments that “aim to maintain or increase production of current projects, accelerate projects that are in transition (from construction and assembly to exploitation) and increasing mining exploration projects”.
The Ministry of Finance and Public Credit of Colombia will define annually the quota of the CERT corresponding to hydrocarbons and mining. The quota of this incentive considers the following aspects:
- Levels of international reference prices.
- Investments levels.
- Reserves and production goals.
Subsequently, the National Hydrocarbons Agency (ANH as per its acronym in Spanish) and the National Mining Agency (ANM as per its acronym in Spanish) are the ones that control the amount of the CERT assigned to mining and hydrocarbons. Regarding hydrocarbons, “it will also be defined how much will be distributed for exploration projects and for projects to increase the recovery factor” and in terms of mining, “it will be established how much will correspond to exploration, construction and assembly and mining projects”.
By resolution, the ANH and the ANM will implement all the necessary procedures to grant the CERT incentive described in this decree. These agencies are the ones that define the concession of the CERT and then send an annual report to the Ministry of Mines and Energy and the Ministry of Finance and Public Credit of Colombia with the following information:
- Beneficiaries of the CERT.
- Amount of investments effectively made.
- Percentage and amount of CERT to be granted.
For a greater transparency, the Ministry of Mines and Energy and the Ministry of Finance and Public Credit of Colombia may request information related to the investments that led to the granting of the CERT to the ANH and the ANM at any time. The CERT redemption is given from year 2 to year 5 from the date it was granted.
The process begins with a request of investment agreement that investors must submit “between August 1 and September 30 of the year prior to making the investments that would give the right to obtain the CERT before the ANM for its evaluation and approval”. After this, the ANM will perform the pertinent verifications and determine if the applicant meets the requirements to be a potential beneficiary of the CERT.
It is important to mention that, by means of Resolution 0860 of 2018, the maximum quota for the CERT is $1.6 billion pesos for projects to be executed as of 2018.
At Abusaid Gomez & Asociados, we have managed large investments in Oíl & Gas projects and we can advise you. For more information, contact us.