Income exemption for companies of the orange economy

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In the framework of the regulation of tax incentives for companies in the ‘orange economy’, on September 12 of 2019, the Colombian Government issued the Decree 1969 of 2019 in which it defined several relevant issues.

To begin with, the Decree introduced some important definitions regarding concepts associated with companies that create art and crafts and its marketing; edition of computer programs (software); book publishing and editing; production, postproduction, distribution and exhibition activities of cinematographic films, videos, programs and advertisement; activities of sound recording and music editing activities; programming and transmission activities in the sound and television broadcasting; computer systems development (planning, analysis, design, programming, testing); computer consulting activities and computer facilities administration; architectural and engineering activities and other related technical consulting activities; specialized design activities; photography activities; literary creation; musical creation; theatrical productions; audiovisual creation; plastic and visual arts; theatrical activities; live musical entertainment; activities related to cultural tourism, among others.

In particular, this Decree defined the criteria that these companies must take into account to apply for the income exemption mentioned in the first paragraph of article 235-2 of the Tax Statute. Among these, the number of employees that these companies must have, which in no case may be less than three (3) employees. These employees may only perform functions considered as technological added value and / or creative activities. The above can only be accredited through directly binding contract of employment.

On the other hand, the Decree regulated aspects such as the determination of the minimum investment amount, which may not be less than 150.000.000 Colombian Pesos, in a maximum period of three (3) taxable years. Investment will be considered as everything related to the acquisition of property (tangible and intangible), equipment, that is, prepaid expenses and investments in development, innovation and research.

In addition, this Decree regulates all conditions which must be fulfilled by these companies. In particular, its principal residence must be located in the Colombian territory, its corporate purpose must correspond to the activities indicated above, the beginning of its activities must occur before December 31 of 2021 and the registration in the RUT must be proven.

Finally, companies intending to obtain the exemption benefit in income tax, will be responsible for completing an investment project before the ‘Orange Economy Committee’ of the Ministry of Culture.

However, the lack of completion of any of the requisites outlined above, wihtin the taxable year, will suffice to lose the exemption benefit.

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Income exemption for companies of the orange economy