panies that operate as distributors and
logistics companies (e.g., re-packing, label-
ing), Howard’s incentives are intended to
attract back-office operations, call centers
and other industries such as transportation
and high-tech, among others.
Colombia offers two different regimes.
The Plan Vallejo system allows Colom-
bian residents to import raw materials
into Colombian territory (even though not
imported into a specific FTZ) with the
suspension of customs duties and VAT, if
final products are exported, and provided
certain minimum investment require-
ments are satisfied. Under Colombia’s
general FTZ regime, goods shipped into
a FTZ from outside of Colombia are not
considered imports, so these introduc-
tions of capital goods, spare parts and raw
materials are not subject to custom duties
or VAT. If final products are sold to the
Colombian territory, the operation will be
considered an import and taxed for cus-
toms purposes only on the foreign con-
tent. Goods shipped into the FTZ to be
exported to third countries will not be
subject to custom duties and VAT as long
as these goods are transformed within the
FTZ. However, unlike other FTZ regimes
currently in force in Latin America, the
Colombian FTZ regime does not limit the
application of the regime to transactions
carried out with foreign entities, and it
does not provide for an outright income
tax exemption for entities located in the
FTZ. However, it does provide a reduced
income tax rate of 15 percent (as opposed
to the 33-percent general rate). Under the
right circumstances and if it meets the
minimum investment thresholds, a com-
pany may be able to transfer certain activ-
ities to an FTZ company to be taxed at the
lower 15 percent rate.
Brazil’s Manaus Free Trade Zone offers
special tax incentives to attract businesses
to the underdeveloped Amazon region.
Foreign goods used in the Manaus Free
Trade Zone for consumption, manufactur-
ing or assembly, and goods imported for
storage that will be re-exported, are exempt
from import duty, PIS, COFINS and federal
VAT (IPI). The government of the State of
Amazonas may also grant an exemption
and/or a reduction on the state VAT (ICMS).
Furthermore, the corporate income tax rate
is reduced by 75 percent, and goods leaving
the zone for the local market will receive a
100-percent federal VAT reduction. In order
to qualify for these benefits, the company
must obtain prior approval from the rele-
vant Brazilian authorities. Approval gener-
ally is granted for projects that involve a
minimum manufacturing process and meet
other requirements described in the Brazil-
ian tax legislation.
Areas for consideration
Permanent establishment. Many countries
in the region have a very broad definition of
what constitutes a PE, leading to the often
unwanted risk of creating a taxable pres-
ence. Because many Latin American coun-
tries lack a formal PE definition, tax treaties
are increasingly important to global supply
chain structures. Treaty definitions provide
clarity to treaty partners as well as a frame-
work for domestic interpretation.
Argentina has a narrow definition of
what constitutes a permanent establish-
ment, whereby consignment manufactur-
ing could create a taxable presence, even if
done exclusively for exports. Notably, con-
tract manufacturing for exports generally
would not give rise to a PE.
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