Equity funds incentives

Below we set forth some of the main elements that make the equity funds market in Colombia quite attractive for the international markets, which –day after day– find interesting opportunities for growth and profitability in their businesses:

  • Colombia offers the possibility of spreading risk and investments over different sectors. According to Colcapital, invested capital commitments in 2018 were broken down as follows: acquisition/growth (USD 2.4 billion), real estate sector (USD 2.9 billion), infrastructure (USD 5.2 billion), entrepreneurship capital (USD 58 million), impact (USD 58 million), and natural resources (USD 361 million).

  • There is an excellent opportunity for obtaining resources as local equity from institutional investors such as pension funds and insurance companies. Pension funds may invest between 10% and 17.5% of their cash resources in private equity funds (Colcapital, 2019).

  • Corporate investors and enterprises have increased their interest in private equity funds. Their share grew from 3.8% in 2016 to 13.3% in 2018, thus becoming the second most important investor in equity funds (Colcapital, 2019).

  • The potential integration of the stock exchanges of Colombia, Chile, Mexico, and Peru translates into an excellent exit strategy for private equity funds, with greater diversification alternatives for investors and access to capital markets.

  • In tax matters, private equity funds are not income taxpayers. Besides, the commissions that fund management companies earn are VAT exempt.

  • Any capital gains earned by investment funds are allocated to the fund participants or beneficiaries in the same way the fund receives them (tax transparency principle). The investor may defer the tax realization and reporting of the revenue to the time in which the earnings to which he is entitled are paid to him, even if this payment takes place in a tax year other than the tax year in which the private equity fund earned the revenue under accounting standards.

  • Under entrepreneurship regulations in Colombia, the national government will lead efforts to design and implement strategies focused on the formation of new Angel investors and entrepreneurship equity funds. These would drive productive projects and generate employment; these projects would, in turn, be entitled to receive guarantees from the Fondo Nacional de Garantías S.A. (the National Guarantees Fund).

  • There are various sectors in Colombia that are subject to rules that establish special incentives, such as holding companies, collective benefit and interest companies (BIC, for the Spanish initials), among others, which are attractive and are viewed as a good investment option for FICs collective investment funds, for the Spanish initials.