Works for Taxes and Zomac: mechanisms for companies to contribute to regional development

27 projects of 'Work for Taxes' of enterprises from all sectors and nearly 400 companies are currently contributing to the economic and social development of the most affected zones by the armed conflict (Zomac).

A total of 400 companies are contributing to the social and economic development of the most affected zones by the armed conflict (Zomac), of which 27 presented projects for the program 'Works for Taxes', reported the Territory Renewal Agency (ART) during a forum organized by USAID and the Colombian American Chamber of Commerce, AmCham Colombia. 

 In the meeting, that involved the participation of DIAN, PwC and KPMG, were explained the perspectives of these two mechanisms of benefits and a guide to how to access them.

 The mechanism 'Works for Taxes' was created so that enterprises with an annual income over $1 billion COP can pay 50% of their tax obligations through the funding of infrastructure works, services, education and healthcare in the 344 rural towns of the country which have been established as Zomacs. “For this year and despite we didn't have well structured the Project Bank  for this category, we approved 27 projects of which 23 are already funded with $220 billion COP out of $250 billion that had been approved as Confis Quota. The sectors which were the most benefited with these investments were aqueduct and sewer systems, road infrastructure and education.” stated Angélica Leguizamo, Director of Projects Execution and Assessment for ART.

According to Leguizamo, the mechanism is as follows: 

  • The Territory Renewal Agency receives and studies the projects which can be proposed by the National Government or the enterprises and publishes them in its online Project Bank during the first semester of the year, so that entrepreneurs from all sectors can log in, check them and decide in which one they one to take part.
  • Once closed the deadline for applying in 'Works for Taxes' the Confis Quota is approved and the ART checks that the candidate enterprises comply with the mentioned requirements.
  • As of April 20 approximately, the enterprises accepted as participants can declare the income specifying that they will pay through Works for Taxes. Note:  It is not relevant that your due date is expired, due to the fact that being part of Works for Taxes gives you an additional period until the end of May.
  • All the process is online
  • Then, the ministry, the government entity or the competent operator is in charge of auditing the projects and will tell the enterprise to pay in the relevant trust fund.

 “In order to ensure that it is a viable project, the entrepreneur may divide its contribution in two: first, helping to finance the viability studies and then, paying for the construction of the work as such.  In addition, although the initial requirement is that the company can only pay to the works the 50% of their tax obligation, if the company wants to fund a work with an amount over the 50%  it may do so, and that amount will be deducted gradually from its income taxes for the next 10 years in equal rates.” declared the ART expert.

In the event also took part with their testimonies two companies that are now part of the mechanism: Ecopetrol and Grupo Mineros.Del evento participaron también con sus testimonios dos empresas que ya se atrevieron a participar del mecanismo:  Ecopetrol y el Grupo Mineros. Mónica Lopera, tax director of Grupo Minero, said that her company has made available around $18 billion COP to finance 5.5 km of roads in Zomac territories, which will benefit 80,000 people. “We decided to get involved in this program 'Works for Taxes' in order to demonstrate that we are committed with a sustainable mining that brings development to the communities of our area.  This is something that without the consultancy of ART it wouldn't have been possible, because they were the ones who linked us to the relevant agencies.” she said.

In the other hand, Juan Camilo Granados of Ecopetrol said that from the beginning his company was very imterested in taking part of the program, because they saw it as a great opportunity to complement thir social investment. “We financed seven projects which represented an investment of  $94 billion COP for infrastructure of 20 km of roads and the remodelling and construction of education facilitie­s.  We are the company which has been the most involved this year.” he stated.

Granados also made some recommendations:  first, he adviced the entrepreneurs to select a group of people completely dedicated to identifying opportunities in projects for 'Works for Taxes' and follow up their development, because it will be a crucial element to develop as a company and help the community.  In the same way, he asked ART to publish the Confis Quota at least one year ahead and without limiting the amount, in order to allow entrepreneurs to have a more active role.

 

ZOMAC TAX INCENTIVES

Álvaro Sánchez, from the Audit Direction of DIAN, explained to the all the attendees that another benefit they can have access to when investing in Zomac is a discount in the income tax during 10 years between 2017 and 2027, for companies established there.  “This is the real tax benefit for enterprises which invest in Zomac since 'Works for Taxes' is more a diversification in the way of paying taxes.” he stated.

Such discount will vary depending on the size of the company created in these zones, and will have to comply with investment requirements (build the plant and have the equipment) and job generation (formal and direct). “Micro and small enterprises will have a fee of 0% of their obligation during the first 4 years, then it will increase to 25% for the years between 2022 and 2024, and will end in the 50% of the obligation for the last three years.” stated Sánchez.  On the other hand, the taxes for large and middle sized enterprises will increase starting with the 50% between 2017 and 2021, and the 75% of the tax between 2022 and 2027.

According to Camilo Rodríguez, KPMG Legal Services and Tax Director, even though the large sector of extractive industries cannot invest in Zomac, the program has had great acceptance.  “According to DIAN, there are around 450 enterprises or companies located in Zomac taking advantage of these benefits.  With support and a constant improvement of these programs by the National Government which allow to make additional investments with the same benefits, maybe sharing the risks of these investments with the entrepreneurs, the program will keep on being a success.” stated the expert.

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