Investment in dynamic startups

What is the composition
of the dynamic startups
ecosystem in Colombia?
Several players make up the start-
ups ecosystem in Colombia, such
as the following:
• Academic:
- Universities.
- Education centers.
• Financing sources:
- Local banks.
- State entities.
• Public organizations:
- Promotion entities.
- Local governments.
• Private organizations:
- Incubators.
- Accelerators.
• Investors:
- National.
- Foreign.
The whole players
of the ecosystem
seek the same thing:
To create opportunities
for startups and
innovation, and to
enable job creation
for social and
economic welfare
in the country.
| 184 185 |
| Bogota's Foreign Investment Guide
Currently, Colombia has a National
Policy for Startups which was de-
fined in CONPES meeting 4011 that
took place on November 30, 2020.
Five objectives were defined in this
policy:
• To strengthen the development
of skills and to foster a
culture of innovation.
• To improve access to
and the sophistication of
financing mechanisms.
• To facilitate technological
development and
innovation in startups.
• To strengthen marketing and
sales networks and strategies.
• To strengthen institution
networks to be able to provide
an articulated public offer
that is efficient, timely and
based on evidence, which
provides qualifications and
auspicious conditions for
the startups ecosystem.
At the level of the ecosystem play-
ers, the above objectives may be
realized as follows:
• New sources of financing for
startups may be generated,
even in the early stages, through
national and international
investors, local banks, and
public/state agencies that
provide financing. Bringing
along foreign investors will
allow startups to generate more
jobs and more economic and
social welfare in the country.
• To improve innovation strengths
and culture, universities and
education centers offer today
an increasingly wider array of
subjects and courses. Many
of these have startups and
innovation centers, which
provide training in these matters
to their students and alumni. On
its side, the national government
and education centers are
strengthening their technical
and technological knowledge
to promote formation in
knowledge and learning in
matters such as software design,
innovation, agile methodologies,
and similar subjects.
• Social networks —which
are meeting hubs and
communication channels— are
being strengthened by private
and public institutions which
thus provide support to the
startups ecosystem. In this
way, cooperation between
incubators, accelerators, public
institutions, and promotion
networks and agencies
strengthen the connection
between the various actors
to make the enhancement
of the ecosystem easier.

What are dynamic
startups and what are the
advantages of investing
in them?
According to FOMIN (Multilateral
Investment Fund by its initials in
Spanish), dynamic startups are
projects with high growth poten-
tial thanks to their competitive
advantage which is based upon
innovations that are usually tech-
nological-based; their potential for
the creation of jobs and the gener-
ation or revenue is also high, and
they may develop accumulation
and scalability.
There are several advantages
for any investor who chooses to
contribute capital to this type of
startups, due to the fact that they
might generate sizable returns
based upon sustainable business
models.
What risks must be con-
sidered by the investor?
Because of the dynamic nature of
this type of startups, the investor
must consider a number of risks
such as the following:
• These are risk capital
investments: This is the case of
projects which are in an early-
stage, and, even if they have
big potential, they might fail.
•
•
• There is no record of historical
operations: It is difficult
to evaluate the potential
performance and management
of a dynamic startup because
there is no record or very scant
record of operation experiences.
• There is a variable context:
Dynamic startups are particularly
susceptible to changes in the
economic environment, such
as macroeconomic variables
or market conditions. They can
also be affected by negative
or positive offer or demand
impacts, which, in turn, affect
startups to a great extent.
This includes any potential
effect that the behavior in the
securities market and financial
institutions may create on them.
Besides, technological changes
can have a big impact in the
business model, consumer
behavior and other variables.
• They may require additional
investments down the
road: The investor may have
contributed or may be about
to contribute a sizable capital
amount to finance the dynamic
startup. However, there is no
certainty that this initial amount
will be sufficient to accomplish
the planned targets or that the
startup will be able to secure any
additional necessary funding
down the road. Besides, it is
possible that other investors sell
their shares without providing
any more funding in the future.
What type of investors
invest in startups?
Usually, investments in startups
are made by some of the following
players:
• The 3F investors (family,
friends and fools): These are
friends and the closest circle of
people of the startup founders
which participate in the first
pre-seed funding round.
| 186
| Guía de inversión extranjera de Bogotá

manner in which the investment is
going to be made. However, nor-
mally an investment follows these
stages:
• Angels: These are investors
that apply their own resources
to fund a dynamic startup.
Normally, they participate in
the second startup funding
round —the seed funding
round—, after the initial or
founding shareholders have
made their contributions and
before risk equity funds come in.
Given that they are making an
investment at an early stage, they
generally expect high returns.
• Risk equity funds: These are
entities/vehicles that participate
in investments in dynamic
startups by managing third-
party resources. This is the case
of professionals that manage
investment portfolios for the
benefit of third-party investors.
Normally, they make investments
in a variety of high-risk startups
through equity contributions.
What is the investment
process?
Generally, every investment will con-
form to the timing of investment, the
type of vehicle investment and the
1
3
2
Financialandtechnical
definitionoftheinvestment.
Evaluationofrisksand
benefitsassociated
withtheoperation.
Definitionof
investmentvehicle.
| 188 189 |
5
4 Initialapproach
tothestartup.
6
Duediligence
procedures.
Contract
negotiation.
8
7 Negotiation
closing.
Carryingoutthe
investment.
The investment procedure starts
by defining the financial and
technical conditions of the invest-
ment and the entire associated
risks and benefits, the investment
mechanism that best suits the in-
vestment to be made and that will
ensure better profitability and will
contribute to develop the startup.
As part of the last, the investor and
the startup must consider these
two elements:
• In which manner is the
investment made?
• Through which legal vehicle
is the investment made?
In which manner may a
person provide funding
to a dynamic startup?
Any investor interested in provid-
ing funding to a startup has at least
three ways of doing this. He may
provide the funds as debt, he may
make a capital contribution, or he
may make a loan that is convert-
ible into capital.
Debt
The funding is delivered in the
manner of debt where a person,
either directly or through an invest-
ment vehicle, gives a loan to the
dynamic startup. In this case, the
investor will place his funds seeking
to obtain a future return made up
of the compensatory interest that
he will charge to the startup.
Some investors prefer to make in-
vestments in the manner of debt
to reduce the risk associated to
capital investments; and gener-
ally, to avoid being associated
with the decision-making process
of the startup. Likewise, for startup
founders this debt option may be
attractive because it enables them
to retain control and management
of the startup.
The debt may be established by
making a loan agreement or by the
subscription of debt securities is-
suedbythestartup.Itispossiblethat
this debt provided by the investors is
subordinatedtoloansprovidedbyfi-
nancial institutions, risk equity funds
or other lenders; and, provided that
certain conditions are met, it can be
booked as an equity instrument, in
such a way that it behaves as a capi-
tal contribution both economically
and as reflected in the books.

| 190 191 |
Foreign debt must be channeled
through the regular foreign-ex-
change market in Colombia, and
the parties must comply with
foreign-exchange regulations to
create the foreign debt. The Co-
lombian debtor must file foreign
exchange Form 6 – “Report on
foreign debt provided to resi-
dents” with the relevant bank to
register the transaction with the
Bank of the Republic. This form
must be filed before or when any
debt disbursement is made. Trans-
fers must be reported by filing a
foreign-debt-transaction-minimal-
data declaration. The debtor must
file this declaration.
Please note that the startup must
collect Colombian withholding
taxes on any interest accruing at
the rate of 20% when the term of
the loan is less than 1 year. If the
term of the loan is greater than 1
year, then the withholding rate will
be 15%. These rates may vary if the
lender is a resident of a country
that has a double taxation treaty
with Colombia.
Capital
There is a capital investment where
the investor participates directly or
indirectly in the provision of capital
to the startup. He acquires a share in
thecorporatecapital,andsosecures
economic and voting rights.
Normally, capital investments are
very interesting for investors, be-
cause they can multiply their in-
vestment thanks to the exponen-
tial growth of the dynamic startup.
However, holding shares as capital
investment implies that the inves-
tor must participate in the day-to-
day affairs of the company and its
management. This is why normally
investors make shareholders agree-
ments to fix corporate governance
rules that apply to their invest-
ments. Besides, any return that
the investor may obtain is directly
related to the development and
performance of the startup.
Capital investment procedures may
be subject to public offer rules in
case the equity shares of the dy-
namicstartupareofferedtoaninde-
terminate number of persons or to
more than 100 determined persons.
For foreign exchange purposes,
this transaction is a foreign direct
investment. In the cases of curren-
cy contributions, the startup must
file a foreign investment minimal
data declaration that reflects the
type of the transaction.
Convertible debt
In this case, the person gives a loan
which, under certain circumstanc-
es, can be converted into capital of
the company receiving the invest-
ment. This option is quite interest-
ing for investors, because it allows
them to reduce their exposure to
pure capital investments by provid-
ing debt instead; and, at the same
time, they are enabled to receive
the exponential returns of these
investments in case the conversion
of debt into capital is made.
Please note that registration of any
capital contributions or increases
willtriggertheregistrationtaxatrates
that vary between 0.3% and 0.7%.
Usually, the contribution is made
in cash. However, if the contribu-
tion is an in-kind contribution, then
the startup will comply with his ob-
ligation to register the investment
by filing Form 11 - “Foreign invest-
ment registration declaration”, with
the Bank of the Republic.

| 192 193 |
The above is usually made by
subscribing convertible bonds or
through the making of the so-called
safe agreements, which are widely
used in the sector of dynamic start-
ups. These are agreements by which
a startup gives a right to the investor
in respect of future capital issues in
future funding rounds.
To register convertible debt, the
startup must also file Form 6 –
“Report on foreign debt provided
to residents”, before any debt dis-
bursement is made or when any
disbursement of the debt is made.
At the time the right to convert the
bonds in shares is exerted, the start-
up must file Form 11 with the Bank
of the Republic directly, and in this
way the debt will be canceled and
the investment will be reported.
Safe agreements
are nowadays
one of the most
simple ways for
startups to raise
funds in their first
operating stages.
Which are the investment
vehicles most used in
Colombia?
Once the investor and the startup
have defined the right invest-
ment mechanics, they must agree
on the vehicle investment to be
used, which is the legal structure
through which the investor will
participate in the startup.
to make up their bylaws and
define corporate governance
among other matters.
• Collective investment funds:
Under Decree 2555 of 2010,
collective investment funds (FIC
for the Spanish initials) are a
mechanism or a vehicle for the
collection or management of
monies or other assets, and they
are made up of a plural number
of persons.
They must be managed by
financial institutions that are
authorized for the purpose
(usually a trust company
or a stockbroker), and they
may also have specialized
professional managers. There
are certain requirements in
point of the minimum number
of investors and investment
These are the legal vehicles that
an investor can use in Colombia
to structure his investment in dy-
namic startups:
• Commercial company:
This is the commercial and
legal association model par
excellence, which enables a
number of people to develop
and carry out a common
venture. There are several types
of companies, and the one which
is most flexible and mostly used
today is the so-called simplified
stock company (SAS, for the
Spanish initials), created by
Law 1258 of 2008. There are less
legal requirements to establish
a SAS, the limitation of liability
for the shareholders in respect
of company dead is almost
absolute, and it enables a greater
autonomy for the shareholders

| 194 195 |
thresholds. These, added to the
need of having a professional
manager may entail increased
requirements and costs
as compared to those of a
commercial company.
Private equity funds (FCP for
the Spanish initials) are widely
used in Colombia as investment
vehicles. These are closed
FIC, where investors cannot
redeem their contributions
until the terms provided for in
the fund regulation have been
met or complied with. FCPs
must apply at least two thirds
of their investors funds to the
acquisition of assets or other
rights other than those securities
registered with the National
Securities and Issuers Registers
(RNVE, for the Spanish initials).
One of the appealing things of
these funds is that they may
have investment compartments
to carry out different business
lines, but these must be in line
with the fund’s investment
purpose. Besides, they have
important tax benefits.
Especially, when they meet the
requirements provided for in the
law for the benefits that are paid
to be taxed only with income
taxes upon their effective
distribution. Additionally, if the
investment qualifies in itself for
some tax benefit, this benefit
can be passed on down to the
investors to the extent that the
distributions are made in the
same manner of the revenue
received by the FCP.
The RNVE is a public
register where the
following are registered:
any securities offered
in public offers,
their conditions,
the issuers and the
characteristics of the
related securities issue.
• Trusts: Under trust agreements,
the trust grantor transfers one or
more assets to a trust company
(a trustee) for the latter to
accomplish a certain objective
for the benefit of a third-party
(the trust beneficiary).
Trust assets make up a separate
patrimony which is treated
as the legal and accounting
center of attribution of the
trust business. This separate
patrimony is represented
in managed by a surveilled
financial entity (a trust
company), and may exercise
rights and incur obligations.
Investment trusts (FI for the
Spanish initials) are the most
commonly used in investment
processes. Their main objective
is to invest or place certain
amounts of money in any
manner, according to the
instructions issued by the trust
grantor. Trusts do not enjoy
the benefit of tax deferral that
FCPs enjoy; however, in case the
investment enjoys certain type
of tax benefit, this can be passed
on down to the investors to the
extent that the distributions are
made in the same manner of the
revenue received by the trust.
The suitability of each one of these
vehicles will depend upon the
very own needs of the investment
or startup structure and the way
in which the parties have agreed
to associate. Below we describe
their mains characteristics:

| 196 197 |
Simplified Stock Company Collective Investment Funds Investment Trusts
Creation of a new
legal person
When incorporated, a SAS is a new legal person
capable of exercising rights and incurring obligations.
This is a separate patrimony, separate from the inves-
tors’ patrimony. The fund functions and operates
through a trust company which is its spokesperson.
A trust is a separate patrimony which operates as a
legal and accounting attribution center of all invest-
ments. This patrimony is managed by a trust company.
Does it require an
authorization?
No. No prior authorization from the Office of the Fi-
nancial Superintendent of Colombia (SFC) is
required to incorporate a FCP. The fund must
submit the creation regulations to SFC. How-
ever, SFC surveils the operations of all FCPs.
No authorization from the SFC nor from any other
authority is required to make a trust agreement to
create an investment trust. However, trust com-
panies are subject to surveillance by the SFC.
Does it require a
minimum number
of investors?
No. A minimum of two investors, except for co-
investment cases (where two or more inves-
tors are the joint owners of an investment).
In case the fund has compartments, each com-
partment must have two investors at least.
No.
What are the rules on
investor liability?
Shareholders, trust grantors and investors are liable only up to the amount of their contributions.
How are the investors
contributions treated?
There is no minimum capital required to incorpo-
rate a SAS. The shareholders may fix a term for the
capital to be paid, which cannot exceed two years.
As a general rule, the shareholding proportions of
the shareholders will be prorated to the amount
of their contributions. Capital contributions
can be made in cash, can be in-kind contribu-
tions or can be made as work or services pro-
vided to the company in exchange for equity.
In the regulations, the fund members may set minimum
investment thresholds (This restriction applies only
for investor clients). Contributions will be due upon
the establishment of the fund or subsequently, per the
regulations. Likewise, they can be made in cash or can
be in-kind contributions, per the regulations. No inves-
tor may make contributions or agree to make them for
any amount that exceeds 20% of his annual revenues
or assets, whichever is greater. Equity fund investment
units are prorated to each investor’s contribution.
Current regulations do not set any limits on contribu-
tions, and do not require either a minimum contribu-
tion for a trust agreement to be made. No specific
rules exist determining what type of contributions
can be made under a nonrevocable commercial trust
agreement. Hence, a trust grantor can contribute any
good or asset to the trust or separate patrimony.
What type of investment
can the vehicle make?
It can invest in any asset provided this is
part of its line of business. Also, the line of
business can be any lawful activity.
It must invest at least two thirds of inves-
tor contributions in assets other than se-
curities registered with the RNVE.
The trust company that manages the trust will
make the trust investments following the instruc-
tions of the trust grantors as set forth in the
nonrevocable commercial trust agreement.
What is the structure of
corporate governance?
It must have a shareholders meeting, which is the
top management body, and a statutory representa-
tive. A Board of Directors is optional, this is a body
which meets to discuss and make decisions in respect
of company operations and discharge any other
functions assigned to it by the law and the bylaws.
A statutory auditor is mandatory if the vehicle’s as-
sets or revenues exceed the thresholds set by law.
It must have an investors meeting, a managing
company, an investors committee and a surveil-
lance committee. FCP management companies
may appoint a professional manager to be in
charge of making investment decisions and fol-
lowing up on operations. The FCP investors meet-
ing is the management body of a FCP. Here, the
investors meet and make the decisions that they
are to make under the law and the regulations.
Normally, the parties to a nonrevocable commercial
trust agreement are the trust grantor(s) and the trust
company that will manage the trust. In the case of
trust agreements under which investments are bought
and sold, there are investors or participants. It is
usual to have a trust committee as a consultant and
eventual approver of certain activities/transactions.

| 198 199 |
How can the
investment be
redeemed?
The shares in a SAS can only be redeemed upon dis-
solution and liquidation of the company. In certain
cases permitted by law expressly, capital contribu-
tions may be paid back to the shareholders.
Equity contributions will be redeemed only at the end
of the term of duration of the FCP. The regulations can
provide for specific, early equity redemption grounds.
Contributions into a trust (a FI) can be reimbursed only
upon contract termination, where the trust purpose
has been accomplished or where any admissible
termination grounds occur. Beneficiaries may receive
returns on investments as agreed by the parties.
What are the exit
mechanisms?
The shareholders may withdraw by selling their
shares, or by exerting withdrawal rights in cases of
company transformation, merger or spin off. Likewise,
capital reductions or shareholder exclusions can be
used as exit mechanisms. These may require special
permits from the incumbent surveillance agency.
These transactions consist of reducing the company’s
capital, and they may or may not entail the reim-
bursement of contributions to the shareholders.
FCP investors may request the reimburse-
ment of their contributions according to
the terms of the fund’s regulations.
Trust grantors may withdraw by assigning or
selling their interest in the trust, or by reimburse-
ment of their contributions, according to the
terms of the trust contract or agreement.
Costs - Mercantile registration fees: Between 10 USD and 31
USD, depending on the value of asset contributions.
- Registration of books of account and other
company books: 5 USD approximately.
- Registration of documents: 13 USD approximately.
-Registration tax, upon registration of the
company with the relevant Chamber of Com-
merce: 0.7% of the subscribed capital.
- RUES form: 1.7 USD approximately.
-In case of capital contributions that involve real
property, the articles of incorporation must be
made in the form of a notarized deed. The amount
of this registration depends upon the value of the
property. In this case, the registration tax will be 1%
(as opposed to the 0.7% tax mentioned above).
- Costs and commissions for the opening of a
bank account: Certain banks allow persons to
open savings accounts at no cost, but they require
instead the deposit of a minimum initial amount
of 30 USD approximately to open the account.
- Bank expenses and taxes arising from the deposit
of the equity contributions into the FCP account.
- Compensation of the management com-
pany and the professional manager, as
determined by the regulations.
- Structuring commission due to the trust company:
Depending upon the offer made by the trust company.
- In case there are contributions of property that must
be registered (such as real property), the act by which
the trust is established must be made in the form of
a notarized deed. The value of this procedure will
depend upon the value of the property. In any case, the
registration tax will be 1% of the real property value.
Income taxes SAS are income tax payers. They pay income tax
based on their worldwide income, because they
are national companies. The income tax rate is 31%
in 2021 and 30% and 2022. There are, however,
special or preferential tax rates in certain cases.
FCPs are not income tax payers. The principle of
transparency applies to them totally: Total rev-
enues are distributed to the investors in the same
manner and with the same tax conditions as if
they had deceived the revenue directly instead
of the FCP. The FCP just deducts its expenses and
the management company’s commission.
However, provided the legal requirements are
met, the accrual of revenue for the investors will
be deferred to the point where the fund’s profits
are distributed. Otherwise, the revenue will accrue
for them at the same time it accrues for the FCP.
FCPs are withholding tax collection agents. Hence
they must withhold any taxes that apply to the
investors, taking into account the type, the man-
ner and the conditions of the revenue just as if it
had been directly received by the investors.
Trusts are not income tax payers, except where it is
not possible to identify the trust income beneficia-
ries. In the rest of cases, the mentioned principle
of transparency applies. The trust must collect any
withholding taxes that apply, taking into account
the type and tax conditions of the revenue received/
paid. The timing of accrual or realization of income
in the hands of the trust grantor depends on whether
or not he is required to keep accounting books.

| 200 201 |
Capital gain taxes SAS are capital gains tax payers. This tax applies to
certain specific taxable events, such as sales of fixed as-
sets held for more than two years, donations and liqui-
dations of companies which have existed for more than
two years. The general capital gains tax rate is 10%.
FCPs are not capital gains tax payers. Accordingly,
the same rules set forth in the above section apply.
As a general rule, trusts (separate patrimonies)
are not capital gains tax payers. Accordingly, the
same rules set forth in the above section apply.
Dividend taxes Where the company distributes nontaxable divi-
dends, it will collect withholding taxes as follows:
- From national companies: 7,5%, in case of the
initial distribution (from the operating company to the
shareholder). This withholding tax may be transferred
to individual resident shareholders or to nonresident
investors, whether individuals or legal persons.
- From resident individuals: The rate is mar-
ginal and progressive. 0% on the first 300
UVT. From then upwards, it will be 10%.
- From nonresident individuals or entities: 10%. This
rate can be different if Colombia has signed a double
taxation treaty with the investor’s home country.
Where the company distributes taxable dividends,
it will collect withholding taxes as follows:
- From national companies: At the same corporate
income tax rate (31% in 2021 and 30% in the following
years). After this withholding tax is deducted from
the gross payment, in case of the initial distribution
(from the operating company to the shareholder), an
additional withholding tax must be collected at the
rate of 7.5%. This withholding tax may be transferred
to individual resident shareholders or to nonresident
investors, whether individuals or legal persons.
- From resident individuals: At the same corporate
income tax rate (31% in 2021 and 30% in the following
years). After this withholding tax is deducted from the
gross payment, an additional withholding tax must be
collected at a marginal and progressive rate. 0% on
the first 300 UVT, and 1% from thence upwards. This
- From nonresident individuals or entities: At the
same corporate income tax rate (31% in 2021 and 30%
in the following years). After this withholding tax is
deducted from the gross payment, an additional with-
holding tax must be collected at the rate of 10%. This
FCPs are not income tax payers, hence they are not
dividend taxpayers. However, when the investors
receive any dividend distributions, the FCP must
collect withholding taxes as they may apply accord-
ing to the transparency principle explained above.
Generally, trusts (separate patrimonies) are not income
tax payers, hence they are not dividend taxpayers.

| 202 203 |
How is the investment
negotiated?
Once the investment mechanism
and vehicle have been defined,
usually the investor negotiates
a term sheet with the startup or
with the startup founding mem-
bers which incorporates the main
agreements about the investment.
There can be an additional non-
disclosure agreement to protect
the confidential information of the
startup and its shareholders.
After that, usually the investors car-
ry out legal, technical and financial
due diligence proceedings to learn
about the status of the startup and
any relevant findings and issues
that their external advisors may
define. Based upon this due dili-
gence work and the agreed-upon
term sheet, the investor negotiates
any contracts that are required to
carry out the investment depend-
ing upon the type of investment
chosen with the startup and its
shareholders or members.
The closing of negotiations occurs
where all the requisite contracts
have been signed, requiring the
parties to carry out the investment
according to their terms.
When the terms of
the business are being
negotiated, there
can be an additional
nondisclosure
agreement to protect
the confidential
information of
the startup and its
shareholders.
What other aspects must
be taken into account?
In addition to the investment pro-
cedure and the special aspects de-
fined above, there are other consid-
erations that both the investor and
the startup must take into account:
Foreign exchange matters
The investment, any related debt
and any guarantees provided by
nonresident entities qualify as for-
eign exchange transactions and so
the underlying currencies must be
channeled through certain autho-
rized channels. The Bank of the
Republic is the authority in charge
of foreign exchange matters, and
it also keeps statistics on foreign-
exchange transactions in Colom-
bia. On the other hand, the Office
of the Superintendent of Compa-
nies and the national tax authority
(DIAN) are the agencies in charge
of surveilling compliance with for-
eign-exchange regulations.
Depending upon the structure
chosen by the investor and the
startup, foreign exchange obliga-
tions may vary. This is why it is
advisable to consult with legal
advisors to determine the obliga-
tions that must be complied with
at each stage of the investment.
Foreign-exchange and foreign in-
vestment transactions are trans-
actions that must be channeled
through the regular exchange mar-
ket. That means that the transac-
tions must be made through any
of the following:
• Exchange market
intermediaries: Banks and
other financial institutions
authorized by Article 7 of
External Resolution 1 of 2018.
Commercial banks are a typical
example.
• Compensation Accounts:
These are bank accounts
denominated in foreign currency
which Colombian residents
have with foreign financial
institutions and which have
been registered as such with
the Bank of the Republic.
Learn
more about
this topic.

| 204 205 |
Information handling
Usually, dynamic startups depend
upon the information and connec-
tivity with their users and clients,
from whom they collect and store
data. The collection and manage-
ment of databases is subject to
certain regulatory requirements.
Therefore, it is fundamental that
the startup establishes mecha-
nisms that guarantee the avoid-
ance of any potential penalties for
violation of those requirements.
On the other hand, it is common
that founders request investors to
sign certain confidentiality agree-
ments. Besides, it is important to
have a strategy for the protection
of any relevant intellectual and in-
dustrial property rights.
Are there any tax benefits
for dynamic startups?
For investigation, techno-
logical development and
innovation projects (I+D+ i
for the Spanish initials) and
for science, technology and
innovation projects (CT+i for
the Spanish initials)
There are in Colombia several tax
benefits or incentives that relate
Corporate governance
Those who invest money in dy-
namic startups usually consider the
structure of corporate governance.
This is so because it is through
corporate governance that the par-
ties seek to accomplish a balance
between the rights of the investor
providing the capital or the fund-
ing and the rights of the person that
provides the know-how or main
startup idea.
Some of the examples of corporate
governance structures include the
creation of special majorities or the
creation of veto rights with respect
to certain decisions submitted to
decision-making organs, the set-
ting up of specialized committees
that function for those organs, the
offering of preferential dividend
rights or earning distribution rights
in respect of the contributions
made, among others.
Non-compete agreements
Usually, investors and startup
founders enter into non-compete
agreements given the nature of dy-
namic startups and the competi-
tive advantages that they have. In
this way they create consequences
that would dissuade a founder
from competing against the start-
up if he decides to withdraw from
the project. These agreements are
legal in Colombia provided that
their duration is limited and their
scope is specific.
to the areas of science, technol-
ogy and innovation. For a project
to qualify for these benefits, it must
be certified by the Tax Benefits Na-
tional Council (CNBT for the Span-
ish initials) of Colciencias and meet
certain special requirements
Before claiming any of
the mentioned benefits,
the investor should
review the applicable
current regulations and
technical regulatory
agencies such as
Colciencias, as there
can be subsequent
changes in the law
and the regulations.
• Deduction for investments
in I+D+i projects: 100% of the
amount of any investments
made in projects that are certified
as I+D+i projects by the CNBT
is deductible for income tax
purposes under Article 158-1
of the Colombian Tax Code, as
amended by Article 170 of the
National Development Plan
(PND for the Spanish initials)
– Law 1955 of 2019.

| 206 207 |
• Deduction for investments in
CT+i and I+D+i projects: 25%
of the amount of any investment
made in projects that are
certified as CT+i and I+D+i
projects by the CNBT (according
to its own criteria) is deductible
for income tax purposes under
Article 256 of the Colombian Tax
Code, as amended by Article 171
of the PND.
• Benefits for investments
received for CT+i projects:
Any resources received to be
applied to the development and
carrying out of projects qualified
as CT+i projects by the CNBT are
treated as nontaxable income.
The same treatment applies
to the compensation paid to
individuals that directly do
labor that qualifies as CT+i labor,
provided that the compensation
is paid out of resources
earmarked for the respective
project, under Article 57-2
of the Tax Code.
• Tax credit for investments in
CT+i and I+D+i projects: Any
investment made by micro,
small and medium-sized
companies in any projects
certified as CT+i and I+D+i
projects by the CNBT may obtain
a tax credit (also known as a
bonus) for an amount equal to
50% of the investment made in
the project or the compensation
effectively paid to the personnel
hired for the project, which must
have a Doctor’s degree. This
credit applies for the offset of
national tax liabilities.
• VAT zero rated treatment:
Imports of equipment or
elements that are earmarked
for duly qualified CT+i
projects qualify for VAT zero
rate treatment. The relevant
research centers must import
the equipment or elements
directly (and not through
third parties) under Article
428-1 of the Tax Code.
Tax benefits for mega
investments
In Colombia, investments made for
an amount equal to or greater than
30 million tax value units (UVTs) (311
million USD approximately) that
generate at least 400 new direct jobs
qualify as mega investments.
For sectors of a high technological
component, of emerging and expo-
nential technologies and of e-com-
merce, 250 direct jobs are required
to obtain the above qualification.
Under article 235-3 of the Tax Code
and Decree 1157 of 2020, the tax
benefits for mega investments are
as follows:
• Income tax rate of 27% or 9% for
hotels, provided that the special
conditions set in the Tax Code
for the special hotel income
tax rate are complied with.
• Depreciation of fixed
assets over 2 years.
• The special presumptive income
system does not apply.
• No wealth or equity taxes apply.
• If the investments are made
through national companies or
permanent establishments, any
earnings distributed will not be
subject to the dividends tax.

| 208 209 |
Tax benefits for the orange
economy
• Exempt income for
technological added value
and creative industries: Any
company whose exclusive line
of business is to develop and
carry out added technological
value and/or creative activities/
industries and fall under the
enterprise activity classification
codes (the CIIU codes)
established by law is entitled
to exempt income for 7 years
under Number 1, Article 1,
Article 235-2 of the Tax Code,
and Decree 286 of 2020.
• Exempt treatment for copyright
income: Any copyright income
received by any Colombian
or foreign resident author or
translator in Colombia for any
scientific or cultural books
published and printed in the
country qualifies as exempt
income. Exempt income
per each title and per each
year under Number 8, Article
235-2 of the Tax Code and
Article 28 of Law 98 of 1993.
• Investments or donations to
film projects: A deduction for
income tax purposes equal
to 165% of the actual value
invested in or donated to any
short film or feature-film projects
that are produced (totally or
partially) by Colombians, duly
approved by the Ministry of
Culture, under Article 16 of Law
814 of 2003 as amended by
Article 195 of Law 1607 of 2012.
• Investments or donations in
creative economy projects:
A deduction for income tax
purposes equal to 165% of
the actual value invested in or
donated to creative economy
projects (in the tax year in which
the investment or donation is
made). This applies by a call
made by the Ministry of Culture
under the rules of Article 180 of
Law 1955 of 2019, Article 195 of
Law 1607 of 2012, Decree 697 of
2020, and Decree 1702 of 2020.
• Audiovisual investments:
An income tax credit of up to
35% of the amount invested in
Colombia for foreign audiovisual
works of any type or format, in
production or postproduction,
which are previously approved
by the Colombia Film
Promotion Committee (Comité
Promoción Fílmica Colombia)
under Law 1955 of 2019. This
income tax credit cannot be
claimed concurrently with
the Law 1814 deduction.
• Investments in public shows
of theatrical arts: A deduction
for income tax purposes equal
to 100% of the investments
made in infrastructure for
public shows of theatrical arts,
in adapted or existing theaters,
under Article 4 of Law 1493
of 2011, Decree 1258 of 2012
and Decree 1240 of 2013.

Investment in dynamic startups

More Related Content

What's hot

Similar to Investment in dynamic startups

More from Tatiana Behar Russy

Recently uploaded

Investment in dynamic startups