[February 09, 2007]

DJ 2nd UPDATE: Colombia Govt Cuts Corp Tax For Free Zone Invest

(Comtex Business Via Thomson Dialog NewsEdge) Feb 09, 2007 (Dow Jones Commodities News Select via Comtex) --(Updates with comments from textile company's CFO and analyst)

By Diana Delgado

Of DOW JONES NEWSWIRES

BOGOTA (Dow Jones)--The Colombian government will slash the income tax on local and foreign companies that invest at least $32 million over the next three years in special economic zones, newly appointed Trade and Industry Minister Luis Guillermo Plata said Friday.

"This decree generates a better investment environment for Colombia, while it makes the country more competitive," Plata told Dow Jones Newswires in an interview.

With the decree, which President Alvaro Uribe was scheduled to sign into law Friday afternoon, the government will cut the corporate tax to 15% from 38.5% for the qualifying companies, he said. Firms that create at least 600 jobs in the next three years will also qualify for the tax break, Plata said.

"Colombia may become the Ireland of the Americas," Plata said.

Ireland is currently one of the fastest growing economies in Europe, with has the second-highest income per capita in the bloc, according to U.S. think-tank Tax Foundation. Economists and market analysts attribute Ireland's success in part to the country's low corporate tax rate of 12.5%.

Supertex, a Cali-based textile sport clothes manufacturer, may consider opening new operations in one of the special zones to benefit from the new tax cut decree, said Supertex's chief financial officer, Ramiro Botero.

"That's excellent news," Botero said. "With the arrival of the free trade agreement (with the U.S.), I believe Supertex could easily generate 300 new jobs in 2008," he added.

Colombia and the U.S. signed a free trade agreement in November, but neither country's legislature has yet approved the pact.

Supertex, which makes t-shirts, sport bras and bathing suits for international brands such as Adidas AG (ADDYY), Speedo and Patagonia, exported $40 million last year, Botero added.

Other companies such as Cementos Argos (CEMARGOS.BO), the country's largest cement company, have expressed interest in locating their operations in the special zones to enjoy the tax benefits, the deputy minister, Eduardo Munoz, said.

"Biofuel companies are also interested," Munoz added during the same interview.

Gianfranco Bertozzi, senior vice president at Lehman Brothers in New York, said Colombia is moving in the right direction to keep bringing in foreign direct investment.

"This new measure makes Colombia an attractive place to invest, while it also complements the recently approved tax reform," Bertozzi said.

In December, the Colombian Senate approved a highly-anticipated tax reform which will reduce the corporate tax rate to 34% in 2007 and 33% in 2008 from a current 38.5%.

According to the KPMG and Latin Business Chronicle Corporate Tax Rate Survey for 2005, the average corporate tax rate in Latin America is 29.5%. The survey put Colombia's average tax rate at 35%, in second place behind Honduras, with 36.25%.

On top of charging one of the highest corporate income, Colombia ranks a disappointing 172 out of 175 countries in terms of how easy it is for companies to pay taxes, according to the World Bank.

In Friday's decree, the government set a lower threshold for agro-industrial companies, requiring them to invest $16.4 million or create 500 jobs to qualify.

Colombia has eleven special economic zones throughout the country. The coastal cities of Barranquilla, Santa Marta, Cartagena have special zones. Others are located in Bogota, Cali, the country's third-largest city, Cucuta and smaller towns Such as La Tebaida, Palmira, Sopo and Rionegro.

A total of 449 companies, located in special economic zones, invested $1.17 billion between 1994 and 2003, according to a document handed by Plata to Dow Jones Newswires.

-By Diana Delgado, Dow Jones Newswires; 571-6001980; diana.delgado@dowjones.com

(END) Dow Jones Newswires

02-09-07 1729ET

Copyright (c) 2007 Dow Jones & Company, Inc.

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