Reforms related to the promotion and attraction of investments

March 25th, 2021

We have provided a summary of the most important changes to the following legal instruments amended by Executive Order No. 1295 of the President of the Republic on April 28, 2021:

I. Executive Order No. 252, initially issued on January 11, 2018: Declaration of Investment Promotion and Attraction as a State Policy

  1. The Secretary General of the Presidential Cabinet is added as a member of the Strategic Committee for Investment Promotion and Attraction (hereinafter CEPAI).
  2. CEPAI’s powers include the approval of (i.) rules and decisions to implement policies to promote and attract investment; (ii.) follow-up and monitoring of the Pluriannual Strategic Plan for Investment Promotion; and (iii.) issuance of decisions revoking benefits granted to investors under the incentive system, pending reports issued by the Ministry of Production, Foreign Trade, Investments and Fisheries (hereinafter Ministry of Production).
  3. The powers provided to the Special Economic Development Zones (ZEDES) in the Organic Code of Production, Trade and Investments (COPCI) are transferred to the Ministry of Production, except for authorization to establish new ZEDES, which is an authority belonging to the Economic and Productive Sectoral Cabinet.

II.Executive Decree No. 757 initially issued on May 6, 2011:Regulations for the structuring and institutional strengthening of productive development, investment, and the mechanisms and instruments for stimulating production as provided in COPCI

  1. The scope of prioritized sectors is redefined, specifying that productive activity shall be exclusively considered to be the process by which such activity transforms inputs into lawful goods and services, including marketing and logistics activities, when these are carried out by the same company and are directly related to the production process.
  2. Elimination of Article 25.1, which dealt with the requirements for incorporation information of foreign corporations and certificate of legal existence from the country of origin.
  3. Modifications to Article 37, regarding the obligations of investors to effectively carry out their investment. If the investment amounts are less than those agreed upon in the Investment Agreement, the Ministry of Production must be notified in a timely manner so that it can analyze whether modification or, otherwise, termination of the agreement is appropriate.
  4. From now on, the Ministry of Production will be the entity responsible for: (i.) follow-up and monitoring of Investment Agreements, providing that such activities may be performed at any time during the term of such agreements; (ii.) administration of the registry for these agreements; (iii.) reported breaches; (iv) supervision of proper application of tax incentives; and (v.) notification of the results of such monitoring to the Tax Administration. Additionally, the Ministry of Production may initiate monitoring proceedings to sanction any breaches detected.

Ⅲ. Executive Decree No. 617 initially issued on December 18, 2012: Regulations for the Enforcement of the Organic Law for Productive Development, Investment Attraction, Employment Generation, and Fiscal Stability and Balance (hereinafter Productive Development Law Regulations)

  1. Expansion of the new investment concept, relating it to efforts toward productive investment, as described in COPCI.
  2. Regarding employment generation as a guideline for income tax exemptions on new investments in prioritized sectors and basic industries, the following amendments have been made:

i. Company size classifications will be established in the Productive Development Law Regulations, discarding COPCI provisions. 

ii. For new companies, meeting net employment percentages within the first three years of generating operating income, according to company size

MSMEs 15%

Large companies 20%

iii. The net employment compliance and maintenance conditions for existing companies within the first three years as of the beginning of the investment period will provide for the following:

MSMEs 8%

Large companies 10%

3. Article 2.b regarding income tax proportionality and new productive investment amounts is replaced, specifying that the proportionality formula must be based on the company income tax rate for the fiscal year in which the exemption is applied.

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