Carlos Fradique-Mendez Luis Gabriel Morcillo During 2013, the Colombian Government enacted several regulations simplifying private equity and venture capital (PE/VC) funds' legal framework, providing legal stability and confidence to local and foreign investors (including foreign funds). As of June 2013, local funds may be structured with different participation units reflecting variable fees, preferred returns, or investor types, and which should be now placed in the custody of independent trust companies, following international trends on the protection of funds' interests. A significant reform was the introduction of a new category of investment funds focused on real estate assets, which should now be managed through a regulated management structure that permits large numbers of real estate properties to be exploited through these types of funds. At the same time, one concern remains relating to the issuance of Decree 1848 of 2013, which modified tax withholding rules on the distribution of PE/VC funds. However, the Colombian private equity industry relies on some structured competitive advantages that attract foreign investment, such as treating carried interest as a capital gain and not as ordinary income commonly subject to a tax rate of 10%, or that the fund itself is not subject to income tax (the transparency principle). Decree 1848 introduced a specific methodology that must be applied by the local fund's administrator when determining the portion of the corresponding distribution that is subject to withholding tax.
February 24, 2014