REPUBLICA DE COLOMBIAMINISTERIO DE MINAS Y ENERGÍAUNIDAD DE PLANEACIÓN MINERO ENERGÉTICA

MINING, AN EXCELLENT CHOICE FORINVESTING IN COLOMBIAThe Investor’s Guide

2005

0

CONTENTS
INTRODUCTION
I. COLOMBIAN ADVANTAGES FOR MINING INVESTORS
1. An excellent geographical location
2. An attractive mineral potential
3. A modern mining legislation
4. A stable and expanding economy

II. INSTRUMENTS FOR INVESTMENT AS APPLICABLE TO MINING
1. The Investment Regulatory System
2. The Tax System
3. Mining Tax and Customs Incentives
4. Incentives to exports
5. The Labor CodeANNEXES:The Colombian Mining Sector’s administrative structure
Areas subject to environmental constraints and limitations

1

INTRODUCTION
For Colombia, foreign investment means and constitutes an essential factor in themodernization and internationalization of the country’s economy, since it is afundamental access tool to leading-edge technology, modern knowledge, and theshaping of export-oriented industries.
Within the framework of the internationalization process, the mining sector has
benefited from important foreign investments in the development of the Colombiannorthern-zone coal project, as well as in the expansion of the Cerro Matoso ferro-nickel
operation, and the consolidation of the cement industry. Moreover, the space for new
investment in the other branches such as basic and precious metals, ornamentalstones, and industrial minerals is, likewise, quite wide.
The Colombian State has concentrated its efforts in attracting both capital andtechnology of foreign nature, for which purpose it has been in the process of
consolidating comparative advantages enabling it to compete in the most favorable
terms in raising foreign investment resources.
Following this line, the Ministry of Mines and Energy through the Mining and Energy
Planning Unit (“UPME”) has prepared this Investor’s Guide”. It is designed to provide
basic information to support the decision-making choices of the foreign investor
interested in becoming actively involved in the development of the Colombian mining
sector.

LUIS ERNESTO MEJIA-CASTROCARLOS ARTURO FLOREZ-PIEDRAHITA

Ministry of Mines and Energy

UPME General Manager

Bogotá, 2005

2

I. COLOMBIAN ADVANTAGES FOR MINING INVESTORS
1. A STRATEGIC GEOGRAPHIC LOCATION
Colombia is located at a strategic point between North and South America, with ports
on both the Caribbean Sea and the Pacific Ocean. This privileged position facilitates
ready access to the markets of the American Continent, Europe, Asia, and the Pacific, avery favorable condition to competing within economic blocks and attain a successful
positioning at globalized markets.

The country has a road system connecting the midland with its major seaports, under
an ongoing improvement process through concessions entered into with the private
sector for enlargement, including the rehabilitation of railway and river transportation.
Likewise, five airports for international operations and a modern telecommunications
infrastructure are available as an important foundation for the agile development ofmultiple businesses destined to international markets.

2. AN ATTRACTIVE MINERAL POTENTIAL
Thanks to the significant potential found in the Colombian territory in terms of coal,
ferro-nickel, gold, and emeralds, among others, the mining industry in the country
projects itself as one of the most essential pillars in the national economy.
The country has a very vast geological mining potential, ready for use and profit.
The presence of many diverse geological environments facilitates the exploitation anddevelopment of a wide variety of minerals and metals of significant economic interest.

3

Colombia enjoys a privileged position in geotectonic and metallogenic terms, since itshares two extremely promising geological environments: the Guiana System, and theAndean System. The application of modern systematic exploration techniques in areas
potentially rich in mining resources is highly likely to enhance the probabilities ofgenerating projects of paramount economic importance.
Figure 1. Geomorphologic Regions

In these systems, a variety can be found of metallogenic systems very similar to those
that, in other countries in the region, harbor large deposits of precious metals, basemetals, industrial minerals, and ornamental rocks.
The Colombian Andean System is shaped by three mountain ranges, each offering acomplex structural framework as well as various magmatic pulse logs, these elements
being intimately related to mineral deposits. In metallogenesis, both the western andcentral mountain ranges (“Cordillera Occidental” and “Cordillera Central”) stand out inthe Mesozoic and Cenozoic periods, a common situation in the Chilean, Peruvian and
Mexican Andes (known as the “Sistema de la Sierra Madre”).

4This System is supplemented eastwards by the Guiana Shield (“Escudo Guayanés”);
this is an important metallogenic province having generated great expectations not
only due to its considerable geographical size (over half million km²) but for the
acknowledgement of significant deposits of iron, gold, aluminum, diamonds, rareearths, and manganese located in Venezuela and Brazil, very close to the Colombianborders.
There are several geological zones with high probabilities for findings of mineraldeposits such as:
Figure 2. Zones of Interest for Exploration

ZONES(1) Diabásico-Dagua-Cañas
Gordas Terrain(2) Batolito Mandé(3) Cañón del Cauca(4) Cauca-Romeral Terrain(5) San Lucas(6) Batolito Antioqueño(7) Batolito Ibagué-Mocoa(8) Cundiboyacense(9) El Copey-ValleduparPatillal(10) Escudo Guayanés(Guiana Shield)

9

4

5

6

2

8
1

3

10
7

5

TABLE 1. Main zones of interest for exploration
ZONES(1) THE “TERRENOS DIABÁSICO–DAGUA–CAÑAS
GORDAS”(DIABASIC TERRAINS)(2) THE “COMPLEJO ÍGNEO MANDÉ”(IGNEOUS COMPLEX)PROBABLE TYPES OF DEPOSITSSMV, CHIPRE : Cu – Zn, (Au)
SMV, BESSHI : Cu – Zn, (Au)
SMV, KUROKO : Zn – Cu – Pb, (Au – Ag)
EXHALATIVE SEDIMENTARY: Zn – Pb, (Ag)
CUPRIFEROUS PORPHYRS: Cu – Au – Mo

(3)

THE “COMPLEJO IGNEO CAÑÓN DEL CAUCA”(IGNEOUS COMPLEX)EPITHERMAL GOLDDisseminated: Au, Ag
Polymetal Veins: Au – Ag, Pb – Zn – Cu, (As, Sb,
Hg)

(4)

THE “TERRENOS ÍGNEO–METAMÓRFICOS CAUCA–ROMERAL”(IGNEOUS-METAMORPHIC TERRAINS)

Podiform: Cr, Ni, Co, (PGM)
Lateritic: Ni, Co

THE “TERRENOS VULCANICOS DE SAN LUCAS”(VOLCANIC TERRAINS)

Magnesite, Talc, Asbestos
EPITHERMAL and MESOTHERMAL GOLDDisseminated: Au - Ag

(6)

THE “BATOLITO ANTIOQUEÑO”(BATHOLITH)MESOTHERMAL GOLDPolymetal Veins: Au, Ag, base metals.
MESOTHERMAL GOLD
Vein: Au – Ag

(7)

THE “ BATOLITOS IBAGUÉ – MOCOA”(BATHOLITHS)(5)(8) THE “CUNDI – BOYACENSE” REGIONSEDIMENTITES(9) THE “TERRENOS ÍGNEO-SEDIMENTARIOS DE EL
COPEY - VALLEDUPAR - PATILLAL”(IGNEOUS- SEDIMENTARY TERRAINS)(10) THE “ESCUDO GUAYANES”(GUIANA SHIELD)

Polymetal Veins: Au – Ag, base metals
CUPRIFEROUS PORPHYR: Cu – Mo

MESOTHERMAL GOLD :Polymetal Veins: Au, Ag
HYDROTHERMAL: Emeralds
EVAPORITES: Salt, Gypsum
Phosphorites
Ornamental Stones:
Granites, Marbles, Marble Limestone
Auriferous paleoconglomerates (WIT Type): Au, U, Ti

PROBABLE MININGRESOURCE
INFERRED
1-100 MTM
3 - 6% Cu (eq.)
INDICATED
250 – 500 MTM
0.7 – 1.2% Cu (eq)
INDICATED
Vein: 0.1– 0.5 MTM,
8-15 g, Au/t
Disseminated:
10 – 100 MTM
1 – 2.5 Grs gold/ton>40 MTM
2-2.5 % Ni
INFERRED
10-100 MTM
1-12.5 g.Au/t
0.1 -2.0 MTM
8 -15 g.Au/t
MEASURED –INDICATED
0.1 – 1.0 MTM
8 - 15g.Au/t
MEASURED –INDICATED>300 MTM
0.4 % Cu, 0.07% Mo
0.1 – 1.0 MTM
8 – 15 Au/t

>500.000 m3
0.1-0.2 MTM
2-8 g.Au/t

RESIDUAL: Bauxites

Geological-Mining Information
In order to contribute to the mining investor’s decision-making process, basic
information records and geological-mining cartography is being gradually structured as
supported on modern geographic information systems (GIS). This information isavailable at the SIMCO1, the Colombian Mining Information System, where data mainly
relating to mines into operation, historical production, reserves, free areas and1

www.upme.gov.co/simco

6environmental restrictions can be found, as well as geological maps, mining charts,and mineral occurrence charts, among others.
Likewise, through the Colombian Geology and Mining Institute (“INGEOMINAS”), theMining Cadastre records can be consulted on line, thus allowing the visualization offree areas for exploitation/development and contracts recorded in the National Mining
Register (“Registro Minero Nacional”), as well as requests, geological potential,
infrastructure (transportation system), restricted natural park and forest reservezones, and hydrography, among other aspects of interest. In addition, integral geoscientific information is displayed by means of either thematic coverage or layer
information relating to a large portion of the Colombian territory like, for example, thefollowing: 2
TABLE 2. Cartographic Information available at Ingeominas
PRODUCT
Atlas Geológico – Minero (Geological-Mining Atlas)
Scale: 1:500.000
Available in analog and digital means
Geological Maps
Scales: 1:200.000 and 1:100.000.
Available in analog and digital means
Departmental (Provincial) Geological Maps.
Scales: Different, between 1:100.000 and 1:400.000
Available in analog and/or digital means
Departmental (Provincial Maps) of Mines and Mineral
Occurrences.
Scales: Different, between 1:100.000 and 1:400.000.
Available in analog and/or digital means

CONTENTS
It offers a thorough overview of the geological environment
and the country’s mineral-resource potential.
They contain the country’s cartography systematically
produced by INGEOMINAS.
They contain an overview of the regional geology of each oneof the country’s departments (provinces).
They offer a graphic compilation of the different mines andmineral occurrences found in each department (province).

3. MODERN MINING LEGISLATION
The mining activity in Colombia is governed by a Mining Code, the “Código de Minas”,
issued by Act 685 of 2001. The most essential objective of this Code is encouraging
technical exploration and reasonable development/exploitation of state-owned andprivate mining resources for the purposes of meeting both internal and external
demand thereof within an integral concept of sustainable development and invigorationof the national economy.
The legal framework created by this code establishes clear limits to the State’sintervention sphere to the extent it is essential, while determining the necessary
autonomy that, in terms of economic management and entrepreneurial initiative,
investors require to develop a given mining project. In this way, a management model
is set up where the State acts as a facilitator of the mining operator work belonging to
the private investor.
Some of the basic normative aspects pertaining to the mining investor’s decisionmaking process are synthesized below:3• The right to explore and exploit/develop state-owned mines is obtained throughthe execution of a mining concession contract (“contrato de concesión minera”)
granted by the Mining Authority as represented by Ingeominas, and registeredat the National Mining Register.
2
3

www.ingeominas.gov.co/web/mapas/carto_tematic.html
The whole text of the Mining Code can be consulted at www.upme.gov.co/simco/7•For the awarding of mining titles, the principle “first in time, first in right”
applies.

•

The concession area may cover up to 5,000 hectares in terms of water currents
or beds, and up to 10,000 hectares in other types of terrains.

•

The duration term of these contracts is, initially, 30 years –including a 3-year
period for exploration and a 3-year construction and assembly period - and may
be extended up to 30 more years for continued exploitation/development
purposes.

•

The concession holder shall have the right to exploit/develop, in addition tominerals expressly included in the contract, those that are intimately linked or
associated therewith or obtained as exploitation by-products.

•

The rights issuing form a concession or other mining title may be assigned to athird party, either in whole or in part. Partial assignments may include thematerial division of the zone covered by the title, in which case any suchassignment will give origin to a new contract, the execution of which is to becompleted with the registration of the assignment document at the National
Mining Register. The right may also be assigned for the entitlement to use
woks, facilities/installations, equipment and machinery, as well as for the
exercise of contract-inherent easements and rights.

•

The investor shall deliver a delimitation map for the contract area applied for,as well as an agreement proposal4. This proposal becomes a part of the mining
cadastre after having been filed with the mining authority. The term for the
relevant study and subsequent approval of the proposal is approximately 60days, and the process dealing with contracting, entitlement and registration
with the National Mining Register takes about 30 days.

•

The processes performed by the mining authority for the administration ofmineral resources are as follows:•PROCESSES

Reception ofDocuments• Receiving the•OBJECTIVES•END
PRODUCTS

documents
relevant to theconcession
contract
proposal, andincorporation of
the same in themining cadastre• Assessing both • Execute thetechnical andlegal viability ofthe proposal,
and give
approval if incompliancewith all of therequisites• Plate assigned • Opinion
to the applicant

Contracting,Entitlement,
andRegistration

Study andApprovaldelivered ontechnical andlegal viability

contract withthe applicant
and incorporate
the same in the“Registro
MineroNacional” (theNational Mining
Register)

Audit/
Verification• Ensure that thecontracting
party fulfills all
the conditions
agreed upon in
the contract• Supervise thecollection of theeconomic
considerations
incurred by thecontracting
party for
distribution inaccordancewith theprovisions oflaw.

• Signed contract • Periodic follow- • Timely• Contract
incorporation in
the Mining
Registerup and control
reports relating
to the mining
title• Mining
environmental
Policy4

Collection
andDistribution

It must be completed on a form with an approximated cost of US$10

8collections• Distribution ofcontributions
according to
the law

Environmental Aspects
The Mining Code ordains the principle of environmental sustainability throughout themining cycle. At the same time, it establishes the simultaneity of both technical andenvironmental viability studies and works for increased celerity and efficiency in theprocess.
Although surface mining prospecting does not require authorization or permits ofenvironmental nature, it must nonetheless be carried out in accordance with certain
mining-environmental guidelines5 adopted by the relevant authorities. Upon completionof the exploration phase, the interested party shall submit the respective
environmental impact study together with the prospective activities and works
scheduled for the mining project, the approval of which is a prerequiste for the
granting of the environmental license. This study must be in line with both the terms ofreference6 and the environmental authorities’ guidelines for mining projects.
The Ministry of the Environment and the Ministry of Mines and Energy have establishedprocedures whereby qualified professionals and important private firms are authorized,
as selected by the users and on their own expense, to audit performance of andcompliance with the environmental obligations incurred in and under concession
contracts.
It is important noticing that Mining Code establishes certain zones - like natural parks as excluded for mining activities, and other areas where mining may be allowed thoughsubject to certain constraints. In Annex 2 to this Guide, the different categories ofthese excluded and restricted zones are listed.
Where intended to take place at natural reserve and/or ethnic minority zones, or thosereserved for national security purposes, as well as marine areas, mining will be subject
to certain restrictions and specific rules7. The Ministries of Mines and Energy, of theEnvironment, and of the Interior provide investors with the relevant information
regarding the special location and conditions for access to these zones.

4. A STABLE AND EXPANDING ECONOMY
Colombia is seen today as one of the most stable countries in the region, given thesustained growth of its economy throughout the past five decades, the growth rate andmost macroeconomic variables been recording a favorable behavior, thus promoting afavorable investment climate.
The current macroeconomic stability is to great extent due to the growing confidenceof the private sector in the work carried out by the Government to improve thesecurity conditions throughout the national territory. The impact of these efforts has
been a higher growth rate in the economy.

5

The mining - environmental guides (“guías minero – ambientales”) can be consulted atwww.minminas.gov.co
6
The Terms of Reference [“Términos de Referencia”] can be consulted at www.minminas.gov.co
7More information can be consulted in Chapter III of the Mining Code (“Código de Minas”).

9TABLE 3. Major economic indicators
INDICATOR

UNIT
2000
GDP
US$ Million
83,786
GDP Growth
Annual %2.2
Exports
US$ Million
13,121
Foreign Direct Investment Flow
US$ Million
2,395
Inflation
Annual %8.75
Source: Departamento Nacional de Planeación - DNP - (National Planning Department)

2001
81,9901.4
12,309
2,525
7.65

2002
85,204
1.5
11,907
2,115
6.99

2003
81,8103.4
12,9871,746
6.49

In the fiscal sphere, the Government has imposed strict controls on public spending,this having an influence in the low levels attained by the interest rates during the past
few years, which has favored investments in the production sector. In addition, theGovernment keeps the tradition of strictly meeting its credit obligations incurred with
the international banking system.
Contribution of the Colombian Mining Sector to the Country’s Economy
The fact that mining has become a growing contribution to the economy in Colombia isdue, mainly to the gradual development that coal production has been going throughsince the 80s at El Cerrejón (La Guajira) and La Jagua (Cesar). Likewise, an increase
has been recorded in the Cerromatoso production of ferronickel, as well as in gold,
platinum and emerald mining that, while maintaining relatively sustained productionlevels, have shown some peaks induced by rises and falls in international prices.
The dynamism of the mining industry is witnessed mostly in foreign investment
oriented towards the sector and in the international trade or its products. In 2004, themining sector attracted 43.5% of foreign investments flows into the country, andColombian mining sales accounted for 20% of the total country’s exports.
TABLE 4. Major Mining Activity Indicators
INDICATOR
UNIT
2000
2001
2002
Mining GDP (without hydrocarbons)
US$ Million
1,375
1,555
1,539
Share in national GDP
%
1.90
2.03
1.90
Mining exports
US$ Million
1,411
1,556
1,524
Share in total exports
%
10.75
12.64
12.80
Foreign Direct Investment in mining
US$ Million
507
524
466
Share in total FDI
%
21.16
20.74
22.05
Source: DANE, Banco de la República (the Central Bank), DNP, UPME
* Figures as of the third quarter

2003p
2,176
2.53
2,630
20.25
627
35.00

2004*
2,105
2.58
2,645
20.17
922
43.53

The mining activity in the country is being carried out by the private sector and its
development has influenced and fostered to a great extent the involvement of major
foreign investors like Drummond, BHP Billiton, Glencore, Amcoal, y Rio Tinto, all ofthem having implemented large-scale exploitation/development projects.

10US$ Million

FIGURE 3. Foreign Direct Investment (FDI) in the Mining Sector

1.000

50,00%

800

40,00%

600

30,00%

400

20,00%

200

10,00%

0,00%

0

-200

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
p
p III trim

FDI in Mining Flow

-10,00%Share in total FDI

Source: Balance of Payments, Banco de la República (Central Bank)

The growth in the international trade of Colombian mining products is essentially
supported and sustained by its major sales of coal, ferronickel and precious metals.
The country is exporting about 40 raw-mineral products and over 10 other productswith added value from industrial transformation processes. In addition, among the firstgroup of exports, platinum and ornamental (marble and granite) stones stand out,
while the most important in the second group are cement, ceramics, coke, and jewelry
products.
FIGURE 4. Mineral Exports
25,00%

3.000,02.500,0

20,00%

US$ Million

2.000,0
15,00%
1.500,0
10,00%
1.000,0
5,00%

500,0

0,00%

19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00

0,0

Mining Exports

Source: Dane, UPME Calculations

11

Share in total exports

Regarding national production, although the historical share of the mining sector(without hydrocarbons) in the GDP has not been high in percent terms, a remarkableincrease has been seen in the past few years to the extent that, in 2003, it was thesector having recorded the highest growth index. The main production lines in the
Colombian mining activity are coal, ferronickel, and gold.
FIGURE 5. Historical contribution of mineral products to the mining GDP

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%

19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
0
20 1
02
20 p
03
p
20
04

0%

Coal

Metalic Minerals

Non Metalic Minerals

TABLE 5. Major mineral production
MINERALUNIDADt x 103

Coal
Thousand Karats
Emeralds*
Ferronickelt
Iron mineral
t
Gold
Kg.
SilverKg.
Platinum
Kg.
Source: UPME,* Pertains to export data** First semester, 2004

2000
38,242
8,453
27,730660,10937,018
7,970
339

2001
43,911
5,499
38,438636,837
21,813
7,242
673

12

2002
39,484
5,391
43,978688,106
20,823
6,986
661

2003
50,028
8,963
47,868625,00246,515
9,511
828

2004**
25,854
4,523
24,475334,077
15,696
3,874
496

II. INSTRUMENTS FOR FOREIGN INVESTMENT AS APPLICABLETO MINING
The Colombian State is committed to the consolidation of those comparativeadvantages enabling it to compete in favorable conditions in attracting foreign
investment into the country in order to make the best use of the geological-mining
potential of its territory. Likewise, the necessary administrative reforms have been
carried out to dismount the so-called “Entrepreneurial State” and reduce the state
investments in the mining sector down to those required for the basic soil-exploration
phase; the objective is bringing private capital and technology for the development of
the subsequent phases of the mining cycle.

1. THE INVESTMENT REGULATORY SYSTEMIn Colombia, foreign and national investors enjoy the same treatment.
The Colombian Government does not impose special conditions or discriminatory rules
upon foreign investors. Foreign investment is welcome in all the economic sectors,
excluding those relating to national defense and security or in connection with theprocessing or disposal of toxic, dangerous or radioactive waste not produced in the
country.
The general regime for investment of foreign capital in Colombia is established in
Decree 2080 of 20008 issued by the National Planning Department (DNP) as amended,
and with the additions introduced by Decree 1844 of 2003. Although the rules
contained in these decrees apply to all foreign investment forms, some of them areapplicable solely to mining.
In Colombia, foreign direct investment, FDI can be destined to the acquisition of
stakes, shares, social quotas, contributions representing a company’s capital,
compulsory convertible bonds, right in/on equity constituted by mercantile trust, realestate, construction projects, property funds, contributions to agreements such as
cooperation, concession, and/or administration services, and license or transference oftechnology contracts, among others.9
The major methods through which direct investment of foreign capital can be made areimports of foreign exchange freely convertible into the national currency and importsof tangible goods such as machinery, equipment and other physical assets, as well as
contributions in kind to a business or company’s capital. Likewise, contributions in
national currency can be made in those amounts relating to the right of making
remittances destined abroad as relating to interest on external credits, amounts due
for reimbursable imports, profits entitled to drawing rights, and royalties deriving fromagreements or contracts.

89Additional information can be consulted at www.dnp.gov.co/02_SEC/INVERSIE/Inv_ext.htm
Complete information about rules for foreign investment in Colombia can be found at www.coinvertir.org.co

13

TABLE 6. Rules and Regulations relating to Foreign Investment
RULING
Political Constitution of Colombia, Articles 150,
189, 371, 372, and 373
Act 09 de 1991 10
Act 31 de 1992 Idem Article 17
Act 685 de 2001 Idem Title Sixth
Decree 1735 of 1993 11
Decree 2520 of 1993 Idem
Decree 1295 of 1996 Idem
Decree 2080 of 2000 of the DNP 12
Central Bank * Board of Directors’ External
Resolution 8 of 200013
Central Bank* Board of Directors’ External
Resolution 9 of 2000 14
Central Bank* Circular Letter DCIN-31 of June
200015Central Bank* Statutory External Circular Letter
DCIN - 04 of January 20019
International Investment Statute

Decree 1844 de 200316
Central Bank* Circular Letter DCIN - 83 ofNovember 2003 9*Banco de la República

TITLE / MATTERInternational exchange master act
Central Bank (Banco de la República) law.
The Mining Code (Código de Minas), mining economic and social
aspects
Regulatory of Act [Ley] of 1991
Regulatory of Act [Ley] of 31 of 1992
About foreign investment
General regime for investments of foreign capital in Colombia andof Colombian capital abroad
Regime for International Exchange, superseding External
Resolution 21 of 1993
Amending External Resolution [Resolución Externa] 8 of 2000
International Exchange Manual (“Manual de Cambios
Internacionales”) published on June 8 2000. Amended in part by
the Statutory External Circula Letter DCIN - 04 of January 5 2001
Supersedes in whole the statutory external circular letters DCIN -01
of January 12 1999 and DCIN - 2 of January 27 1999
Formed by: CONPES Resolution 51 of 1991 as amended:
Conpes Resolutions 52 of 1991, 53, 55, 56, and 57 of 1992 and 60
of 1993, and Decrees 2348 of 1993 and 98, 1812, 2012, 2764 of
1994 and 517 of 1995, 1295 of 1996, 1874 of 1998 and 241 of
1999
Whereby amendments were introduced to the international
investment regime
Amending the exchange and the foreign investment regime

Special Regime for the Mining Sector17
For the mining sector, a special foreign investment regime, more flexible and favorable
than the general regulatory system is applicable, in the light of certain particular aspects
taken into consideration.
For instance, foreign capital investment destined to activities such as mineral exploration,
exploitation/development, benefit, and transformation (as well as investments made bytechnical service companies) are granted the privilege of being exclusively subject tocompliance with the rules set forth in the Mining Code, and to the terms and conditions of
the relevant contract made between the foreign investor and the mining authority.

10

See www.secretariasenado.gov.co/compendio_legislativo.HTM
See www.banrep.gov.co/regimen/d1735934.htm
12
See http://juriscol.banrep.gov.co:1025/basisjurid_docs/legislacion/normas_buscar_cont.html
13
See www.banrep.gov.co/regimen/resoluciones/Res8-2000.pdf
14
See www.banrep.gov.co/regimen/resoluciones/re9200.pdf
15
See www.banrep.gov.co/cambios/cir31/cir04/home4.htm
16
See www.banrep.gov.co/regimen/decreto1844-03.pdf
17
The general regime for foreign capital investment in the hydrocarbon and mining sector is subject to therules of Title III, Chapter II of Decree 2080 of 2000.
11

14

Likewise, the branches of foreign companies carrying out coal, ferronickel and uranium
exploration and exploitation/development activities are not obliged to reenter or return
into the country foreign currency deriving from their exports. However, they must refund
the necessary portion required by them to meet their expenses in Colombian currency.
In addition, both national and foreign companies carrying out these types of activities
may enter into and pay agreements or contracts entered between them in any foreign
currency.
Investment Registration
All capital investments from abroad must be registered with the Central Bank [“Banco
de la República”]: This condition is necessary in foreign investors being allowed toexercise the foreign exchange rights conferred on them by law, such as: remitting
and/or reinvesting profits, or retaining/withholding undistributed earnings, as well as
those relating to the remittance of alienation or disposal proceeds, and/or moneys
deriving from liquidations or capital reductions.
Investors or their proxies, or the legal representative of the recipient company, mustregister their investment within three (3) months from the date it was actually made.
Generally, as a rule, foreign investment registration is automatic upon submission of
the foreign exchange declaration for international investments with the intermediary of
the exchange market, or upon payment into account, and the preparation of theexchange declaration if the foreign currency is channeled through current exchange
equalization accounts.
When the same company that has foreign capital investment in the hydrocarbon and themining sector develops in addition within the sector other or several economic activities
to which different exchange rules apply, it must provide accurate evidence to the Central
Bank of all profits generated in each accounting period for each one of any such activities,
by means of generally approved accounting procedures allowing full identification of eachactivity’s assets and liabilities, and the relevant investment. In these cases, neither assets
nor liabilities common to the different activities will be accepted.
Foreign Investment Protection
Investments made by foreigners in the country may be object of the benefits offered
by international organizations like the Overseas Private Investment Corporation OPIC(an entity engaged in promoting investments made by the United States in thedeveloping
countries
throughfinancinginvestment
projects
includinginsurance/protection against risks such as foreign currency inconvertibility,
expropriation, and political violence), or the Multilateral Investments Guarantees
Agency MIGA, an institution that grants guarantees against non-commercial risks suchas foreign currency inconvertibility, discriminatory expropriation, war, and civil
disturbances.
In addition, the Colombian law allows investors to agree on settling their contingent
controversies through international arbitration procedures. For this purpose, theColombian Congress has ratified the constitutive agreement of the ICSID, theinternational center for the solution of investment-related disputes, in order to haveaccess to an agile conciliation and arbitration mechanism at the international level.

152. THE TAX REGULATORY SYSTEM

18

The following table describes the current taxes relating to foreign investments in the
country:
TABLE 7. General Taxes
Tax

Rate

Remarks
•
•
•
•
•
•
•
•

Income38.5%

Remittances
VAT

7%
16%

Tariffs
Net Worth/
CapitalFinancial
Transactions

5-15%
0,3 %

•
•

4/1000•Tax shield : 5 years
Depreciation: straight-line method in general. Moderate acceleration schemesDeferred tax amortization: Within a maximum 5-year termTax exempt unproductive period, applied to great mining activities
For occasional gains: the same rate established for the income tax is applied.
On foreign company’s dividends, it is deferred if reinvested.
Regulated by Act 788 of 2002.
The VAT paid on temporary imports of heavy machinery for base industry (including mining) as
well as relating to inputs designed to produce export goods, may be deducted from income
taxes.
Exempt for export-destined inputs (“Plan Vallejo”), among others.
On equity or net worth above 3,000 million Colombian pesos, it shall be paid during years 2004,
2005, and 2006.
In 2007, the rate shall be three per thousand (3/1000).

There are other lower encumbrances of either regional or local nature; the mostcommon among them is the industry and commerce tax, for which the tax base is theincome value while the rate of taxation is assessed by each municipality within thefollowing limits established by law, and the real estate tax on landed property locatedwithin the territory of the relevant municipality.

Compensation and Taxes on the Mining Activity
The Colombian State, as an economic compensation for the good use made by a
private individual of national mineral resources, receives certain royalties of obligatory
nature that are paid as a percentage of the value or amount of the mining production
estimated at the edge or in the mouth of the mine. This rate, as applicable forroyalties, as well as the method used for settlement and readjustments of the same,
shall be those in force at the time of the execution of the concession contract, andshall apply during the entire contractual term.19
In addition, a surface canon is charged during the exploration and assembly stages. In
the exploration phase, it is paid exclusively on the area retained for continued
exploration purposes.

18
The text of the Tax Law [Estatuto Tributario] (Decree 624 of 1989) and of its implementation rules can be
consulted at www.dian.gov.co
19
Article 228 of the Mining Code, “Royalty Stability”

16TABLE 8. Taxes on Mining
Tax

Rate

Royalties

1-12%

Surface canon

1 to 3 mdw

Additional
Remunerations

Characteristics or Observations
Gold and silver
Platinum
Emeralds
Coal

4% The rate is 6% for alluvium with concession contracts.
5%4%10%, for exploitation/developments over 3 million tons.
5%, for lessNickel
12% on the price less 75% of costs
Other
1-12% (limestone(s), gypsums, clays, and gravels 1%, metal mineral 5%,
Non-metal minerals 3%, salt 12%, radioactive minerals 10%).
Applies during the exploration phase. Its amount depends on the area size.
A minimum daily wage in force (mdwif) for areas of up to 2000 Ha (approximately
US$4.00/ha), two mdwif for areas between 2000 and 5000 Ha (approximately US$8.00/Ha),
three mdwif for areas between 5000 and 1000 Ha (approximately US$12.00/ha)
For bids on areas where the State has invested in exploration. Considerations/remunerations
are defined in the bidding forms.

3. TAX AND CUSTOMS INCENTIVES TO MINING
Some particular tax rules have been established to facilitate and motivate thedevelopment of mining activities in the country, like the following:
Table 9. Tax and Customs Incentives
Incentive

Main features

Exemption from the obligation ofrefunding foreign currency for exports

Special exchange treatment to foreign investment in hydrocarbons and mining with respect
to the refunding of currencies originating in/from exports.
• For imports of machinery, technical equipment and their accessories, materials andspare parts destined to the mining exploration and exploitation, development, benefit,
transformation and transportation activity or to oil exploration and hydrocarbon
exploitation/development, transportation through pipelines, and refining.
• Capital goods intended to be used in the exploration of small auriferous units.

Tariff Exemption•

VAT exemptions

Income tax base deductions

Imports of machinery not being produced in the country to be made by leading
exporting companies (60% of sales) and destined to raw-material transformation.
• Temporary imports of heavy machinery (includes supplementary or accessory elementsof main equipment) for the mining industry.
• Sales and imports of:o Natural sulfur
o Natural calcium phosphates (tricalcium phosphates or Phosphorites) whether groundor noto Coal, briquettes, ovate and analogous solid fuels obtained from coals.
o Cokes, coal, lignite or peat semi-cokes, whether agglomerated or not.
• Royalties paid for mineral resource exploitation/development.
• The VAT paid on machinery purchases by the producers of goods excluded from thetax in the taxable year during which the machinery has been purchased or imported.
• The VAT paid for imports of heavy machinery for mining.
• Necessary investments made with respect to mines and oils and relating to mineacquisition or exploitation/development costs, other than those made in lands ordepreciable goods (in both development and non-producing areas, either continuous ordiscontinuous).
• Thirty percent (30%) of the amount of effective investments made solely in productive
real fixed assets acquired, even with the method of financial leasing with irrevocable
option to purchase.

17

Presumptive income exemption

Tax exemption for investments inreforestation
Further flexibility in the costamortization system

The presumptive income concept applied to all economic activities was eliminated by the
Mining Code Art. 233, Act 685 of 2001) with respect to mining.
From the total amount of liquid assets of the immediately preceding year, which serves as abasis to assess presumptive income, deduction can be made of the net worth of goods orproperties directly connected to enterprises the exclusive corporate purpose of which shallbe mining other than the exploitation of liquid and gaseous hydrocarbons.
Investments exceeding 5% of mining exports, destined for reforestation purposes, will be
exempt from any taxes (Mining Code, Art. 235)
For tax purposes, a cost amortization method was established according to mining
exploration and development risks (Art. 236 of the Mining Code).

4. INCENTIVES TO EXPORTS
Colombia has entered into several commercial/trade agreements under which thecountry has been granted tariff preferences for access to international markets: To theUnited States, by virtue of the Andean Trade Promotion and Drug Eradication Act(ATPDEA). To Europe through the Andean Generalized Preferences System (“SGPAndino”); to the Andean economic community (“CAN”); and to Venezuela and Mexico
within the G-3 Free Trade Agreement, all of them granting a privileged access of its
exports to these markets and constituting an important competitive advantage for thecountry.
The most recent partial free trade agreement was signed by Colombia and the CAN
countries with the MERCOSUR, the Latin America’s southern community market.
In addition, Colombia continues its ALCA negotiations as well as those relating to abilateral free trade treaty with the United States.
On the other hand, other mechanisms such as the free trade zones (“zonas francas” ZF) and the special export economic areas (“zonas económicas especiales deexportación”) or ZEEEs have been created to promote investments in activities focusedon purposes like, for instance, exporting goods and services as well.
The ZFs are areas in certain national localities where the government has establishedtax, exchange, and customs incentives as a mechanism intended to promote processes
for the industrialization of goods and services primarily destined to external markets.
These zones are quite proper for the purposes of developing methods serving to add
value to gross mineral products.
Some of the benefits of the ZFs, among others, are: Exemption from payment ofincome and complementary taxes. No withholding taxes on payments on account andtransfers abroad, which, in addition, are not subject to income taxes and remittances;
Exemption from all import duties for imported goods. Prerogatives for trade orcommercialization of all kind of foreign currencies, with no obligation to refund thoseobtained in commercial/business operations.
The ZEEEs belong in certain Colombian border territories where the national
government has created varied incentives to the establishment of new companies andenterprises, including mining, willing to focus most part of their production towards theinternational markets. These enterprises are exempt from the payment of income
taxes on earnings deriving from sales at external markets, and their payments oradvances abroad shall not be subject to remittance or withholding taxes. Likewise,
they can enjoy the same benefits granted by the ZFs in terms of customs privileges,

18such as full exemption of customs duties, freedom to enter goods, and fast andsimplified formality procedures for the introduction of commodities in the country.
In addition, special regimes have been established, mainly in fiscal terms, for certain
Colombian zones affected by natural phenomena, i.e. “Quimbaya Act”, and others like
Plan Vallejo.

5. THE LABOR CODE REGIME
The following are the major types of work contracts envisaged by the Colombian law asapplicable to the mining activity are the following:- Fixed-term contract, made in writing for a duration not to exceed three years, which
can be extended by the parties for an indefinite term
- Contract per work, executed for the time or duration of a specific work or task
assigned to the contractor.
- Indefinite-term contract, where the duration of the work or labor relationship is not
stipulated, and no connection is established with an occasional work or task.
If a mining concessionaire or grantee employs foreign and national workers, it has to
pay Colombian personnel overall no less than seventy per cent (70%) of the total
amount of the payroll of specialists, directors or trust and reliance staff, and no lessthan eighty per cent of (80%) of the amount of the ordinary workers’ payroll.
Foreign employees have the same rights and obligations established for Colombian
workers; however, if they sign a work contract in Colombia, both the employee and theemployer have to meet certain additional obligations, such as having a temporary visa
in the contractual category, which can be valid for a period of up to two (2) years.
Upon having obtained their visa, foreigners have to fulfill the necessary formalities toobtaining their foreigner identity card with the Security Administrative Department DAS.20.

20

Mayor información en www.das.gov.co/extranjeria

19

ANNEX 1
GOVERNMENT ENTITIES IN CHARGE OF THE MINING SECTOR
The functions of the Colombian Government entities relating to the Mining Sector are
summarized below:
The Ministry of Mines and Energy [“Ministerio de Minas y Energía”] (MME) isthe guiding entity of the country’s national mining policies to be included by it into the
National Mining Development Plan and other administrative acts.
Web page: www.minminas.gov.co
The General Mining Authority [“Dirección General de Minas”] is the MME
subordinate office in charge of directing and articulating the sector policy along withthe regulations regarding the environment, ethnic minorities, and other mining-related
matters.
The Mining-Energy Planning Unit [“Unidad de Planeación Minero Energética”],(UPME) is responsible, among other functions, of the formulation and updating of the
National Mining Development Plan [“Plan Nacional de Desarrollo Minero”], andproviding support to the MME in the definition of policies relating to the mining sector
development.
In addition, it integrates and administers the Colombian Mining
Information System, “SIMCO”, i.e.: the information relating either directly or indirectly
to the mining activity: the geological-mining potential, the mining cadastre, the legal,
fiscal, socioeconomic, institutional, and environmental frameworks; and, likewise, theinfrastructure elements, and national and international statistics. This system is an
essential tool for the sector development planning, as well as for mining investors’decision-making purposes.
Webpage: www.upme.gov.co
The Colombian Geology and Mining Institute [“Instituto Colombiano deGeología y Minería”] -INGEOMINAS, is the administrator of mineral resources andincludes, among its several functions, the following: Basic exploration designed to
identify both the potential and the restrictions inherent to the geological conditions of
the Colombian territory subsoil, as well as the promotion of exploration andexploitation/development of the national mining resources. Likewise, theadministration of mining resources - as delegated by the MME -, along with the steps
and procedures leading to facilitate the introduction of capital and technology required
to place the Colombian mining industry in a sustainable development position ineconomic, social, and environmental terms.
The activities performed by INGEOMINAS are distributed as follows in two large
mission areas:o Geological Service. It performs the necessary geological, geochemical andgeophysical surveys required to generate geological subsoil-integrated
models and categorize mineral, water, and geothermal resources
according to their characteristics. In addition, it collects, compiles,
validates, stores, and supplies geological-mining information available inthe country on an automated basis, and according to international.
o Mining Service. It carries out the mining contracting processes, administers
the mining registry system, and audits/controls the activity in a constructive
fashion.
Webpage: www.ingeominas.gov.co20

LIMITATIONS FOR THE USE OF THE TERRITORY IN MINING ACTIVITES
1. Mining Excluded Zones
Zone Type

Categories
National Natural Park

Areas in the
System of
National Natural
Parks

Jurisdiction
MAVDT

National Natural
Reserve
Way of the
Flora and Fauna"Parque Santuario" deFl
F Protected
Regional
CARs
Area

Regional NaturalPark

National Forest
Reserves (Act [Ley]
2/59)

MAVDT

National Protective
Forest Reserves

MAVDT

Regional Forest
Reserves

CARs

Mining Activity
In zones being declared anddelimited as national natural park
areas, no exploration andexploitation/development works areallowed.

Observations

In principle, mining activities are
Act 685/01, Art. The regional park figure has not been regulated
prohibited within zones having been 34 Act 99/93
by the MAVDT.
declared as regional parks
Art. 31, num 16

Mining activities in Forest Reserves
are subject to permit or special
authorization obtained from theenvironmental authority

Forest Reserve

The interested entity or person shall submit all
studies or surveys showing the compatibility ofmining activities with the forest reserve zone
Decree 2811/ 74 purposes or objectives, in order for the
Decree 877/76, environmental authority to decree the subtractionof the requested area and authorized any such
Art,7
activities either on a restricted basis or mainly by
given extraction methods and systems not
Act 99/93 Art,
affecting or harming the forest reserve
31, Num 16

MME

These are special reserved zones as Act 685/01, Art. In these zones, subsistence, illegal, informal, anddelimited by the national government 31 y 248
traditional hand-operated mining activities
for social or economic reasons,Dec. 2200/01
prevail. These populations have a low quality ofwhere environmentally sustainable Dec. 1494/03
life, a high index of unsatisfied needs, and a poor
mining projects are carried out, as
well as those relating to the use ofsocial structure contributing to affect public order.
renewable natural resources or forSpecial established Reserves: Six (6) as follows:
welfare purposes for the benefit of
Department of Bolívar: Municipalities of Arenal, Río Viejo (2);the population engaged in or linked
Montecristo and Tisquisio (2). One (1) at the Department ofwith the mining activity.
Antioquia: Municipalities of Remedios and Segovia. And one(1) at the Department of Norte de Santander: Municipalities
of Bochalema, San Cayetano and Cúcuta.

MME

Indigenous communities take
Act 685/01, Arts. The mining authority delimits exclusive mining
precedence in being granted
122,124 and 127 zones within the indigenous territories as based
concessions by the mining
on technical and social studies. The indigenous
authorities on deposits located inauthority may establish mining restraining zones
these zones. Proposals submitted byprivate persons with respect to
exploration andexploitation/development of minerals
within an indigenous zone shall bedecided upon and resolved with theconcurrence of the relevant native
community.

MME

Black communities take precedence Act 685/01, Art.
in being granted concessions by the 131
mining authorities on deposits
located in these zones. Proposals
submitted by private persons withrespect to exploration andexploitation/development of minerals
within these mineral zones shall bedecided pon and resol ed ith theIndistinctly, indigenous groups and Act 685/01, Art.
black communities take precedence 134
in the granting of mining

Special Mining
Reserves

Reserved Mining
Zones
Indigenous Mining Zone

Black Communities'
Mining Zone

MME
Mixed Mining Zone

Rules

Act 685/01, Arts. 34 Zones of potential mining interest willing to be
and 39.
Act incorporated into the National Natural Park
2811/74 Arts. 327 to System must be delimited by the environmental
authority as based on technical, social, and
336 Decree
environmental studies, and with the assistance of
622/77the mining authority.

21

The mining authority delimits black community
mining zones at their request, within wastelandareas located by rivers or lakes, or at plots
allocated by the INCORA (the Agrarian Reform
Institute) to a given black community as collective
property.

2. Zones with restrictions imposed upon Mining
Various
Zones ofarchaeological, historic,
or cultural interest

Mining activities can be carried out if Act 685/01, Art. 35, The term "relevant authorities" includes bothmining, environmental and any other authorities
authorized by the relevant authorities par. c. Sent.C
responsible for taking care of the archaeological,
339/02historic, and cultural heritage

Beaches, low tidezones, and river ways

DIMAR
(The Maritime
Authority)

Mining activities can be carried out if Ley 685/01, Art.
authorized by the relevant authorities 35, paragraph d.

Areas within cityboundaries

Municipal
Councils

Mining activities can be carried out if Act 685/01, Art.
approved by a municipal agreement 35, paragrapha. Sent. C
in accordance with the relevant
339/02Territorial Planning Plan

Zones ofSpecific Interest
Constructed rural areas Plot
with orchards, gardens, Owner/Holder
plots

Areas occupied bypublic works or
assigned to utilities

Other Protected Integrated
Regional Areas Management District,
Soil Preservation
District

Although, generally, mining is prohibited within cityboundaries, this prohibition is subject to local
environmental and territorial planning rules inforce.

Mining activities can be carried out Act 685/01, Art.
with the owner or holder consent and 35, paragraph b.
provided they do not constitute any
threats to the inhabitants' health or
integrity.

Responsible
EntityMining works can be carried out if
permit is given by the responsible
entity or person.

Act 685/01, Art. Rules and standards applicable to the work(s) or
35, paragraph e. service shall not be incompatible with the mining
activity

Corporations

At the Integrated Management
Districts, mining activities arefeasible with a special permit.
special. At the Soil Preservation
Districts, mining activities are notallowed since they contradict the
purposes for which they werecreatedAct 2811/74 , Art Districts shall be geographically delimited in orderfor the mining authority to keep this information
310, 324 Act
99/93
Art, 31, available at the mining registry office.
Departmental (provincial) and municipal councils
Num. 16,
Decree 1974/89 have created new natural resource preservationand protection figures not envisaged in the current
Law.

Any owner/holder of a Civil Society's Natural
Reserve must obtain a register or license with the
MAVDTProtected
Private Areas

Civil Society' Natural
Reserves

The uses of the civil society natural
reserves are not regulated

Act 99/94
Arts.109 and
110 Decree
1996/99

Zones of
National
EcologicalInterest

Zones non-compatible MAVDTwith construction
material mining in the
Sabana (grasslands) ofBogotá

Mining activities in the Sabana de
Bogotá is subject to prior survey ofmining-compatible zones

Act 99/93 Art. 61 For the determination of mining-compatible zones
at the Sabana de Bogotá, these areas shall first
Res. 222/94
be geographically delimited by the environmental
Res. 1277/96
Res.803/99 Act authority as based on technical, social, and685/01, Art, 34 environmental studies with the assistance of themining authority

Acronyms: MME = Ministry of Mines and Energy. MAVDT = Ministry of the Environment, Housing, and Territorial Development. CARs = Regional Autonomous
Corporations.

22