Colombia Seeks Foreign Investment to Expand Timberland Plantations

Colombia plans to double its cultivated acreage from one million to two million hectares by 2020, according to Rubén Darío Lizarralde, the country’s Minister of Agriculture and Rural Development. Lizarralde announced the planned expansion acreage on May 8 at a roundtable discussion on new opportunities available to Colombia under its free trade agreements, including one with the United States. 

Lizarralde sees timber plantations as a primary contributor to this expansion. Even more ambitiously, the government has announced a goal of 1.5 million hectares of planted timberland by 2025, significantly higher than the estimated 370,000 hectares of timberland plantations as of 2012. With its various altitudes and warm climate, Colombia has the potential to be a substantial destination for investment in teak, eucalyptus, pine and other species.

Following the recent abatement of security concerns in the country, Colombians have focused on attracting capital to finance long-delayed internal improvements. To achieve the government’s aggressive goals, Colombia must rely on private investment, much of which will have to come from foreign sources. The government currently has two primary tools applicable to timberland to meet its objectives: (i) direct reimbursement and subsidy of planting and growing expenses, and (ii) an exemption from income tax for new forestry plantations. As an example of its openness to foreign investment, the Colombian government does not exclude foreign-owned projects from these programs.

The direct reimbursement program, the Certificate of Forestry Incentive (known by its Spanish acronym “CIF”), provides a subsidy of up to 50% of the national average of plantation costs in year one, and of maintenance costs in years two through five, for qualifying new plantations on land that was not naturally forested during the previous five years. The average costs in the CIF program are determined on a per-species basis. In 2012, CIF payments were as high as $435 per hectare for plantation costs and as high as $116 per hectare for maintenance costs. The subsidies and reimbursements available each year depend on the total amount allocated to the program by law, the nature and density of the plantation, and the number of applicants during the annual registration process. An investor with a credible management plan for new plantations that can demonstrate its quality as a timberland manager can benefit from the CIF if approved by the Ministry of Agriculture.

Alternatively, investors can elect to qualify for the exemption from tax on income derived from new plantations made on or after January 1, 2003. This exemption cannot be combined with the CIF subsidy. Among other requirements, applicants must obtain a certificate acknowledging the new project from the local Autonomous Regional Corporation and register the project with the Ministry of Agriculture. This exemption does not have an expiration date. The government also hopes to increase interest in the program by increasing timber buyers’ capacity. New sawmills established to purchase timber harvested from new plantations can qualify for a similar exemption from income tax.

In addition, on May 22, the Ministry of Agriculture announced a plan to propose legislation that would formalize legal title to two million hectares of rural land that currently suffer from informal or dubious legal title. If the government is successful in this project, the legal certainty of ownership promises to expand opportunities for all types of agriculture, including timberland investments.

The Colombian government has proposed aggressive goals for the expansion of timberland plantations in the country and has committed substantial resources to achieving those goals. Timberland investors searching for new opportunities abroad will find a warm welcome in Colombia.

 

Topics:  Foreign Investment, Forestry, Free Trade Agreement, Income Taxes, International Tax Issues

Published In: Agriculture Updates, Finance & Banking Updates, International Trade Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sutherland Asbill & Brennan LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »