Colombia: a strategic ally for international business

With US$665 billions, Colombia´s economy is larger than Switzerland´s in PPP terms.

With more than 48 million inhabitants, Colombia is the 3rd most populated country in Latin
America.

Sound Macroeconomics. In the last 40 years Colombia grew at a 4% CAGR, and more
importantly, with minimum volatility.

Colombia was officially invited on May 2013 to become member of the OECD and is an
investment-grade country according to the top three risk-assessment firms in the world (S&P,
Fitch, and Moody’s confirm this).

The PPP per capita income has doubled from US$6,621 in 2000 to US$13,480 in 2014, and the
middle class passed from 16% of the population to 25% in just ten years.

Four years in a row as one of the world´s top 30 destinations for FDI.

Colombia is a large and dynamic economy, projected to be a leader in Latin America in terms of
economic growth

The Colombian economy has grown on average by 4.5% in the past six years (2010-2015).

In 2015, the country’s economy grew 3.1%, more than the average growth for Latin America
and the Caribbean (-0.1%).

In 2015, the economy registered a growth rate of 3.1% due to the financial institutions sector
(4.3%); commerce, restaurants and hotels (4.1%); and construction (3.9%).

During the second quarter of 2016, Colombia’s GDP grew 2% compared to the same quarter
in 2015 (3.1%). This figure was higher than other countries in the region such as Mexico
(1.5%) and Chile (1.3%).

The Colombian economy registered a growth rate of 2% during the second quarter of 2016
due to the manufacturing sector (6%), financial services (4.6%), social services (2.3%),
commerce, restaurants and hotels (1.4%), construction (1%) and transport, storage and
communications (0.1%).

1
In the first half of 2016, Colombia´s GDP grew 2.3% compared to the same period of 2015,
when it registered a 2.9% growth rate.

The International Monetary Fund (IMF) projected that the Colombian economy will grow by
2.5% in 2016, beating countries such as Mexico (2.4%), Chile (1.5%), Argentina (-1,0%), Brazil
(-3.8%), Venezuela (-8.0%) and the average for the region (-0.5%).

According to Fedesarrollo, in 2016, the construction sector will lead to the economic growth
of the country with a growth rate of 6.3%. Manufacturing and financial institutions sectors
will also participate in the increase of Colombia’s GDP with a growth rate of 4.0%.

For 2016, Fedesarrollo forecasts that the departments with higher expected average growth
are: Boyacá (10.9%), Santander (10.9%), Bogotá (3.6%), Cundinamarca (3.6%) and Antioquia
(3.1%).

GDP per capita (PPP) in Colombia has doubled going from US$6,621 in 2000 to US$13,450 in
2014.

According to IMF estimates, Colombia’s GDP per capita (PPP) will reach US$16,942 in 2020.

In 2015, the country recorded US$12,108 million of inward FDI, a decrease of 25.8%
compared to the FDI recorded during 2014 (US$16,325 million).

Although FDI in sectors different from oil & mining decreased 15%, significant growths rates
were reported in the commerce, restaurants and hotels sector (65.8%); communal services
(28.4%); construction (13.7%); and agriculture (8.1%).

In 2015, 70.3% of FDI in Colombia were assigned to different sectors than oil & mining, such
as: manufacturing (28.3%); financial services (24.7%); commerce, restaurants and hotels
(21.8%); and construction (8.9%).

During the first quarter of 2016, the country recorded US$4,568 million of inward FDI, an
increase of 44.5% compared to the first quarter of 2015 (US$3,160 million).
In the first quarter of 2016, FDI different from oil and mining increased 159.2% over the same
quarter in 2015. Significant growths rates were reported in the electricity, gas and water
sector (which went from US$29 million to US$2,437 million), construction sector (76.8%) and
community services sector (25.8%).

2
 In 2000 – 2015, the main investor countries in Colombia were: United States (21.6% share);
Panama (12.9%); England (12.8%); Spain (8.6%); and Switzerland (6.2%).

The stock of investment flows from Colombia to the world has grown 13-fold since 2000.

In 2015, Colombia recorded US$4,218 million of outward FDI, mainly to commerce,

restaurants and hotels sector (37.4% share); oil & mining (33.6%); electricity, gas and water
(20.5%); financial services (10.1%); and manufacturing (10%).

In the first quarter of 2016, the country recorded US$974.4 million of outward FDI, an
increase of 314.6% compared to the outward FDI recorded during the first quarter of 2015
(US$235 million).

In 2000 – 2015, the main destination countries of Colombian outward investment were:
United States (16.1% share), Panama (16.0%), England (13.0%) and Chile (9.4%).

During 2015, Colombian exports reached US$35,690 million, a decrease of 34.9% compared
to 2014 (US$54,795 million).

In 2015, Colombian imports recorded US$54,057 million, a decrease of 15.6% compared to

2014 (US$64,028 million).

Macroeconomic conditions in the country will continue its strong performance in the medium
term, creating a favorable business environment

In 2015, inflation in Colombia was 6.8%, lower than the figure projected for Brazil (9.3%),
Argentina (19.3%), Venezuela (190.0%), and the average for the region (11.2%).

In 2016, Fedesarrollo forecasts that inflation in Colombia will close at 4.2%, 3.1% in 2017 and
remain stable at 3% for 2018 and 2019.

In 2015, policies of Colombian government managed to place the unemployment rate below
two digits for third consecutive year, closing at 8.9%, a decrease of 0.2% compared to 2014.
In the past six years (2010-2015), the unemployment rate in Colombia has declined by 2.5
percentage points.

3
 During 2016-2020, IMF forecasts that the unemployment rate in Colombia will remain stable
around 8.9%.

Colombia was awarded the investment grade rating by the top three risk-assessment firms in
the world (S&P, Fitch, and Moody’s).

On December 2013, Fitch Ratings upgraded the long-term rating in foreign currency of the
Nation from BBB- to BBB and short term F3 to F2.

Moody’s improved Colombia's Outlook in July 2014 from Baa3 to Baa2, especially based on
the following: expectations of tax consolidation resulting from tax regulations, reduction of
public debt, a consistent and predictable macro-economic policy, and the country’s economic
resilience against external impacts.

Colombia (54th) appeared as the fourth most business-friendly destination in Latin America
according to Doing Business 2016, surpassing Panamá (58th), Brazil (116th), Ecuador (117nd),
and Argentina (121th).

Colombia is still a reference in Latin America due to the policy reforms enforced to improve
its business environment: since 2006 the country has enforced 30 policy reforms. In the past
year, 2 reforms that facilitated business on issues of property registration and obtaining credit
were implemented.

The middle class and its consumption potential in Colombia is rapidly expanding to reach half of
the total population in the next decade

The improved economic conditions of Colombian citizens pave the way to become a better
business destination.

Colombia is among the 30 most populated countries in the world (48.2 million inhabitants)
and the second among Spanish-speaking countries.

Between 2002 and 2015, poverty fell by more than 21 percentage points, reaching a rate of
27.8% in 2015.

The country’s middle class grew and now accounts for around 30.5% of Colombian population
in 2015. This dynamic has resulted in a reduction of inequality in the country1.

1 The GINI index, which measures inequality, decreased 5.2% between 2000 and 2013 (0.59 in 2000 to 0.54 in 2013).

4
 It is expected that Colombia’s middle class will represent 37% of the population in 2020 (19
million inhabitants) and 46% in 2025 (24.7 million inhabitants).

Private consumption is a key component in the prospects for economic growth. For 2016,
Fedesarrollo forecasts for private consumption a growth rate around 2.3%.

The country has ten cities with over 500,000 inhabitants and 27 with more than 250,000
inhabitants, which has helped to redistribute the country's growth and economic
development in intermediate cities. It is expected that by 2020, fourteen cities have more
than 500 thousand inhabitants.

Colombia has a qualified and competitive work force

According to the IMD ranking for 2015, Colombia has the best-trained labor force in South
America. Colombia beat countries such as Brazil, Chile, Peru, Argentina and Venezuela, among
others in the region.

With the aim to make job related-costs more flexible, the latest tax reform (Act 1607 of 2012)
removed certain payroll contributions, reducing job related-costs from 52% to 38.5%.

Colombia has a competitive location with easy access to markets around the globe

On December 2015, Colombia registered 1,084 direct international frequencies per week,
connecting 43 international destinations worldwide. 24 international airlines operate in the
country.

Colombia has one of the biggest networks of domestic flights in the region. On December
2015, the country registered more than 5,980 domestic flights.

According to Migration Colombia, in 2015, 2,288,3422 non-resident foreign travelers arrived

to Colombia, an increase of 16.3% compared to 2014. 79.4% of non-resident foreign travelers
visiting the country come from America.

2 Does not include Colombians living abroad or cruise passengers.

5
 In 2015, 19.5% of non-resident foreign travelers who visited Colombia were from United
States, 13.3% from Venezuela, 6.6% from Ecuador, 6.4% from Mexico, 6.0% from Brazil,
among others.

In 2015, hotel occupancy rate in Colombia was 55.4%, an increase of 2.4% compared to 2014.

During the last decade, Colombia strengthened the preferential access to a 1,500 million
consumer market

Colombia has 16 trade agreements3 in force, enabling preferential access to more than 60
countries and nearly 1,500 million consumers across markets including the United States, the
European Union, Brazil, Mexico, Chile, Peru, Costa Rica and South Korea; with new markets to
be added soon, like Israel and Panama, with which Colombia has signed agreements.

Colombia has 15 International Investment Agreements4 in force and 10 Double Taxation

Agreements5 in force with major trading partners to ensure a stable and favorable legal
framework for foreign investment.

Investment incentives in Colombia

Free Trade Zones:

Companies that operate under this regime are benefited with a special income tax rate (15%
instead of 25%), exemption of customs duties (VAT and tariffs) and simplified customs procedures.

Employment generation benefits:

Companies may deduct payroll taxes (between 4% and 9% of the payroll, depending of the salary
of the employee) from its income tax return when hiring employees that belong to one of the
following groups: new employees under 28 years old; refugees, disabled persons, women above

3 Trade agreements include: Free Trade Agreements (FTA), Complementary Economic Agreements (CEA) and regional
integration agreements.
FTA: Mexico, Chile, Northern Triangle, AELC, European Union, United States, Canada.
CEA: CARICOM and MERCOSUR.
Regional integration: CAN.
PTA: Venezuela, Cuba and Nicaragua.
4 International Investment Agreements include: Arrangements for the Promotion and Reciprocal Protection of

Investments - Spain, Switzerland, Peru, India, China, United Kingdom, Japan - and the FTA that include an investment
chapter - Mexico, Chile, Northern Triangle, Canada, United States, Pacific Alliance, Costa Rica and South Korea.
5 CAN, Canada, Chile, Spain, Mexico, Switzerland, India, South Korea, Portugal, Czech Republic.

6
40 years old that have been more than one year unemployed, new employees with incomes lower
than 1.5 minimum wages.

For the creation of new companies:

New companies with less than 50 employees and assets under USD 1.34 million (approximately),
can benefit from the progressive payment of income tax, as follows:

0% of the income tax rate during the first two years of operation.
25% of the income tax rate during the third year of operation.
Income Tax (25% rate) 50% of the income tax rate during the fourth year of operation.
75% of the income tax rate during the fifth year of operation.
100% of the income tax rate after the sixth year of operation.

Research, development and innovation incentives:

Companies that invest in R&D projects may deduct 175% of the amount invested from their
income tax return.

Tax exempt income:

Income arising from the following activities is tax exempt:

Domestic publishing companies which purpose is the publication of books, magazines,

booklets or serial collectable booklets of a scientific or cultural nature are exempt until 2033.

Payment of capital and interests, commissions and other fees associated with external public
credit transactions and the like is exempt from all national taxes, levies and contributions,
provided the recipient has no domicile or is not a Colombian resident.

The sale of electric power generated using wind based energy, biomass or agricultural waste
is exempt during fifteen years, provided the company itself undertakes the sale, and issues
and negotiates greenhouse gas reduction certificates.
The provision of fluvial transportation services with boats and slabs of shallow draught is
exempt during fifteen years as from 2003. Those boats and slabs which loaded depth is equal
to or less than 4.5 feet qualify as shallow draught.

7
Hotel services provided at new hotels built until December 31, 2017 are exempt during thirty
years, counted as from the beginning of operations.

Hotel services provided at hotels remodeled and/or enlarged until December 31, 2017 are
exempt during thirty years, in the proportion of the remodeling and/or enlargement in the
tax cost of the so remodeled or enlarged real estate.

Ecotourism services are exempt for twenty years from the date on which the operations
begins.

Income arising from investment in new forest plantations sawmills and timber-yielding tree
plantations are tax exempt.

Software created in Colombia and protected with new patents registered with the relevant
authorities, having a significant content of domestic scientific and technological research, are
exempt until December 31, 2018.

Yields arising from the stabilization reserve of retirement and severance fund administration
companies as set forth in section 1 of Decree 721 of 1994 are tax exempt.

Income obtained by new companies incorporated in, and effectively located and developing
its activities in the department Archipelago of San Andrés, Providencia and Santa Catalina ,
arising from the provision of tourism services, stockbreeding, fish farming, sea culture,
maintenance and repair of ships, health, data processing, call center, financial brokerage
service, technological development programs approved by Colciencias, education and
maquila activities are exempt provided the companies taking advantage of this exemption
hire under a labor agreement at least twenty employees and increase the job posts by 10%
per year, as compared to the number of employees of the immediately preceding year.

Payment of financial returns related to credit operations, insurances, reinsurances and other
financial activities carried out in the country by governmental financial entities and
cooperation agencies from countries that have signed a cooperation agreement in these
matters with Colombia.