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BILL NO. __________ 2007 (CONDENSED ARTICLES) By which the second housing free zones and other arrangements are set up to encourage the investment. REPUBLIC OF COLOMBIA CONGRESS DECREE GENERAL ARRANGEMENTS CHAPTER I FREE ZONE OF SECOND HOUSING IN COLOMBIA 1st Article: Purpose: Present law sets up the tax and special custom regulations in investment matters, establish Free Zones of second housing in Colombia, in order to generate employment, to develop geographical areas where they will be located, infrastructure improvement, demand of goods and services within Colombia territory and in general to contribute with economical and social development of the country.

CHAPTER II GENERAL DEFINITIONS 2nd Article: Free Zone of second housing in Colombia. The free zone of second housing is a continuous geographical area, determined and delimited within the national territory, suitable to be provided with utilities and infrastructure, in which projects of urban-tourist housing will be developed by national corporate or foreign branches destined to seasonally or permanently housing of retired and financial foreigners under special taxes and custom regulations. Paragraph 1: Investment in a Free Zone of second house must be equal or superior to USD 200 millions, availability or access to these resources must be accredited by the investor developer. He must guarantee it will be used under terms and conditions set forth in the construction project. Paragraph 2: Declaration of a Free Zone will be issued by the DIAN through a Resolution for a term of 20 years, extendable by the same time, certificated previously by local competent authorities that the area could be provided with utilities and infrastructure, and a concept about tourist

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convenience, viability and incidence issued by Commerce, Industry and Tourist Ministry. 3rd Article: Second housing Free Zones’ investors: For the purposes set forth in the law following are the investors of second housing: a) Retiree or capital rental investor: National or Foreign person no resident in Colombia, who purchase an apartment or house located in the Free Zone of second housing, destined to his permanent or transitory personal house, with possibility of renting it to tourists no residents in Colombia. b) Investor Developer: National legal person or a Branch in Colombia of a Foreign Corporate, whose corporate purpose is the construction, development and sales of their constructed buildings in Free Zones of second housing duly authorized by the Dian. The investor developer Corporate must be formed exclusively for this purpose, and it must be located and developing its economical activity only and exclusively in the authorized free zone. Paragraph: For development of the projects and sale of buildings the investor developer could sign commercial fiduciary contracts. 4th Article: Manager of a second housing free zone. It is the national legal person or branch in Colombia of a foreign corporate, which main purpose is the direction, management and supervision of one or several second housing free zones in Colombia. The rank of manager is acquired when the DIAN issued an authorization to act as such. The manager of a second housing Free Zone, could be at the same time an investor developer. For this purpose the Dian will emit a concept when issuing the declaration of a Free Zone, authorizing the investor developer to act also as manager. Government will set up regulations on this matter. 5th Article: For regulation of this chapter, national government should: 1. Determine the related delimitation, requirements, authorization, functioning, and management of the second housing free zone in Colombia 2. Set up mechanisms to verify, by the seller, the compliance of requirements and conditions to qualify the investors as beneficiaries of treatment enshrined in the present law, as well as the changes of holding on these investments. 3. Set up mechanisms to verify compliance of requirements and conditiosn to authorize the investor developers, as beneficiaries of treatment enshrined in the present law.

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TITTLE II TAX AND CUSTOM REGIME CHAPTER I TREATMENT OF INVESTORS 6th Article. Investor referred to in the literal a) of 3rd article of present law, who purchase apartments or houses located in second housing free zone, are excluded of presumptive income, it is not mandatory to declare income and complementaries in Colombia, neither they are payer of patrimonial tax, all of them related with that property, the house ware for first equipment, a car, an airplane, a sport or recreative boat under custom harmonized classification 89.03 destined to their personal use, introduced temporally in the Free Zone Paragraph 1. Retired or financial investors referred to in this law are not subject to income and complementaries taxes related to income for retirement and /or capital income earned abroad. Paragraph 2. Purchasing of a property in these free zone could be directly or through a commercial fiduciary contract, in which the constituent part must be the same beneficary. 7th Article. Income received by investor or his couple for concept of sale of his apartment or house in the free zone in Colombia, is not consider income neither occasional profit as long as those who carried out the payment have condition of retired or capital rental abroad. As well as, income received by these investors or his couple for concept of temporary rental of his apartment or house in the free zone in Colombia, is not consider income neither occasional profit as long as those who carried out the payment have condition of tourist no resident in Colombia. When they receive income or rental of a national source and a different nature to those mentioned above, and/or possessing other different property inside or outside of the free zone, they must comply with obligations of our tributary law about income and complementary tax and patrimonial tax related to these goods. 8th Article. Investor developers of a second housing free zone in Colombia will have following tributary treatment: Exemption of income and complementary tax on income received for sale of properties built in the free zone sold to investor referred to in literal a) Exemption of income and complementary tax on income received for rental of properties built in the free zone sold to tourist no residents in

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Colombia, received within 10 years following declaration of a authorized free zone. Investors referred to in this article must to carry separated accountings in which incomes are clearly identified in concept here stated and others incomes received for other different concepts.

9th Article. Investors referred to in the literal b) of article 3 of present law, could suscribe contracts of legal estability referred to in Law 963 of 2005. 10th Article. Article 240-a of tributary statute is added with following paragraph: Paragraph 2: 15% tariff referred to in this article may not apply concurrently with the deduction referred to in article 158-3 of this statute. CHAPTER II GOODS AND MERCHANDISE TREATMENT 11TH Article. Introduction: For purposes of the Custom statute and rules of Foreign Trade, entering to Free Zone only in respect of machinery and equipment destined to to infraestructure construction, and materials and property construction elements and goods destined to endowment of built properties of the Free Zone by investor developer, are not consider as an import. For same purposes, entering to this Free Zones, the first house ware for respective house, a car, an airplane, and a sprot or recreative boat, classified under harmonized custom Tariffs 89.03 destined to personal use of the investor referred in literal a) article 3, are not consider as an import. In other case, merchandise entered into these free zones must comply requirements and conditions of an ordinary import. Paragraph. The sale of goods or services that take place within these Free Zones will be subject to general regime about sales enshrined in the tributary statute. 12th Article. Following literal is added to article 481 of the tributary statuto. (g) the machinery and equipment destined to infraestructure construction, materials and the property construction elements, and goods destined to endowment of property built in the second housing Free Zone, that are sold from national custom area to the investor developer in that zone” 13th Article. For purpose of application of custom regime to second housing free zone in Colombia, the national government should:

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1.

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Set up controls to prevent that goods entered temporally to the free zone be entered into the rest of the national territory without complish with the legal regulations. 2. Determine arrangement conditions by which goods entered into these Free zones, could temporally enter to the rest of the national territory. 3. Set the rules regulating entering and exit of good from outside to second housing free zone or from the free zone to outside. 14th Article. Present law governs from its publication.
OSCAR IVAN ZULUAGA ESCOBAR Minister of Treasury and Public Credit LUIS GUILLERMO PLATA PAEZ Minister of Commerce, Industry and Tourism JUAN LOZANO RAMIREZ Environment, Housing, and territorial development