3. PRINCIPLES OF THE FOREIGN INVESTMENT REGIME 3.1 EQUAL TREATMENT 3.2 UNIVERSALITY 3.3 AUTOMATIC NATURE 3.4 STABILITY

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1 FOREIGN INVESTMENT 1. INTRODUCTION 2. FOREIGN INVESTMENT 3. PRINCIPLES OF THE FOREIGN INVESTMENT REGIME 3.1 EQUAL TREATMENT 3.2 UNIVERSALITY 3.3 AUTOMATIC NATURE 3.4 STABILITY 4. TYPES OF FOREIGN INVESTMENT 4.1 DIRECT FOREIGN INVESTMENT 4.2 PORTFOLIO INVESTMENT 5. INVESTMENT METHODS 6. SPECIAL REGIMES GOVERNING FOREIGN INVESTMENT 6.1 FINANCIAL AND INSURANCE SECTOR 6.2 HYDROCARBONS AND MINING SECTOR 6.3 TELEVISION SECTOR 7. FOREIGN INVESTMENT REGISTRATION 8. FOREIGN INVESTMENT AND OWNERSHIP RIGHTS 9. FOREIGN INVESTMENT REGISTRATION PROCEDURE 10. INTERNATIONAL TREATIES ON FOREIGN INVESTMENT PROTECTION 10.1 OVERSEAS PRIVATE INVESTMENT CORPORATION -OPIC MULTILATERAL INVESTMENT GUARANTEE AGENCY -MIGA INTERNATIONAL CENTER FOR THE SETTLEMENT OF INVESTMENT DISPUTES -ICSID ANDEAN DEVELOPMENT CORPORATION CAF 11. OTHER RELEVANT ASPECTS 11.1 TECHNOLOGICAL TRANSFER CONTRACTS 11.2 ARBITRATION 11.3 LEGAL STABILITY AGREEMENTS 12. APPLICABLE LEGISLATION

2 FOREIGN INVESTMENT 1. INTRODUCTION This chapter presents the main fundamentals of the Colombian foreign investment regime, describing the regime's key principles, the various types and forms of investments that can be made in the country, and the corresponding requirements. Finally, it mentions some special regimes that govern the financial & insurance, hydrocarbon & mining, and television sectors, the international foreign investment protection treaties that Colombia is a party to, and other relevant aspects such as those pertaining to technological transfer contracts and arbitration. 2. FOREIGN INVESTMENT Any investment of capital from abroad, whether direct or in a portfolio, that is made in Colombian territory, including Colombian free trade areas, by non-colombian residents, is considered to be a foreign investment. For the Colombian foreign exchange regime, loans and operations implying foreign indebtedness do not constitute foreign investment. Any individual or company holding a foreign direct or portfolio investment is considered to be a foreign capital investor. Investors from countries comprised by the Andean Community of Nations -CAN- are considered as national investors, for the purposes of qualifying their companies. It is presumed that a person shown as a foreign investor in the various forms used for registration with Banco de la República (Colombian Central Bank) is a non-resident. Nevertheless, all such persons must keep the documents evidencing their non-resident status 3. PRINCIPLES OF THE FOREIGN INVESTMENT REGIME 3.1 EQUAL TREATMENT Foreign investments are treated the same as national investments. Therefore, the imposition of discriminatory conditions or treatments that may imply more favorable conditions for foreign investments are not admitted. 3.2 UNIVERSALITY Foreign investment is welcome in all sectors of the economy, except in the following cases: Activities in the area of national defense and security; Management, processing and disposal of toxic, hazardous or radioactive waste not produced in the country; Concessionaries of open television services, where foreign investment may not exceed 40% of the concessionary's corporate capital; and

3 Private Security and Vigilance Companies 3.3 AUTOMATIC NATURE Foreign investment does not require prior authorization, except when made in the above-mentioned special regimes, as well as investments in the financial sector, which in some cases require the prior authorization of the Financial Superintendence. Investments in the hydrocarbon and mining sector as well as portfolio investments are subject to a special regime for which investors must normally apply. This area will be dealt with in more detail later on in this chapter. 3.4 STABILITY Investment reimbursement and profit remittance conditions in force on the date on which investments are registered may not be modified in any way that may be detrimental to the investor, except on a temporary basis, when the country's international reserves fall below the three-month imports mark. 4. TYPES OF FOREIGN INVESTMENT The Colombian legislation contemplates two types of foreign investment: direct foreign investment and portfolio investment. 4.1 DIRECT FOREIGN INVESTMENT A direct foreign investment is an investment made to: a) Acquire interests, shares, corporate quotas, bonds required to be converted into shares or any other contribution representing an interest share in the capital stock of a company; b) Acquire rights in autonomous equities created through a merchant trust contract as a means to develop a company or for the purchase, sale and management of interest shares in companies not registered in the National Record of Securities and Issuers; c) Acquire real estate, stock certificates in real estate securitization processes or real estate funds, through either public or private offers; d) Acquire contributions through deeds and contracts when such deeds and contracts do not represent a direct interest share in the company's capital and the returns generated by the investment depend on the company's profits. That is the case of technological transfer, collaboration, concession, administrative service and licensing contracts; e) Make investments in branches created in Colombia by foreign corporations, investing in the branch's assigned capital or as a supplementary capital investment (additional to the initially assigned capital); and f) Acquire participations in private capital funds.

4 4.2 PORTFOLIO INVESTMENT A Portfolio investment is that which is made through foreign investment funds in stocks, bonds required to be converted to stock, and other securities registered in the National Record of Securities and Issuers (RNVE). These funds are defined as capitals organized under any system (through merchant trust contracts, trusts, custody or other analogue contracts) in Colombia or abroad, with resources contributed by one or more entities, or foreign individuals or corporations, with the purpose of investing in the public securities market. Therefore, if acquiring shares, they are subject to the rules governing public offerings for acquisition by local investors, without prejudice to the rules applicable to the specific types of investments. They are managed by an international manager and a local manager (trust companies and stock-exchange brokers). The latter is responsible for representing the fund regarding all investment-related matters, and for ensuring that all legal and regulatory applicable provisions are complied with. Foreign capital investment funds may be of two types: Institutional funds: those whose resources come from private or public placements of quotas or participation units abroad and whose main purpose is to invest in world capital markets. Omnibus funds (those organized as undivided interest collective accounts with regard to an institutional investor's capital) are also considered institutional funds. Such funds may operate in Colombia once the local manager files with the Financial Superintendence the documents required by the regulations governing each fund, and once the funds obtain a Tax Identification Number (NIT, for its acronym in Spanish). Individual funds: those investing in negotiable securities in the public securities market to funnel surplus liquidity, without this being their main purpose. The creation of this type of funds does not require any special authorization, except those required by the provisions governing local managers. 5. INVESTMENT METHODS In Colombia, foreign investment may be made through various methods: a) In cash, by importing foreign currency to be converted to local currency, whether to invest directly in a company's corporate capital or to acquire from third parties their rights and/or shares in existing companies; b) In kind, through either tangible or intangible assets. In the former case (tangible assets), the contribution is made through a non-reimbursable importation of machinery, equipment or other physical goods to be contributed to a company's capital. In the latter case (intangible assets), the contribution to a company's assets may consist of technological contributions, trademarks or patents, among others; c) By capitalizing resources in local currency with a right to be drawn abroad, such as: amounts transferred abroad for external loans, reimbursable imports, profits with

5 drawing rights, royalties accrued for trademark and patent licensing agreements and, in general, technological transfer contracts entered into with foreign parties and registered with the appropriate national authorities; d) Resources in Colombian currency from local credit operations with credit establishments, aimed at acquiring shares sold through the public securities' market. 6. SPECIAL REGIMES GOVERNING FOREIGN INVESTMENT 6.1 FINANCIAL AND INSURANCE SECTOR According to the regulations governing the financial and insurance sector (Decree 663 of 1993 known as the Organic Statute of the Financial System), both national and foreign investors must obtain prior authorization from the Financial Superintendence in the following cases: a) To acquire 10% or more of the subscribed shares, the capital or the net worth of any entity subject to the supervision of the Financial Superintendence, through one single operation or through several operations aimed at increasing such percentage. b) To acquire, directly or indirectly, 5% or more of the subscribed shares or of share-convertible bonds of a State-owned financial company that is in the process of being privatized. Such authorization is also required by an investor who already has a percentage equal or greater than the said percentage, and such percentage grows as a consequence of the operation. c) In the case of investments in this type of entities, through foreign investment funds aimed at acquiring over 5% of the voting stock of the corresponding entity. Financial activities in Colombia are deemed to be of public interest and therefore they can only be carried out upon the prior authorization of the State according to the requirements set forth by law, and are subject to the inspection, oversight and control of the Government through the Financial Superintendence. Institutions belonging to the financial and insurance sector and which thus must be supervised by the Financial Superintendence must be incorporated as stock corporations or as cooperative associations. Additionally, these entities may be subject to the control of the Financial Superintendence, if they issue or place stocks in the Public Securities Market. 6.2 HYDROCARBONS AND MINING SECTOR Foreign capital investments in oil and natural gas exploration and exploitation projects; in hydrocarbon refining, transportation and distribution projects; and in projects aimed at exploring, exploiting, processing and transforming minerals, are subject to the rules governing such activities and, when applicable, to the conditions set forth under the corresponding contracts between the contracting state agency and the foreign investor. It is worth clarifying that depending on the specific destination of the foreign investments made in this sector, there may be differences regarding the applicable

6 general regime, for foreign exchange matters. Foreign company branches devoted exclusively to activities in this sector such as: exploration and exploitation of oil, natural gas, coal, ferronickel or uranium, or devoted exclusively to providing technical services for oil exploration and exploitation, are not required to bring back to Colombia the foreign exchange resources obtained as a result of their sales in foreign currency. Nevertheless, in order to cover their expenses in local currency, they must bring back whatever funds are required therefor. By contrast, all other companies not covered by this exception must always bring back any foreign exchange obtained from their sales in foreign currencies. In turn, these branches may not acquire foreign currency in the foreign exchange market for any reason, even if to pay for their expenses abroad such as imports, debt service or services rendered by residents abroad. All their obligations abroad must be paid by the head office and are treated as supplementary contributions to the capital initially assigned to the branch. Imported assets are not reimbursable. On the other hand, national companies with foreign capital investments and devoted to the exploration and exploitation of oil, natural gas, coal, ferronickel or uranium, as well as companies classified by the Ministry of Mines and Energy as being exclusively devoted to the hydrocarbons sector and rendering services inherent to such sector, may enter into and pay contracts in foreign currency among themselves. 6.3 TELEVISION SECTOR In television concessionary companies and private operators of open television services at the national level, foreign investment is limited to 40% of the concessionary's total corporate capital. Additionally, there are other two requirements for foreign investments in this field: in the first place, the investor's country of origin must offer Colombian companies the same possibility of investment under reciprocal conditions. In the second place, the investment must imply technological transfer, to be valuated by the National Television Commission. 7. FOREIGN INVESTMENT REGISTRATION All foreign investments, regardless of its type or method, must be registered with the Central Bank (Banco de la República) as a condition for the foreign investor to be able to exercise the foreign exchange rights conferred thereto by the law. At the time of funneling foreign capital portfolio investment into Colombia, the foreign investor is required to set up a deposit with the Central Bank, for an amount equivalent to fifty per cent (50%) of the investment amount, refundable after six (6) months. This is not applicable for investment funds. Notwithstanding the above, the deposit may be refunded before the due date, at the time of setting it up or subsequently, based on the following discount table: Months to due date Discount (%) 6 6,67 5 5,59

7 4 4,50 3 3,39 2 2,27 1 1,14 Investments in primary share issues and institutional funds are exempted from such deposit requirement. Institutional funds are capitals composed of shares or bonds mandatory convertible to shares of Colombian companies and received by a company in Colombia subject to the oversight of the Financial Superintendence, by virtue of a trust or similar agreement or contract, regarding which a financial institution abroad will issue securities representing such shares or bonds to be acquired by foreign capital investors. Once the investment is registered, the investor has the following foreign exchange rights: a) Remitting abroad proven net profits periodically generated by his investments; b) Reinvesting the profits or retaining as surplus any undistributed profits with drawing rights; c) Capitalizing any amounts bearing drawing rights, generated by investment-related obligations; d) Remitting abroad any amounts obtained from selling the investment in Colombia, or from liquidating the company or its portfolio based on the above-mentioned deposit, or from a capital reduction. 8. FOREIGN INVESTMENT AND OWNERSHIP RIGHTS IMC: Spanish abbreviation for Foreign Exchange Market Intermediary In Colombia, foreigners have the same rights as Colombian nationals, except for the restrictions expressly provided by the law. Therefore, foreigners can buy real estate in Colombia with no restrictions. Private ownership and other rights acquired may not be disavowed or breached by subsequent laws except for public utility or social interest reasons. In any case, expropriation for public utility or for social interest reasons is guaranteed to be conducted through a proper process and with adequate indemnification. 9. FOREIGN INVESTMENT REGISTRATION PROCEDURE The procedure to register a foreign investment is simple and it is conducted before the Central Bank by the foreign investor, his attorney, or the person representing his interests. Deadlines and conditions for registration vary depending on whether the investment is direct or in a portfolio, and on the way that it is made, as indicated hereunder. The general rule is that the registration of a foreign investment is automatic upon submitting

8 the foreign exchange statement for international investments (Central Bank Form No. 4) to the Foreign Exchange Market Intermediary or upon making the initial deposit in the account and preparing the foreign exchange statement, when the foreign currency is funneled through a clearing current account. In all other events, the registration requires submitting an application and the corresponding support documents to the Central Bank or submitting to the Central Bank the application plus evidence in the sense that all investment requirements have been met. The forms required to register foreign investments RNV may be downloaded from under the option of forms for foreign exchange operations. In the case of procedures with the Central Bank, the filed stamp or the acceptance of an electronic transmission of the forms and documents will constitute evidence in the sense that the registration was made or applied for, or that the registration was extended, or that information was reported. If necessary, the investor or his representative or the branch's representative may file for an extension of the deadline to register a foreign investment in any form other than that of foreign currency, by submitting to the Central Bank a duly supported request on Form No. 17, prior to the expiration of the initial deadline. Extensions may not extend the initial deadline by over three months. In cases involving sale of the investment to residents in the country, partial or total liquidation of the investment, capital reduction, reacquisition of stocks or interest shares, or sale of real estate property, the interested party shall be responsible for canceling the corresponding foreign investment record. Holders of foreign investment who sell or otherwise trade their investment must file with a commercial bank or other institutions authorized therefor, an income tax return statement, calculating and paying the tax accrued on the corresponding operation. Such income statement may be prepared and filed within the month following the date of the respective transaction or sale, through a proxy, agent or representative in Colombia, using the form corresponding to the immediately previous fiscal year or any other form authorized therefor. Filing the income tax return statement for each such operation is mandatory, even if no payable tax accrues as a result of such transaction. 10. INTERNATIONAL TREATIES ON FOREIGN INVESTMENT PROTECTION 10.1 OVERSEAS PRIVATE INVESTMENT CORPORATION -OPIC- Colombia is covered by the Overseas Private Investment Corporation -OPIC- since OPIC's purpose is to develop U.S.A. investments in developing countries. For such purpose, it finances and insures the investment projects to be contracted with any Colombian State agency against risks such as foreign currency inconvertibility, expropriation and political violence. Direct loans are reserved for small U.S. companies, and OPIC-guaranteed private capital funds serve as a catalyst for private sector activities in developing countries,

9 through investments in new companies or companies in the process of being enlarged or privatized. OPIC covers investments in several economic sectors, including infrastructure, manufacturing and financial services, and no minimum amounts are set for the investments to be covered MULTILATERAL INVESTMENT GUARANTEE AGENCY -MIGA- Since 1994, Colombia is a member of the Multilateral Investment Guaranty Agency - MIGA-, a World Bank agency. MIGA is a multilateral agency devoted to guaranteeing foreign investment against non-commercial risks such as foreign currency inconvertibility, discriminatory expropriation and similar measures, as well as contractual default by local governments, war and civil riots. Investment projects eligible to be covered by MIGA must be financially and economically feasible and environmentally safe, they must abide by international labor standards, and they must meet the minimum development goals of the investor country. MIGA insures investments throughout a broad range of industries and covers several types of investments. With certain exceptions under special circumstances, investors seeking MIGA coverage must be nationals of MIGA member countries, but from a country other than that where the project is to be developed. Eligible companies must be incorporated or have their main domicile in a MIGA member country. The main coverage under MIGA is provided for: a) Transfer restrictions and currency inconvertibility b) Expropriation c) War and civil riots d) Contractual default Since its creation, MIGA has guaranteed approximately 800 projects and has intervened in multiple conflict resolution cases between investors and local governments, thus allowing the projects to continue. In Colombia, six guarantee agreements have been issued, with a coverage of approximately US$ 255 million, to mitigate the risk of investors from the Netherlands, Spain and the United States, mainly in projects in the areas of: financial services (leasing and mortgages), telecommunications, electricity and mining INTERNATIONAL CENTER FOR THE SETTLEMENT OF INVESTMENT DISPUTES -ICSID- The Colombian Congress ratified the convention whereby the International Center for the Settlement of Investment Disputes -ICSID- was created, covering disputes between states and nationals of other states. This gave rise to this international conciliation and

10 arbitration mechanism. This center is aimed at solving conflicts arising between the parties, such as the foreign investor and the host State receiving the investment. The parties resort to this agency in search of solutions through arbitration and conciliation mechanisms. ICSID is aimed at protecting foreign investment by offering guaranties and security at the time of solving investment-related disputes ANDEAN DEVELOPMENT CORPORATION - CAF CAF entered into an agreement with AIG - Global Trade & Political Risk Insurance Company, whereby they created the Latin American Investment Guaranty Company («Compañía Latinoamericana de Garantías de Inversiones»), offering insurance policies against political risks and investment guaranties for external credit, foreign trade and capital investment operations. An agreement signed between CAF and AIG Insurance created the LAGIC (Latin American Investment Guarantee Company), with the purpose of offering political risk insurance and investment guarantees to allow financial institutions and private companies with interests in Latin America and the Caribbean to expand their businesses with confidence, protect them from unforeseen asset or investment losses, and offer shareholders, advisors, directors and managers peace of mind when authorizing deals or access to financing abroad. 11. OTHER RELEVANT ASPECTS 11.1 TECHNOLOGICAL TRANSFER CONTRACTS Technological transfer contracts must be registered with the Ministry of Trade, Industry and Tourism. Such registration will be automatic upon meeting the following requirements: a) Identification of the parties to the contract, indicating nationality and domicile, b) Identification of the way the imported technology will be transferred, c) Indication of the contract price of each item involved in the transfer of such technology, d) Indication of the contract duration. Additionally, the contracts may not establish conditions enabling the contracting party transferring the technology to fix the sales prices of the products to be manufactured based on the transferred technology, not may they contain clauses limiting the exportation of the products manufactured based on the transferred technology ARBITRATION The Colombian law allows private parties to resort to the arbitration mechanism to settle their disputes. The arbitration mechanism may be agreed upon under the contract, in which case the contract is understood to have an arbitration clause, but even if not previously agreed upon, the parties may resort to this mechanism in the event of a

11 dispute, in which case they are said to be compromising. Such arbitration may be independent (when the parties choose the applicable rules of procedure), institutional (when the procedure is established by the arbitration center) or legal (when the parties fail to reach an agreement, in which case it is necessary to apply the procedure foreseen by Colombian law). The parties are fully free to choose the arbitrators. Generally, each party chooses one arbitrator and the third one is chosen by mutual agreement. Contracts with State agencies may also be submitted to arbitration, in which case the arbitration will be at law (in all other cases, arbitration in equity is admitted) and the arbitrators will be at least three, except in the case of contracts involving small sums, where only one arbitrator is required. Additionally, the law allows disputes to be eventually submitted to international arbitration, provided that any one of the following conditions is met: a) That the parties be domiciled in different states. b) That the place for performance of a significant part of the obligations associated with the object under dispute be located in a State other than that in which the parties have their main domicile. c) That the matter to be submitted to arbitration involves the interests of more than one State and that the parties have so expressly agreed. d) That the dispute affects directly and unequivocally international trade interests. International arbitration shall abide by international treaties subscribed and ratified by Colombia, which prevail over internal regulations. The parties are free to agree on the applicable substantive and procedural rules LEGAL STABILITY AGREEMENTS The Colombian law established this type of agreements with the purpose of guaranteeing investors the permanence of the legal conditions prevailing at the time of making the investment. Such agreements guarantee the investors who sign them that if during the life of the agreement any of the rules identified in the agreement as a determining factor for the investment should be adversely amended, the investors will be entitled to continue to be governed by such rule throughout the life of the corresponding agreement (between 3 and 20 years). Foreign portfolio investments are excluded. The following are the requirements to enter into such an agreement: a) Make a new investment or increase an existing one for an amount equal to or above seven thousand five hundred minimum legal monthly salaries (7,500 SMLMV) (approximately US$ 1,955,508.50, based on a $1,800 reference rate of exchange). (Under new Law 1111, the investment amount is calculated at 150,000 UVTs. Since for 2008 a UVT is equivalent to $22,054, the total investment amount should be at least Col$3,308,100,000)

12 b) File with the Legal Stability Committee an application for such an agreement. The application must be filed along with a study showing the origin of the resources to be invested, and a detailed description of the activity, together with feasibility studies, drawings and technical studies required by the project, and an indication of the number of jobs to be generated by the project. c) Indicate the specific rules that were determining factors for the investment and which the investor requests not be modified during the life of the agreement. d) Pay the Government a premium equivalent to 1% of the investment to be made every year. Such premium will be reduced to 0.5% during unproductive periods. The above-described stability may not be granted in the case of rules pertaining to: a) Rights, guaranties and duties enshrined in the Constitution in pursuance of ratified international treaties; b) Social security regime c) Mandatory investments decreed by the Government under exceptional situations (states of emergency) d) Indirect taxes e) Rules that are declared unconstitutional or illegal during the life of the Legal Stability Agreements f) Rules issued by the Central Bank g) Prudential regulation of the financial sector h) Public utilities rate system i) Obligation to report and pay taxes 12. APPLICABLE LEGISLATION Law 45 of 1990 Decree Law 663 of 1993 Decree 2080 of 2000 Law 680 of 2001 Decree 1844 of 2003 Decree 4210 of 2004 Resolution 8 of 2000 issued by the Central Bank, as amended Regulatory Circular Letter DCIN 83 issued on December 15, 2005 by the Central Bank Decree 4474 of 2005 Law 963 of 2005 Decree 1940 of 2006 Decree 1888 Decree 1999

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