MEDICAL ISSN TOURISM SECTOR. Volume I No. 1 July 2009 Bogotá D.C.

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1 MEDICAL TOURISM SECTOR ISSN Volume I No. 1 July 2009 Bogotá D.C.

2 No matter which way you look at it, Colombia is your investment destination because we create everything with our best natural gift the Passion of Colombians. This document is constantly updated on its online version:

3 Table of Contents Preface Health Sector in Colombia Why Colombia is an opportunity to invest in Medical Tourism? Opportunities to Invest in Medical Tourism in Colombia Investment Incentives Related Entities Proexport Services Publishing Company: Fiducoldex - Fideicomiso Proexport Colombia Foreign Investment Office infoinversion@proexport.com.co Publisher: Schalma Diazgranados Abadía Foreign Investment Advisor Teléfono: +57 (1) Fax: +57 (1) sdiazgranados@proexport.com.co Cover Design: Sancho BBDO Printed in: Offset Gráfico Bogotá D.C., Colombia - July 2009 The digital version of this document can be found on:

4 Preface This is a great time to invest in Medical Tourism in Colombia We are experiencing a historical moment in growth and development. Years of innovation and top quality medical care have consolidated our health sector. We are ready to make the leap and become a worldwide health care provider. Your investment will help us reach this goal faster. Colombia offers unique conditions for your investment and a package of benefits specially designed to improve your business options, including the possibility of establishing a Free Trade Zone for Health Services, with excellent taxes and operations incentives. In this document you will discover our competitive advantages, our achievements over the years, the experiences of people who have dealt with us in the past and the benefits favoring your investment. You will also understand how Proexport can support you when you invest in Colombia and how we can help you consolidate a better project. Some of the reasons you will find in this document include: Colombia has the best health system in Latin America, and it is ranked 22 in the world. Colombia allocates 7.3% of its GDP and 13.9 % of its public expenditure to healthcare. Colombia is only 3 hours away by plane from Miami and less than 6 hours from New York, Washington, Houston, São Paulo, Mexico and Buenos Aires. In Colombia, medical procedures cost between 10% and 35% of the prices in the United States. Colombia has a history of medical innovation and achievement, resulting in the current international recognition of the country and its doctors. Colombia has 5% of the world market share in tourism for curative medicine. With our work plan we hope to reach between 20% and 30% of this share by The Pacemaker, Hakim s Valve and the vaccine against Malaria were invented in Colombia. The first trachea transplant in the world was also performed in Colombia. There are millions of reasons. Here we will only present a few ones so you can find the best opportunity of investment in Medical Tourism in Colombia.

5 Health Sector in Colombia 1Colombia has the best health system in Latin America and it is ranked 22 in the world. According to figures from the World Health Organization, the Colombian health system is one of the best in the developing world. It is at the same level as Sweden or Belgium, and in fact it is better than the health systems in the United States and Canada. Ranking of the Health Systems in the World 1. France 2. Italy 21. Belgium 22. Colombia 23. Sweden 25. Germany 30. Canada 33. Chile 36. Costa Rica 37. United Estates 39. Cuba 47. Thailand 61. Mexico 75. Argentina 125. Brazil Source: WHO World Health Report: Health Systems. Improving Performance.

6 The government provides great support to the healthcare system. Colombia allocates 7.3% of its GDP and 13.9% of its public expenditure to healthcare. Health Expenditure has grown systematically in Colombia over recent years, largely due to the commitment of the central government. The healthcare system in Colombia receives strong public investment ensuring its operation and outstanding coverage; the government provides 86% of the total expenditure for healthcare. Colombia allocates 7.5% of its GDP to health, one of the highest ratios in Latin America. Health Expenditure as Percentage of GDP (2008) Public Expenditure on Health (2008) Argentina 9.5% Colombia 85.8% Brazil 8.4% Peru 47.3% Colombia 7.3% Chile 47.1% Chile 7.1% Argentina 46.9% Mexico 6.6% Brazil 46.3% Peru 4.3% Mexico 45.5% Venezuela 3.9% Venezuela 42.9% Source: Economist Intelligence Unit and World Competitiveness Yearbook 2009.

7 Reforms in the healthcare sector have increased the coverage to 85% of the population, and life expectancy to 72.5 years Law 100 of 1993 reformed the healthcare sector increasing the coverage of healthcare services from 30% to 85%. Likewise, life expectancy -an indicator reflecting the quality of the healthcare sector in a country, increased from 68.2 to 72.5 years. Healthcare expenditure per capita has also increased. Expenditure in Healthcare and Life Expectancy USD per capita Coverage 85% Years Law 100 Reforms to the health sector Coverage 30% Health Expenditure (per Capita) Total life expectancy (years) Sources: EIU, Fedesarrollo. 63

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9 Why Colombia is an opportunity to invest in Medical Tourism? 2 Former football player Diego Armando Maradona underwent a gastric bypass surgery in Colombia to loose weight Source: BBC World 1 Colombia has outstanding connections for treating international patients Over 600 flights per week connect Colombia with North, Central and South America and Europe, and 30% of these flights arrive directly to cities like Medellín, Cali, Barranquilla, Cartagena and Bucaramanga so it is extremely easy to reach important medical centers in these cities. There are 187 flights a week directly to the United States. Colombia is only 3 hours away by plane from Miami and less than 6 hours from New York, Washington, Houston, Sao Paulo, Mexico and Buenos Aires Our strategic location near the United States, along with major Latin American capital cities, makes us the best option for treatment of the highest quality with only a very short trip from home. Flight times to Colombia 5:30 New York 3:00 Miami 4:30 Mexico City 1:40 Caracas 2:30 Lima 5:45 São Paulo 5:00 Santiago 6:10 Buenos Aires 1 BBC World. March 6, 2005.

10 Medical procedures in Colombia cost between 10% and 35% of the prices in the United States Costs in Colombia are among the most competitive in Latin America in terms of surgery, medical treatment and medication. It is possible to receive treatments for only 10% of the cost in the United States. Examples of Costs for Medical Procedures 2 Procedure (USD) Colombia United States India Mexico Thailand Costa Rica Kidney transplant Augmentation Mammoplasty Rhinoplasty Abdominoplasty Blepharoplasty $25,000 $2,600 $1,900 $3,000 $1,700 $120,000 $8,500 $6,500 $8,500 $7,500 $2,600 $2,100 $3,400 $1,850 $45,000 $5,000 $2,800 $4,500 $4,000 $5,700 $2,000 $4,000 $1,400 $2,700 $2,500 $4,000 $2,500 Entities receiving medical tourism patients have over 80% occupation, thus an opportunity for new investments A recent survey done by Proexport of leading institutions who receive Medical Tourism patients shows a high occupancy rate for beds, operating rooms and intensive care units, indicating an opportunity for new investments to take advantage of the good moment of the sector. 2 Costs may vary depending on the quality and infrastructure of the medical center. Average prices in tourism operators. Include surgery and post surgery treatment. Proexport estimates.

11 Average Occupation in Leading Entities in Medical Tourism 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 88% 84% 65% Beds Operating Rooms Intensive Care Units Source: Proexport: Survey of entities. Colombia has a history of medical innovation and achievement, resulting in the current international recognition of the country and its doctors Colombia has been a pioneer in healthcare service exports in Latin America. Entities like the Instituto Barraquer de América 3 founded in 1963, has a great name for treating international patients. Also Colombian medicine has achieved great innovations. Some of the innovations achieved in Colombia include: Heart Pacemaker. 1963, Dr. Jorge Reynolds Pombo Hakim Valve. 1964, Dr. Salomón Hakim Malaria Vaccine. 1986, Dr. Manuel Patarroyo 3 The Instituto Barraquer de América is one of the most famous optical surgery facilities in the world. It is recognized for its quality and innovation.

12 Colombia has also been the pioneer in high complexity surgeries: First trachea transplant in the world. 2003, Dr. Luis Fernando Tintinago. Second larynx transplant in the world. 2002, Dr. Luis Fernando Tintinago. First bone marrow transplant in Latin America. First liver transplant in Latin America. Medical Tourism is one of the industries with highest growth rate in the world. Over the next 3 years, 15 million North Americans will undergo procedures abroad. Medical Tourism is a fast growing industry throughout the world. In 2007, 750,000 Americans received treatment abroad and between 6 and 7 million are expected to do the same by Colombia has great potential to receive this flow due to its geographic proximity to the United States and because of remarkable cost differences. Million Patients 25 Patients from the United States who will Undergo Procedures Abroad Base Low estimate High estimate 4 Deloitte. Medical Tourism. Consumers in Search of Value. Source: Deloitte Development LLC

13 Colombia has 5% of the market share in tourism for curative medicine. With our work plan we hope to reach between 20% and 30% of this share by 2032 Medical Tourism seeking curative medicine carries around 80 thousand passengers per year in the world. Colombia attracts more than 4 thousand of them, but with the productive transformation program for the sector, it may reach between 20% and 30% of world tourism by Thousand Travelers 800 Medical Tourism for Curative Medicine Purposes in the World Low estimate High estimate Source: McKinsey & Company Colombia has agreements with international health insurance companies who send patients from abroad, pursuing top quality procedures at lower costs. Around 40% of the medical tourists seeking curative medicine arrive through agreements with international health insurance companies (HMO s). European insurance firms mainly Dutch based- having coverage in the Caribbean, consider Colombia as an alternative for their patients to receive first level treatment at a lower cost and shorter waiting times. 5 Estimates of McKinsey & Company.

14 Australian Pop Star Kylie Minogue underwent a dental whitening procedure in Colombia performed by dentist Christian Salazar Source: El Tiempo Newspaper,

15 3 Opportunities to Invest in Medical Tourism in Colombia There are four types of Medical Tourism with great investment potential: Curative Preventive Aesthetic Wellness Curative: Patients seeking medical treatment abroad for diseases they already have, as well as transplants or nonelective surgeries. Preventive: Patients trying to prevent potential diseases. In their country they have to wait for a long time to get an appointment or their costs are very high. This includes Executive Medical Check-Ups. Aesthetic: Patients wishing to undergo elective surgery, essentially to improve their looks. They are looking for better quality than the one available in their countries or lower costs. These include orthodoncy and dental esthetics. Wellness: Passengers who want to relax and have a change of routine. These include spas and tourism to thermal spring waters. Additionally investment in infrastructure supporting tourism of this type like special hotels, tailored services, training centers, tourist operators and rehabilitation centers also have a high chance of success. The famous sexologist from Puerto Rico, Alexandra Rampolla, had a successful bariatric surgery in Colombia with outstanding results Official website of Alexandra Rampolla

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17 4 Investment Incentives Colombia offers special characteristics that make us a great potential destination for your investment in tourism; particularly in terms of the incentives package we are offering to investors in the sector. Income tax exemption on: 30 years of income tax exemption for new hotels built between 2003 and Hotel services provided in hotels remodeled and/or expanded up to 2018, prorated to the amount that the cost of remodeling and/or expansion represents with regard to the total taxable cost of the remodeled or expanded piece of real estate, the tax exemption applies for a 30 years period. Ecotourism services, during 20 years beginning in Income Tax deductions Likewise, investors in the tourism sector are entitled to a 40% deduction on the amount of their investments made only in real fixed productive assets acquired. Special Free Trade Zone for Services The Free Trade Zone status is granted to an individual company undertaking a new investment project. In order to qualify, the company must meet one of the following investment and job creation ranges: Investment (in USD million) USD USD 11.4 USD USD 22.9 More than USD 22.9 Number of Direct Jobs The investment amounts required to obtain the Free Trade Zone status are calculated in Minimum Monthly Legal Wages (M.M.L.W.). This information is presented in dollars using a USD 1 = COP $2,000 exchange rate. For 2009, the M.M.L.W. is COP $496,900. The M.M.L.W., as well as the exchange rate, are subject to variations.

18 If the project is developed throughout various geographical areas, it may exceptionally apply to have such additional areas also declared as Special Free Trade Zones. Free Trade Zone enjoy the following legal benefits: Single Income tax rate of 15%. Customs Fees are not generated or paid (VAT, CUSTOMS TARIFFS), for merchandise brought from mainland. Value-Added Tax (VAT) Differential 10% VAT rate for hotel services. VAT exemption applicable to tourism services provided in Colombia to residents abroad through packages sold either in Colombia or by foreign agencies, operators or hotels registered with the Colombian national tourism registry. Special Import - Export System for Services: "Plan Vallejo" The investor can import capital goods that are used for providing the tourism service that is going to be exported with total or partial exempt from customs duties and deferred VAT payment. The tourism services that can be exported under this mechanism are the following according to the ISIC (International Standard Industrial Classification) adapted by Colombia: 6.9 Tourism services and those related to traveling, and lodging services (CPC classification 631), ISIC: 5511 Hotel, Hostel and Apartment - Hotel Lodging Holiday Centers and Camping Zones Lodging".

19 The enterprise that applies for the implementation of the Vallejo Plan acquires the following commitments: Export services worth at least 1.5 of the FOB price of the imported capital goods. Constitute a global guarantee of a bank or an insurance agency that is worth the 20% of the FOB price of the authorized imports in the program. Legal Stability Agreements Through these agreements, the Colombian Government guarantees investors that if during the life of a contract, legislation is passed adversely affecting any of the rules identified in the agreement as having been a determining factor to make the investment, they will be entitled to continue operating under the prior rule during the term of the corresponding agreement. The period of such agreements may vary between 3 and 20 years, and they may cover new investments or increases of existing ones for amounts equal to or above 150,000 UVT Units of Tax Value equivalent to COP $3.6 billion (approximately USD 1.8 million based on a COP$2,000 = USD 1 reference rate of exchange). The investor must pay the Government a premium equal to 1% of the amount of the investment made every year, or 0.5% thereof during non-productive periods.

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21 Frequently Asked Questions Which are the tax benefits for the tourists? Tourists living abroad benefit from VAT exemptions for the tourism packages sold in foreign countries. Foreign tourists may request reinstatement of 100% of the VAT for purchases of the following goods: confections, shoes, perfumes, leather goods, compact discs, hand crafts, liquor, and food for humans, toys, emeralds and Colombian handcraft jewelry. Tourists have a differential VAT rate of 10% for accommodation. Which are the tax benefits for the investors? Apart from the benefits mentioned, Investors can enjoy an income tax deduction up to 40% of the value of their investments in real productive fixed assets. Investors have the possibility of importing capital goods used to provide tourism services which are then exported, with total or partial suspension of the duty and they can defer payment of VAT. (Plan Vallejo for Services). Can a hotel open in a Free Trade Zone? A hotel may open in a permanent Free Trade Zone of Services and have an income tax rate of 15% and not pay VAT or duties for goods brought in from abroad.

22 Permanent Free Trade Zone of Services Various companies may open in a Free Trade Zone. All the companies must comply with the following ranges of investment and employment. Total Assets Less than 500 M.M.L.W. (USD ) 501 to 5,000 M.M.L.W. (USD USD 1.2 million) 5001 to 30,000 M.M.L.W. (USD 1.2 million - USD 7.5 million) Over 30,001 M.M.L.W. (USD 7.5 million) Investment None None 5,000 M.M.L.W. (USD 1.2 million) 11,500 M.M.L.W. (USD 2.9 million) Direct Jobs None Investment required having access to the Free Trade Zone benefits are calculated in Minimum Monthly Legal Wages (M.M.L.W.). The information is given in US Dollars, at an exchange rate of COP $ 2,000 = USD 1 and the minimum monthly legal wage for 2009 is COP $ 496,900. Both the M.M.L.W. and the exchange rate may vary. Current Investors These are some of the main entities working in Medical Tourism already operating in Colombia.

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24 5 WEB Related Entities ENTITY OFFICIAL TOURISM WEBSITE OF COLOMBIA PROEXPORT PRESIDENCY OF THE REPUBLIC MINISTRY OF TRADE, INDUSTRY AND TOURISM SOCIAL PROTECTION MINISTRY NATIONAL HEALTH SUPERINTENDENCY ASSOCIATION OF HOTELS OF COLOMBIA COLOMBIAN SOCIETY OF PLASTIC, AESTHETIC AND RECONSTRUCTIVE SURGERY COLOMBIAN SURGERY ASSOCIATION COLOMBIAN ASSOCIATION OF TRAVEL AGENCIES AND TOURISM PAGE

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26 6 Proexport Services World Class Services For Investors The Colombian government creates favorable conditions and offers the best support for investors. Proexport occupied position 16 in the list of the best Investment Promotion Agencies of the world and provides the following services to foreign investors: Information requests (economic, sector specific information, legal, procedural, etc.). Contacts with public and private sectors. Set up of agendas when investors decide to visit Colombia. Aftercare services for investors that are already established in the country. Assessment and improvement of business climate. All services are free of charge. The primary goal is to create an efficient and friendly process for the development of new businesses. All information will be handled with discretion. Proexport has Investment Promotion Teams in 21 cities around the world. We will be delighted to assist you.

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