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Damalion Colombia desk

Doing business in Colombia

With a population of almost 52 million, Colombia is one of Latin America’s largest economies. Colombia offers an impressive domestic market, strong legal security, and an outstanding destination for start-ups and foreign entrepreneurs.

Foreign direct investment inflows to Colombia have become primary triggers for the country’s economic development, and for this reason, the country is devoted to business development. The country offers a range of opportunities, advantages, and protections for foreign investment and entrepreneurial success.

Colombia has a credible economic policy and there are various business opportunities within the different economic sectors of the country.

In addition, Colombia also actively answers to global challenges such as sustainable development. It has obvious and ambitious objectives in this regard, and this framework creates several investment opportunities in sustainability.

In essence, Colombia has one of the most dashing investment destinations in the world.

Advantages of doing business in Colombia

  • Colombia acts as a bridge between North and South America, and thanks to its privileged geographic location, it is the investment gateway to the Americas.
  • Colombia ranks low on the Numbeo Cost of Living Index, so this country has a very affordable cost of living.
  • Colombia’s democratic framework and institutions are powerful and independent and multinational indexes have positively assessed the country’s efforts to provide guarantees to entrepreneurs and investors.
  • Colombia ranks among the best Latin American countries in the Ease of Doing Business ranking, and this makes it a business-friendly country.
  • Colombia has a unique Free Trade Zone regime, and businesses located in Colombia can’t benefit from this free trade zone regime, which offers numerous incentives.
  • Colombia has put a series of attractive tax benefits that range from the reduction of income tax to several exemptions, in favor of companies
  • With the purpose of being a primary investment destination, Colombia has a broad window for foreign trade, with easy access to the global market.
  • In addition, the country is actively acknowledging international challenges such as sustainable and green development, in order to create a wide range of investment opportunities.
LEGAL SYSTEM

Colombia’s legal system is established on codes and laws as a result of civil legal traditions.

It’s a civil law country and its legal system does not recognize jurisprudence as part of its legal bodies, which means that court rulings are only critical for the parties involved instead of for everyone. The legislative authority in Colombia is the Congress, which makes law for the whole nation, and on specific occasions, particularly in high-profile cases where the matters are questionable, a court’s rendition of the law is just as vital as the written law itself.

Foreign investment

Colombia is welcoming of direct foreign investments, and prior governmental authorization isn’t required to formalize foreign investment, except for the unique regimes that cover the hydrocarbons, financial, and mining sectors.

In Colombia, foreign investors are subject to specific obligations, and the timely registration of any foreign investment with the Colombian Central Bank is necessary, as well as providing data on any changes to the investment.

Entity choice in Colombia

Under Colombian law, several types of business entities can be established by entrepreneurs looking to do business in Colombia. These entities include the following:

Colombian General partnership (Sociedad Colectiva)

This is a closed company where partners must govern the company themselves or appoint a third party to do so.

Features

  • It requires a minimum of 2 partners.
  • It Partners have subsidiary personal liability, and the partnership board is the highest corporate body.
  • Its partners must unanimously enact total or partial assignment of participation in the company or the possibility for partners to carry out related lines of business on their own.

Colombian Limited partnership (Sociedad en Comandita Simple y por Acciones)

In Colombia, this is a company type, in which partners can be managing or limited partners.

Features

  • Each partner has varied levels of liability, voting rights, functions, and responsibilities in the company.
  • It is a hybrid type of company.
  • There are two types of limited partnerships. (I) simple limited partnership, where the partner’s contributions are determined as participation quota; and (ii) share limited partnership, where the partner’s contributions are determined as shares.

Colombian Limited liability company (Sociedad de Responsabilidad Limitada)

This is a hybrid type of company where partners can limit their responsibility to the number of their contributions, with specific exceptions.

Features

  • It is formed by partners instead of shareholders.
  • It requires a minimum of 2 partners and a maximum of 25,
  • No partners are not responsible considering the payment of debts and legal responsibilities
  • Its partners have voting rights based on the capital quotas that they possess.
  • It is overseen by a Board of partners, so no board of directors is required
  • The contribution of the partners must be completely paid at the outset of the registration process.
  • It requires a public deed for its incorporation, but the documents can stay private if the incorporator complies with specific requirements.

Colombian Corporation (Sociedad Anónima)

This is a company structure that is useful in situations where there are a large number of shareholders.

Features

  • It requires a Shareholder’s General Assembly, a legal representative, a board of directors, and a statutory auditor.
  • A minimum of five shareholders is required.
  • The shareholder’s liability is restricted only to the amount of the shareholders’ equity.
  • It must have a distinguished social purpose.
  • It is usually incorporated by a public deed, but the documents can stay private if the incorporator complies with specific requirements.

Colombian Simplified Joint stock company (Sociedad por Acciones Simplificada)

This is an adaptable type of commercial entity created under Colombian legislation.

Features

  • It requires a minimum of one shareholder.
  • It requires a Shareholder’s General Assembly and a legal representative.
  • Its shareholders have no personal liability
  • Its management duties can be performed by the legal representative assigned by the shareholder assembly.
  • It has a fast and easy incorporation process
  • It can make the articles of incorporation a private document.
  • It can participate in almost any business activity
  • It doesn’t require a board of directors

Branch office of a foreign company

A foreign branch office is an extension of a parent company, and both the back and foreign companies are viewed as the same legal entity.

Features

  • It is considered the same as its parent company
  • For tax and other bases, it is expected to have local accounting books.
  • It is considered a commercial establishment that must be registered using a public deed.
  • The foreign parent company board of directors and the legal representative in Colombia is authorized by the entity’s management and administration

Are you ready to register your company in Colombia? Contact your Damalion expert now.

BANKING

Colombia has a large and thriving banking industry. And as a result of this coupled with a specialized bank model, Colombia has different types of financial institutions depending on their economic activity:

  • General business which is governed by the banks.
  • Specialized financial institutions that handle corporate credit and investment banking and
  • Commercial financial institutions that govern the acquisition of consumer goods through financial leasing.

Of all of the Latin American countries, Colombia’s financial system has the best record in the insurance of foreign investment and it operates under the supervision of the Financial Superintendent.

Due to its best record in the protection of foreign investment, the presence of foreign banks in Colombia has intensified and this has enhanced competition and investment in Colombia’s financial sector.

Opening a bank account in Colombia

If you’re looking to join the many business-minded individuals who have already established themselves in Colombia, you will need to establish a financial life. For this, you’ll require a bank account.

You can’t open a Colombian bank account from abroad. You must go to the branch in person and submit the necessary documents. You will be required to present your passport and visa that ascertains you are a legal resident, in addition to an ID, proof of address, contact details of your employer (if you are employed), and proof of income. Once these are submitted, the bank account opening process would be fairly straightforward.

Most banks will give you a debit card and you will be granted mobile and online banking access too. You will also be required to make a minimum initial deposit that must be done at the time of the account opening.

It’s quite impossible to open a bank account outside the country but if you need a bank account before you reach the country, you could see whether any international organizations in your own country will open an account for you, then transfer it to a Colombian account later on. Irrespective of your choice, your Damalion expert is here for you. Contact us now and let us help.

IMMIGRATION

A very affordable cost of living, affordable and quality real estate, business friendliness, and many residency options. These are just a few of the reasons to live in beautiful Colombia.

The cost of living in Colombia is remarkably inexpensive, and the country is generally welcoming for individuals looking to move there. If you plan on moving to Colombia, you must obtain residency. Colombia is an incredible country, but just like any other country out there, you must go through a residency program in order to live in the country.

Residency options in Colombia

To obtain residency in Colombia beyond the three months authorized with a tourist visa, a foreign national must apply for a migrant visa. A migrant visa authorizes a stay in Colombia of up to three years and can be renewed when it expires. The different types of migrant visas in Colombia include the following:

  • Marriage view: this type of visa is for individuals who have a Colombian spouse and want to live with them.
  • Professional visa: this type of visa is for professionals or skilled workers whose level of technical competence is required in Colombia.
  • The religious visa: this visa type is for priests, nuns, or other religious individuals coming to Colombia to practice religion or help out at a religious facility.
  • The student visa: this type of visa is for individuals who are pursuing studies at a Colombian University.
  • Work: this visa type is for foreigners that have employment in Colombia.
  • Investment: this is for those who wish to make investment in Colombia. It can either be a property investment, or a monthly minimum wage investment.

Other types of visa types in Colombia include Mercosur, Stateless Person, Refugee, Parent, Promotion of Internationalization, Domestic Partnership, Business, Pensionista, and Freelancer Visas.

Out of all of these, the most common Residency option in Colombia is the Investor visa.

Colombia Investors visa is a Colombian residency visa. To acquire a Colombia investor visa, the applicant must invest at least 754,000,000 Pesos (USD 160,426). The investment can either be in stocks a corporation or property. The investment must also be a direct foreign investment.

Getting Colombian permanent residency

There are several ways to qualify for permanent residence in Colombia. One is having a migrant visa which is granted for 3 years, and at year 3 you can renew the visa if you still fit the initial standards. And after 5 years, you can apply for permanent residency. Another way is to invest 650 times the monthly minimum wage either in real estate or business. Also, you can apply for permanent residency if you are the parents of a child with Colombian nationality.

TAX REGIME

Taxation in Colombia is defined by the Congress of Colombia, and the Colombian tax system is administrated by the National Tax and Customs Directorship (Dirección de Impuestos y Aduanas Nacionales, DIAN).

The Colombian tax system includes taxes at the national and regional levels. National taxes apply to all individuals or legal entities with residency in the country, while regional taxes are specified by each department or municipality within the parameters defined by law.

Tax residence in Colombia

Resident individuals in Colombia are taxed on their worldwide income, while nonresidents are taxed on their Colombia-source income only.

An individual is considered a resident if he/she stays in Colombia for more than 6 months in the tax year or if the individual’s family is in Colombia but he/she is outside Colombia.

Types of taxes in Colombia

Corporate income tax and Dividends

This is a national tax imposed on profits derived from a company’s ordinary operations. Income tax (Impuesto a la renta y complementarios) must be paid by all corporations operating in Colombia at a rate of 35%. But for companies located in free trade zones that are industrial users of goods and services, the rate is 20%. Dividends are 10%.

Capital gains

The current capital gains tax rate is in Colombia 10%, and in the case of income from lotteries, prizes, and similar events, the rate is 20%.

Value-added tax (VAT)

Value-added tax refers to an indirect tax on sales and imports of goods, services provided in Colombia and overseas, gambling sales and operations, except for lotteries and online gambling, and sales or transfers of intangible assets related to industrial property. Three rates based on VAT include 0%, 5%, and 19%.

Consumption tax

This is an indirect tax imposed on the telecommunications, vehicles, and food and beverage sector, and its rates range from 2%, 4%, to 8%, and 16%.

Industry and Commerce Tax

This refers to a tax on industrial and commercial activities, or services provided in district jurisdictions by a taxpayer with or without a commercial institution. The taxable base is the total income of the taxpayer, and its rate varies, ranging from 0.2% to 1.4% of the company income, by this will depend on the activity or service involved.

Property tax

This is the tax charged annually on the right of ownership or possession of the real property in Colombia. This tax is specified and collected by the municipalities where the property is located, and the tax rate generally ranges between 0.3% and 1.6%, but if the land is not urbanized, a maximum rate of 3.3% might apply.

Double tax treaties

In order to avoid double taxation and prevent tax avoidance, Colombia has signed double taxation agreements with several jurisdictions.

Colombia has double tax treaties with the following countries: Bolivia, Canada, Chile, Czech Republic, Ecuador, France, India, Italy, Mexico, Peru, Portugal, South Korea, Spain, Switzerland, the United Kingdom, and Japan.

INTELLECTUAL PROPERTY

Intellectual property refers to a legal institution that insures intangible assets developed from intellectual creations and creative content, as well as their associated activities.

Intellectual property rights in Colombia are understood based on their registration in the SIC (Superintendence of Industry and Commerce), which is the authority for these issues in Colombia.

In Colombia, intellectual property is divided into the following categories:

Patents

  • Patents are right to solely exploit an invention and prevent third parties from exploiting it unless allowed by the holder of the patent.
  • Patents are granted in recognition of the investment and endeavor taken to create the invention, and it can be approved to protect goods or systems that are new, and involve a creative step.
  • To get a patent, an applicant must file a patent application and provide technical data about the invention.
  • The SIC is the qualified authority to register patents in Colombia
  • Patent registration authorizes the generation of profits around that invention for 20 years in Colombia when the applicant acquires this document, so the protection is granted for 20 years.

Trademarks

  • Trademark refers to a group of unique signs that identify and differentiate specific products or services on the market, such as names, symbols, colors, logos, etc.
  • The SIC is the administration in charge of registering trademarks in Colombia and is qualified to determine the violation of trademark rights about anti-competitive conduct.
  • In Colombia, unregistered trademarks are not granted protection unless they are well-recognized unique signs.
  • Trademark protection in Colombia is granted for 10 years and can be extended every 10 years for an endless period of time.
  • The registration of the trademark allows for limited use of the trademark, as well as its commercial use regarding the products and/or services for which it was granted.

Designs

  • Industrial design refers to the appearance of a product ensuing from any configuration of lines, a combination of colours, or any two-dimensional or three-dimensional external shape that doesn’t distort the purpose of the product.
  • Only new designs can be registered.
  • The SIC is the administration in charge of registering industrial designs in Colombia
  • Its protection is granted for ten years but cannot be renewed.

Copyright

  • Copyright protects the close relationship between the author and intellectual innovation, it is also one of the essential human rights constituted in the World Human Rights Declaration.
  • According to Colombian law, copyright insures the creation of literary and artistic works such as paintings, books, sculptures, films, databases, computer programs, and technical drawings, as well as interpretations, modifications, and mutations of other creations.
  • According to Colombian law, authors are authorized to have moral and economic rights. Moral rights grant the author rights to claim the authorship of the creation and to impede the modification of its work. Economic rights grant an exclusive right to influence or authorize the exploitation of the work.
  • Copyrights are not subject to compulsory registration. But, it can be registered with the National Copyright Administration in Colombia.
  • The protection of economic rights is active on the creation of the work and throughout the author’s life plus 80 extra years if the rights holder is an individual, but is 70 years for a legal entity, following the end of the calendar year in which the work was publicized.

Trade secrets

Trade secrets comprise any non-disclosed information that a person or a corporation owns, and it can be used in industrial, productive, or commercial activity. Trade secrets protection is active as long as the information remains a trade secret.

For more information regarding Intellectual Property in Colombia, contact your Damalion expert now.

LABOR AND EMPLOYMENT

Colombian labor laws acknowledge the policies established by the International Labor Organization and are regulated by the National Constitution and the Labor Code (Código Sustantivo del Trabajo). And irrespective of the context, Colombian employment laws highly favor employees.

Employment contracts in Colombia

Employees in Colombia must enter into a formal written contract with an employer. Employment contract must specify the nature of the services to be provided, in addition to other necessary information It must also be in writing.

If an employment contract is enforced in Colombia, the contract will be regulated by Colombian law, irrespective of any choice of law in the contract.

Types of employment contract in Colombia

  • Stated next are the different types of employment contracts to enter into while planning on working with a company in Colombia:
  • Indefinite-term contract: this is the most commonly used type of employment contract in Colombia. It has no defined length and must be in writing.
  • Fixed-term contract: this type of employment contract can be up to three years and can be extended indefinitely. It must also be in writing.
  • For a certain project or task: this type of employment contract must always be in writing. And it must set out the particular task and the length required.
  • Short-term contract: this type of contract is used for casual employment instead of regular company activities and it can be for no more than one month.

Employment benefits in Colombia

  • Working hours: in Colombia, the standard working week is 48 hours, which may be allocated over 6 days by initial agreement. These hours may be allocated from Monday to Saturday or Monday to Friday. The employer and employees can agree to extra hours, but overtime must be paid to regular workers. Also, daily overtime should not exceed two 2 hours for each day worked.
  • Minimum wage: in Colombia, the minimum wage for every year is determined at the end of the previous year, and is agreed upon between the government, employee labor unions, and employer unions
  • Vacations: Colombia employees are authorized 15 business days of vacation per year.
  • Sick leave: under Colombian law, if an employee cannot work due to illness, medical approval from a Colombian Social Security entity must be acquired for the employee to get paid for the days during which the employee couldn’t work.
  • Social security and pensions: under Colombian law, there is a social security payment, run by the Institute of Social Insurance, to which employers must pay into a common fund. Employees must contribute 25% of the payments and employers will contribute the remaining 75%.
  • Maternity and paternity leave: in Colombia, the statutory minimum maternity leave is 12 weeks, and this may be commenced 2 weeks before birth. But for medical reasons the mother can have 2 weeks before birth or 2 weeks before childbirth postpartum. Additionally, fathers may take up to 8 of paternity leave if they contribute the statutory minimum to the social security system.
  • Parents can also distribute or share between them the last 6 weeks of maternity leave.
  • Healthcare: Colombian employers must pay 12.5% of employees’ salaries to healthcare security funds, which are primarily private organizations. 8.5% will be covered by the employer, and the remaining 4% by the employee.

So, are you thinking of entering the Colombia market?

Are you interested in entering the Colombian market? Damalion is here for you. Damalion assists entrepreneurs and investors in establishing themselves in Colombia. Our experts are skilled in providing several integral business solutions, including entity management, compliance, accounting, payroll support, taxation, and many more across the country.

If you wish to learn more about our services and how we can assist you in making your Colombian company a success, contact us today.

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