Foreigner Starting a Business in Colombia: Legal Requirements and Practical Tips 

• In the present scenario, Colombia has become one of the top destinations for business owners wanting to expand their operations in Latin America. The movement of foreigners starting a business in Colombia has slowly started to gain momentum as the country is known for its strategic geographical location, developing economy, and business-friendly atmosphere. However, it is significant to understand the legal requirements and practical aspects of conducting business in Colombia in order to have a smooth setup. For entrepreneurs wanting to expand their business in Colombia, they will need to go through the Columbia company registration process. The following blog will act as a guide providing practical tips to a foreigner starting a business in Colombia.  

Regulatory Framework for Foreign Entrepreneurs 

• Before conducting business in Colombia, it is significant for foreign business owners to understand the legal structure as well as regulations that govern foreign investments. Here are some specific regulations that you need to follow: 

Equal treatment  

• The Colombian constitution has guaranteed equal treatment among foreign and domestic investors, which has prohibited discriminatory and preferential treatment. Colombia also offers national treatment to foreign investors; this implies that these are treated in the same manner as domestic investors in several sectors. This principle is also showcased in free trade agreements with major countries such as the USA, Canada, and the EU.  

Registration requirements  

• All foreign investments should be registered with the Central Bank (Banco de la Republica) to ensure access to the foreign exchange market for the repatriation of profits and capital. Foreign professionals should also register with the relevant professional council in order to practice in Colombia. This consists of submitting essential documents such as ID, proof of residence, and credited diplomas.  

Exchange controls 

• Colombia also has exchange controls, but they are relatively lenient. Transactions should be conducted effectively through authorized intermediaries, and all the investments should be registered with the Central Bank. Foreign investments are permitted to ensure most sectors except for defense and national security, along with the processing and disposal of toxic waste not produced in the country.  

Visa and Work Permits for Foreign Entrepreneurs in Colombia 

M-6 Business owner or shareholder visa 

• This visa is available for foreign business owners who want to invest in a new or existing business in Colombia. The nominal investment needed is 100 times the minimum monthly salary which is approximately Colombian Pesos 130,000,000 (which is around $33,333 USD). The visa is provided for up to three years and enables the holder to work exclusively in the company. After holding the M-6 visa for 5 years, business owners can apply for permanent residency.  

M-10 for Real estate or migrant visa 

• This visa is only available for those investing in real estate or other sectors that have specific investment requirements. It is similar to the M-6 visa and provides temporary residency which can easily be converted to permanent residency under specific conditions.  

Taxation System for Foreigners Starting a Business in Colombia 

Corporate income tax 

• The corporate income tax rate in Colombia is around 25%. However, there are also additional taxes and surcharges like a 4% surtax on financial income, which will increase the tax rate. Corporations are also taxed on the basis of their Colombia-source income. Non-resident companies that have a permanent establishment in Colombians are taxed based on income gained from the establishment.  

Withholding taxes 

• Dividends are paid to non-resident shareholders and are subjected to withholding tax of at least 5% if the recipient is a resident of a country with which Colombia has created a double taxation treaty. Withholding taxes are applied to interest and royalties that are paid to non-residents usually ranging from 5% to 20% based on the kind of income and applicable treaties.  

Tax compliance 

• Organizations should file annual tax returns and also follow periodic tax obligations like monthly VAT returns. Failure to follow these regulations will result in penalties and fines.  

VAT  

• The standardized VAT tax rate in Colombia is around 19%m with reduced rates for specific products and services (such as 5% for basic food items). Companies should also register for VAT if their annual turnover is more than COP $1,400,000,000 (which is around USD 360,000).  

Common Challenges for Foreigners Starting a Business in Colombia and How to Overcome Them 

Legal challenges 

• Challenge- The procedure of setting up a business in Colombia consists of complex legal formalities as well as regulatory compliance. This has proven to be an overwhelming and daunting task, especially for foreign business owners.  

• Solution- Organizations should engage with local lawyers and accountants who are well familiar with the Colombian regulatory framework. They can easily navigate your way through the registration process, get necessary permits, and ensure compliance with the local tax laws.  

Market competition  

• Challenge- The Colombian market is known to be highly competitive and has established brands and companies that are majorly dominating the main sectors of Colombia such as agriculture, production, and services.  

• Solution- Foreign entrepreneurs should conduct thorough market research to recognize niche business opportunities or even areas where they can easily differentiate between products and services. Entrepreneurs should focus on offering unique value propositions to consumers in order to stand out amongst their competitors.  

Infrastructure challenges 

• Challenge- Colombia has bad infrastructure, especially in rural areas, which can easily disturb supply chains as well as operations. The bad road structure also makes it difficult for companies to transport their goods from one area to another.  

• Solution- Foreign business owners should select their locations wisely and focus on urban areas that have better infrastructure. Heavily invest in technologies to enhance efficiency and also consider making strategic partnerships with local logistics providers in order to manage supply chain risks.  

Security issues 

• Challenge- The country faces several security challenges such as extortion, armed robbery, and even violence. These issues usually create a negative impact on businesses, especially in specific regions. Furthermore, security conditions in Colombia differ from region to region. Urban areas such as Bogota and Medellin usually have better security when compared to rural areas, where the activity of armed groups is high.  

• Solution- Foreign entrepreneurs should incorporate strong security measures like cameras and alarms. It is significant for owners to stay updated on local security issues and also collaborate with law enforcement as well as community groups for safety.  

Conclusion 

• For foreigners starting a business in Colombia presents exciting opportunities for entrepreneurs to navigate the regulatory and cultural landscape. While there are certain challenges existing in the Colombian economy such as market competition, poor infrastructure, legal issues, and security challenges. If you need expert assistance in the Colombian company registration process, Tetra Consultants offer end-to-end solutions in order to simplify the business setup process. Their expertise in international business setup can assist foreign business owners to successfully manage and establish their businesses.  

• Contact us and our team of experts will get back to you in 24 hours.