| Colombia | Sep 07, 2017
The Andes, the Amazon, the Orinoco, the Caribbean, and the Pacific—with 45 million consumers, Colombia is uniquely positioned as a business and tourism destination. The Colombian government is set to […]
The Andes, the Amazon, the Orinoco, the Caribbean, and the Pacific—with 45 million consumers, Colombia is uniquely positioned as a business and tourism destination. The Colombian government is set to invest USD70 billion in infrastructure (roads, seaports, airports, and rail lines). The country has also taken steps to reform and ease the process of doing business. These measures help fortify Colombia’s position as a desirable market for foreign investment.
COMMON LEGAL VEHICLES
Corporate vehicles in Colombia can be divided into three groups:
• companies based on partnership (limited liability partnership and limited partnership);
• companies based on shares (corporation, simplified stock company and limited partnership by shares); and
• branches of a foreign company.
The governing tax regime is the same for all legal vehicles in Colombia. From a tax perspective, there is no advantage or disadvantage between groups.
The most common types of vehicles for conducting business in Colombia are corporations, simplified stock companies, and branches of a foreign company.
The corporation (SA by its acronym in Spanish) is a commercial company formed by the capital contributions made by its shareholders.
A SA must have a minimum of five shareholders (natural or legal persons, Colombian or foreign) and there is no maximum. No single shareholder can directly own 95% or more of the outstanding shares of capital.
Shareholder liability is limited to the amount of their capital contributions.
Corporate capital is comprised of:
• authorized capital corresponding to the maximum number of shares that the corporation may have;
• subscribed capital corresponding to the actual number of subscribed and outstanding shares (at the time of incorporation, the subscribed capital must correspond to at least 50% of the authorized capital and must be fully paid in during the year following the subscription of the shares); and
• paid-in capital corresponding to number of subscribed shares that have been fully paid (at the time of incorporation paid-in capital must correspond to at least one-third of the subscribed capital).
The SA must have a:
• general shareholder’s assembly;
• board of directors;
• authorized officer; and
• external auditor.
The incorporation and bylaws must be formalized by means of a public deed granted before a public notary and registered with the competent chamber of commerce. The incorporation process may take up to two weeks.
Simplified stock company
The simplified stock company (SAS according to its Spanish acronym) is a commercial company formed by the capital contributions made by its shareholders and can be incorporated by one or more shareholders (natural or legal persons, Colombian or foreign).
SAS is preferred by local and foreign investors due to its flexibility and dynamism. As in the case of an SA, the corporate capital of the SAS is comprised of authorized capital, subscribed capital, and paid-in capital but conditions, amounts, proportions and terms of payment of the capital can be freely determined in the company’s bylaws. A legal reserve is not mandatory. The term for the payment of shares cannot exceed two years.
Shareholder liability is limited to the amount of their capital contributions. However, there is an express legal provision that allows for the corporate veil to be pierced if a court decides that the company has been used to subvert the law.
The SAS must have a:
• general shareholder’s assembly or sole shareholder, and
• authorized officer.
Opposed to the SA case, the creation of a board of directors is optional. From a corporate management perspective, the SAS is a flexible vehicle since it allows its shareholders to decide between managing the company solely through an authorized officer or through both the latter and a board of directors.
An SAS must have a fiscal auditor when its assets and/or gross income exceed the maximum amounts set forth by law.
The incorporation as well as amendments to its bylaws can be done by a private document (registered with the competent chamber of commerce) instead of a public deed, which greatly simplifies the process in terms of time and cost. A public deed is required only when the assets involved in the incorporation require transfer by means of a public document (for example, the transfer of real property). The incorporation process may take up to one week.
Branch of a foreign company
A branch of a foreign company is a commercial establishment organized by a foreign company in Colombian territory.
From the legal standpoint, a branch of a foreign company is simply an extension of its head office and is not an independent entity, so the head office is liable for all the actions and operations carried out by the branch.
The branch would not be a suitable structure if the purpose is to protect the foreign company from possible contingencies that may arise against the corporate entity established in Colombia.
The capital assigned to the branch must be paid at the moment of its establishment in Colombia. The head office may determine the amount of said capital but not the form of payment conditions.
Branches are obliged to have an authorized officer domiciled in Colombia and an external auditor.
The authorized officer may have broad powers, which would allow a more fluid operation, although there would be no strict control over such activities by the head office. Additional contributions to the assigned capital made by the head office can be treated as a supplementary investment and can be used to cover operational costs and expenses of the branch.
To create a branch of a foreign company in Colombia, the bylaws of the head office must be notarized as a public deed and registered with the competent chamber of commerce.
The table below compares the main aspects of the most common legal vehicles.
FREE TRADE ZONES
With the goal of fostering investment and trade, improving competitiveness, and creating jobs, Colombia developed a free trade zone (FTZ) system. As a FTZ, a company benefits from zero customs duties and a partial income tax exemption.
Goods entering these zones are considered outside the national customs territory for the purposes of taxes on imports and exports.
FTZ status may be granted to companies developing investment projects that are considered to have a high social and economic impact.
There are two main types of FTZs: Special Permanent FTZ or Single Company FTZ (the business is declared a FTZ), and Permanent FTZ (where multiple users can be located and operated). In this instance, a company would relocate to a previously declared FTZ in order to gain the benefits.
For qualification as a FTZ of either type, an application must be presented to the governmental authorities.
According to the Colombian Exchange Regulation, the following operations must be reported to the Colombian Central Bank:
• foreign indebtedness;
• foreign liens and guarantees;
• foreign investment (direct investment and capital market investment); and
• derivative operations.
The mandatory exchange operations must fulfill formalities required by the Central Bank which depend on the type of exchange operation.
Branches of foreign companies can only engage with their head office in the following operations:
• transfer of the assigned and supplementary capital;
• reimbursement of profits and assigned or supplementary capital;
• payment of reimbursable operations of foreign trade; and
• payment of services.
Branches of foreign companies engaged in the exploration and production of coal, natural gas, oil, ferronickel, and uranium and branches that provide services exclusively to the oil sector may be subject to a special exchange regime.
Free trade and bilateral agreements
Colombia has signed free trade agreements (FTAs) with many of its biggest trading partners, including the US, the EU, Canada, Mexico, Chile, and the European Free Trade Association (Switzerland, Norway, Iceland, and Liechtenstein), and is a founding member of the Pacific Alliance along with Mexico, Peru, and Chile.
In the first year after the signing of the US-Colombia FTA, US exports to Colombia increased by 20%. In 2016, the top exports to Colombia from the US were: mineral fuels, machinery, cereals (corn), electrical machinery, and organic chemicals.
The EU is also experiencing growth in its exports. Between 2012 and 2014, exports from the EU to Colombia rose by 36%. In 2016, the top exports to Colombia from the EU were products of the chemical or allied industries, machinery and appliances, transport equipment, optical and photographic instruments and plastics, and rubber and articles thereof.
Colombia also has bilateral investment treaties with many of its biggest trading partners including Switzerland, Peru, and Spain, and has negotiated such treaties with China, India, and the UK.
The Colombian tax system includes national, departmental, and municipal taxes.
The main national taxes are income tax, capital gains tax, wealth tax, sales tax, tax on dividends, and tax on financial transactions.
National companies, entities, and individual residents in Colombia are taxed on their revenues, equity, and capital gains obtained in Colombia or abroad.
Non-resident individuals and foreign companies and entities are income taxpayers on revenues and equity held in Colombia.
The corporate income tax has the following rate schedule (applied beyond a limited profit threshold):