How to do business in Colombia

Can a local company be 100% held by foreign resident shareholders?

Yes, Colombian regulations do not provide any specific limitations regarding the percentage of foreign investments.

What are the main legal forms of companies in your country?

There are four main types of corporate entities that can be used to establish a company in Colombia:  

• Corporations (known as “S.A.” for its acronym in Spanish) 
• Limited Partnership (known as “Sociedad en Comandita” in Spanish) 
• Limited Liability Companies (known as “LTDA” for its acronym in Spanish) 
• Simplified Joint Stock Companies, which separate the legal entity and its shareholders (known as “S.A.S.” for its acronym in Spanish).  

The S.A.S. type is the most used in Colombia as its incorporation process is very easy and it allows shareholders to protect their personal assets.  

Must the managing director of the company be a resident and/or a national of your country?

No, the managing director of a Colombian company can be a foreign individual or company. It is not a requirement to be a resident or national in order to be the main director of an enterprise, however he/she must be registered at the Single Tax Registry (“RUT” for its acronym in Spanish).   

Are there any foreign exchange rules applicable to foreign investment in your country? If yes, please explain briefly?

Yes, any foreign investment must be registered before the central bank through the filing of a foreign exchange return including all the basic information of the transaction (amount, parties involved, details of the wire, payment restrictions, etc).  

Notwithstanding the above, there are other transactions that are covered by the foreign investment law and that require foreign investments registry or returns, such as: payment of imports, payment of exports, credits, foreign investments, derivatives, endorsement and guarantees.  

Are there any Central Bank rules applicable to foreign investment in your country?

Yes, the obligations mentioned above are the main central bank rules.  

How long does it take to incorporate a company?

This procedure may take 1-2 weeks. The procedure that takes the longest time is the preparation of the shareholder documents, the general/specific conditions to be included in the bylaws and obtaining the Tax ID of foreign legal representatives.  

What are the main taxes applicable to all businesses in your country?

The main taxes in Colombia are:  

• income tax and income tax withholdings: triggered at a general rate of 35%  
• sales tax: if a company provides services or sells any goods in Colombia (or from abroad but enjoyed in the national territory), these transactions will be taxed with VAT at a rate of 19%  
• industry and commerce tax: a jurisdictional tax levied upon income – whenever a company carries out commercial or industrial activities, these will be taxed with a municipal industry and commerce tax according to the city where the operations were conducted (tariff will be determined by the local authorities) 
• debit tax (“GMF” for its acronym in Spanish): a tax levied upon transactions made through Colombian financial institutions.  

What is considered a permanent establishment in your internal law? Is it different from the classical OECD definition of article 5?

The Colombian definition of Permanent Establishment (“PE”) is not so different from the OECD provisions. According to the Colombian Tax Code, permanent establishments (“PE”) are fixed places of business located in Colombia through which a foreign entity – either a corporation or any other foreign entity, or an individual without tax residency in Colombia – executes wholly or in part its business activity in Colombia. PEs can be branches, agencies, offices of foreign companies, factories, workshops, mines, oil and gas wells, or any other place for the extraction of natural resources (see Article 20-1 of the Tax Code). These entities will be considered as national income taxpayers at the general rate of 35%. In order to comply with the tax obligations in Colombia, an economic analysis called an “attribution study” must be carried out to determine how much income was generated in Colombia and should be included in the income tax return of the branch or local office.  

Are there any thin capitalisation rules?

Yes, internal regulations established that thin cap rules apply to loan credits with related parties, either in Colombia or located abroad, at an equity ratio of 2:1. This means that interests originated in intra-group loans that exceed the result of multiplying by two the company’s net worth will not be tax-deductible upon such excess.  

Are there any stamp/registration duties payable upon injection of equity? Same question on intra-group loans.

Yes, capital registration will be subject to a registry fee of 0.7% before the chamber of commerce, unless such capital registration is structured as share placement, in which case the registry fee will be 0.3%. Intra-group loans are not subject to registration fees. 

Is there a withholding tax on dividends?

Yes, dividends distributed to foreign entities or individuals without tax residency in Colombia will be subject to a 20% withholding tax; as opposed to Colombian entities whose dividend withholding will be 10%, or individuals with Colombian residency who have a 15% dividend withholding rate.  

However, the above-mentioned withholding rates will apply if the commercial profits were subject to taxation at the corporate level. On commercial profits not subject to income tax at the corporate level (because of tax planning strategies or many other reasons), such profits will be first subject to a 35% withholding; and upon the result, the dividend withholding at the rates indicated above will be applied.    

Is there a withholding tax on interests?

Yes. In Colombia, withholding tax on interest will be applied at a general rate of 15% if the loan credit obtained abroad is structured for a term greater than 1 year. For terms less than 1 year, a withholding rate of 20% will apply upon interest payments.  

When the payments are originated in credits or securities destined to the financing of infrastructure projects for a term equal to or greater than 8 years, they shall be subject to a withholding tax rate of 5% of the value of the interest payment.  

Is there a withholding tax on services paid to foreign suppliers?

Yes. Payments will be taxed at a withholding tax rate of 20% when made for commissions, fees, royalties, leases, compensation for personal services, or exploitation of any kind of industrial property or know-how, rendering of services, benefits or royalties from literary, artistic and scientific property, exploitation of cinematographic films and exploitation of software.  

How many tax treaties does your country have to date? Please list the main countries (notably EU) with which your country has a tax treaty in force.

Colombia has signed and ratified 13 tax treaties with the following countries:  

• (EU) Czech Republic, France, Italy, Portugal and Spain 
• (non-EU) Canada, Chile, India, Japan, Mexico, South Korea, Switzerland and the UK.  

Also, Colombia has adopted the provisions of decision No. 578 of 2004 of the Andean Community of Nations, and is one of the members of the OECD.  

What is the applicable rate of VAT/GST?

The general VAT rate in Colombia is up to 19%. It applies to the sale of goods and the rendering of services within the national territory, among other specific activities. For other specific services or goods, rates can decrease to 5% or 0%. . 

Under your internal law, is a capital gain realised by a non-resident shareholder taxable in your country? If there is a minimum shareholding, please indicate the rate applicable.

Yes, capital gains are taxed at a general rate of 15% for non-residents. No minimum shareholding provision applies. 

In case of change of control, is there a rule providing for the loss of tax carried forward losses?

The possibility of carrying tax losses is specifically regulated under the tax code, but is not limited to the fact that there is a change in control per se. Under certain reorganisation processes such as mergers and spin-offs, there are certain rules up to what limit such tax losses can be carried forward or compensated, but it depends on many other factors rather than on a simple change of control.