Setting Up A Business In Colombia

QG.01 Setting Up

What type of business entity can I set up in Colombia?

The usual choices for foreign investors are corporations and branches.

How do I set up a subsidiary company, and how much does it cost?

The formation procedure is usually entrusted to local counsel and professional advisers.

Is it easier to set up a branch than a company?

A branch is generally easier to set up, but this factor should not be the overriding consideration in deciding what type of entity to use.

Can a branch be reorganised as a subsidiary company?

No. The branch must be liquidated before the subsidiary can be formed.

Must Colombian nationals hold a specified minimum portion of the equity of a Colombian enterprise?

No. Foreigners may own 100% of a Colombian enterprise except in the oil sector.

QG.02 Investment Incentives

Are incentives to business investment offered to foreign and to Colombian investors alike?

Colombian and foreign investors are treated the same.

What are the main tax incentives offered?

The principal incentives offered are exemptions and deductions with respect to free trade zone transactions, exports, inbound assembly operations, the mining and tourism industries, and forestry and agriculture.


Accounting and Auditing

What entities must make their financial statements available for public inspection?

Joint stock corporations that list their shares on the stock exchanges or issue liabilities and all business entities that operate in the financial sector must publish their annual financial statements in a local newspaper.

What entities must have their financial statements audited by independent, professionally qualified auditors?

Joint stock corporations, branches of foreign companies, limited liability companies, and mixed economy companies with total assets exceeding 5,000 minimum salaries or total gross revenues exceeding 3,000 minimum salaries must have their financial statements audited.

Can the audit firm I choose help me set up an accounting system; give me tax, legal and management consulting advice; and generally guide me on business matters?

Yes. An audit firm may assist in these matters, provided that professional independence is maintained within the firm.

Do tax law requirements govern the accounting principles used in preparing financial statements?

No. Colombian GAAP determine the rules that must be followed in preparing financial information, and the Unique Plan of Accounts determines the methods of recordkeeping to be used. These statements are expected to give a true and accurate view of the financial status of the entity irrespective of tax requirements.

QG.04 Employment of Staff

May I employ foreign staff without any difficulties?

Foreign staff may be employed as long as they are authorised by the labour authorities to work and have acquired appropriate work visas. The number of foreigners allowed on the payroll is restricted.

Must I distribute a profit-sharing payments to my employees?

No. Such a distribution is not required.

QG.05 Corporate Income Tax

Is the residence of an entity of any relevance for tax purposes?

Yes. Whether an entity is established under Colombian law or under a foreign law with its head office abroad (a foreign entity), its Colombian-source income is subject to Colombian income tax. Revenues received from abroad by resident companies are also subject to Colombian income tax.

Will part of my home country's central expenditure be treated as deductible for Colombian tax purposes if it is allocated to my Colombian branch?

Yes, but some withholding taxes must be deducted in order to deduct those kinds of overheads.

With what tax authority must I register my Colombian operation for tax purposes?

Every new entity must be registered with the local office of the tax and Customs Administration.

What dividend withholding taxes are payable in Colombia?

Dividends paid are exempt from income tax and withholding in a resident recipient's hands. However, income tax on dividends at the rate of 7% is generally applicable to foreign shareholders.

What is the current corporate income tax rate?

The current corporate income tax rate is 35% for residents and nonresidents.

Can tax losses be carried forward or back?

Losses can be carried forward to offset taxable income over the next five years. No carryback is permitted.

What are some of the main expenses that are not deductible for tax purposes?

Expenses that do not comply with requirements established by tax law, such as expenses not related to income-producing activities, are not deductible.

QG.06 Personal Income Tax

Will I liable for Colombian income tax?

Colombian residents domiciled in Colombia are liable for income tax on their worldwide income. Foreign nationals residing in Colombia (during the first five years of residence) and nonresidents are subject to tax only on their Colombian-source income.

When do I become resident in Colombia for tax purposes?

You become a resident if you hold a permanent visa or if you have resided six months in Colombia?

What should I do before arriving in Colombia?

Before arriving, you should apply for a temporary work visa or a business visa at the nearest Colombian consulate.

How do I pay income tax and social security contributions?

Income tax on employee remuneration and employee social security contributions are withheld by the employer and paid to the tax authorities.

QG.07 Value Added Tax

How does the value added tax system work in Colombia?

Value added tax (VAT) is charged by a business to its customer on the sale of goods and services. The business is entitled to an input tax credit for any VAT costs incurred on goods or services acquired in the course of making taxable supplies or services.

At what rates is VAT charged?

VAT is charged at the general rate of 16%. Some goods and services are subject to other rates.

What special records must be kept for VAT purposes?

A record of all transfers of goods and rendering of services must be kept. The law stipulates that a corresponding sales invoice must be issued, regardless of contracts entered into by a company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Mario Andrade, Deloitte & Touche, Santafe de Bogota, Colombia on Tel: +57 1 256 1548, Fax: +57 1 256 1557