Establishing a Subsidiary Company in Colombia: Step-by-Step Guide

Colombia is a prosperous country, considered the fourth largest economy in Latin America in terms of GDP. It has a $327.895 billion GDP and ranks 38th globally in nominal GDP. Colombia has experienced an economic boom in recent years, and several industries, like textile, clothing, gold, etc., are flourishing. 

The country’s 62.2% employment rate offers a skilled and young workforce. As per the World Bank’s Ease of Doing Business Report 2020, the country ranks 67th out of 190 economies. Hence, setting up a subsidiary business in Colombia is comparatively easy. Industries like food processing, oil, beverages, and electronics are thriving in the country. Hence, you can incorporate a foreign subsidiary in Colombia in these industries. 

Colombia is quite close to Ecuador and Peru. Hence, when you set up a subsidiary business in Colombia, you can also serve these neighboring countries. 

Businesses can take advantage of the country’s growing infrastructure and skilled workforce. The easiest way to enter Colombia is to establish a subsidiary there. Because it is a different legal entity from the parent company, there is less paperwork to complete, and there are tax advantages.

Continue reading to discover how to expand your business effectively by setting up a subsidiary in Colombia.

What are the Types of Subsidiaries in Colombia?

Colombia allows the incorporation of various types of businesses, which are as follows:

Limited liability company

• A limited liability company is known as Sociedad de Responsabilidad Limitada. 
• It allows LLC’s partners to limit their liability to their contribution to the company.
• However, exceptions exist, such as responsibility for taxes, labor laws, or if such extended liability is specified in the company’s bylaws.
• There must be at least two partners, and the maximum number of partners can go up to 25.
• Transferring participation in a limited liability corporation requires amending the bylaws following pre-emptive rights.
• The company’s capital must be fully paid at registration, and any changes to the capital must be made by a recorded amendment to the company’s bylaws.
• The board of directors must meet once annually to discuss the company’s financial statements.
• Onboarding an auditor is optional unless the company exceeds a specific limit of assets.

Simplified stock company

• A simplified stock company is known as Sociedad por Acciones Simplificada in Colombia. 
• In this company type, the shareholders are not responsible for the company’s financial obligations.
• All the shareholders must have a Shareholders General Assembly, as it will act as a legal representative of the company. 
• You need at least one shareholder to start a simplified stock company. 
• These companies can register with the National Registry of Securities and Issuers and list their stocks on the Colombian Stock Exchange. 

General partnership

• A general partnership is among the most established subsidiary businesses in Colombia. 
• The partnership board makes all the decisions in the case of a general partnership firm. 
• Having at least two partners to start a general partnership firm in Colombia is mandatory. 
• General Partnerships are closed businesses where the partners must run the business themselves or unanimously approve appointing a third party.
• A general partnership business is taxed based on its earnings.
• Every time a commercial activity concludes, the partnership board must convene and review the company’s financial accounts at least once yearly.
• According to Colombian law, all foreign investments must be disclosed through the Colombian Central Bank.

Limited partnership

• A limited partnership company is known as Sociedad en Comandita Simple y por Acciones in Colombia.
• A limited partnership has two types of partners: a managing partner and a limited partner. It is required to have at least one of each. 
• Managing partners are liable for losses or business liabilities in a limited partnership. However, the limited partners have a limited liability. 
• These firms are incorporated through a public deed registry by the Registry of Commerce. 
• Each managing partner has one vote on the board of the partnership. Voting rights for limited partners are distributed proportionately to their equity stake in the business.

How to Set Up a Subsidiary in Colombia?

There are some mandatory steps that you must take to set up a subsidiary business in Colombia. Let’s have a look at all these steps: 

Step 1: Register the business with the Registry of Commerce

• For incorporating a subsidiary business in Colombia, you must prepare all the necessary documents and raise a public deed depending on the type of business entity. 
• Reach out to the Registry of Commerce to obtain a pre-taxpayer ID. 
• You must pay 0.7% of the capital registration tax and COP 34,000 as a fixed fee.
• Get the registration form at COP 4,000 and fill and submit the duly filled registration form. 

Step 2: Open a bank account

• Now, use your pre-tax payer id (pre-RUT) to open a local bank account which can be used for all business transactions. 
• You need to deposit the nominal share capital of the business to this account. A minimum deposit of COP 500,000 is required to open a bank account in a Colombian public bank. 
• Submit the certificate of existence and legal representation, TIN document, and a copy of the certificate of citizenship of the legal representative for opening a bank account.

Step 3: Apply for a final taxpayer ID number

• You must apply for a final taxpayer ID number by contacting DIAN. You must submit the pre-tax ID (RUT) and a bank account certificate. 

Step 4: Register the companies with the relevant authorities

• You need to register the company with the Register company with the Family Compensation Fund (Caja de Compensación Familiar), the Governmental Learning Service (Servicio Nacional de Aprendizaje, SENA), and the Colombian Family Institute (Instituto Colombiano de Bienestar Familiar, ICBF).
• The entire process of registering the companies with the relevant authorities must be completed online. It takes around five days to complete the process. 
• The term for contributing to the Family Compensation Fund expires within the first thirteen working days of each month. Hence, you need to complete the process within 13 days of incorporation.

Step 5: Register the employees with health coverage

• A form indicating the affiliation of your employees with the national health system (Plan Obligatorio de Salud, POS) must be submitted for employees to register for health coverage (EPS). 
• The entire process can be executed through a public institution or a private health promoter, and it takes a day to complete.

Step 6: Register the company and the employees with the pension system

• Register employers and employees for pension with Colpensiones or one of the private funds and choose a pension plan for the employees.
• Each employee has the option of selecting either a private or state pension fund.
• Submit the pension registration form indicating your membership in the pension system.

Step 7: Register the business with the Administrator of Professional Risks (APR)

• You must submit a form to register the business and the employees with an Administrator of Labor Risks. The administrator could be both public and private. 
• The company selects the APR and pays monthly payments to it on behalf of all its employees. 
• Some administrators want employees to take a quick course before becoming affiliated. Hence, you must facilitate the training process.

Benefits of Setting Up a Colombia Subsidiary

Listed are the benefits of starting a subsidiary business in Colombia: 

• Colombia has a corporate tax rate of 35%, which is comparatively lower than the neighboring countries. Hence, you will not have to pay high taxes on the business income. 
• When you register a subsidiary in Colombia, you must complete most of the formalities online, making the entire registration process easier for the parent company. 
• Colombia is quite close to Panama, Brazil, Costa Rica, and Nicaragua allowing easy access to these markets for companies setting up a subsidiary in Colombia. 
• Colombia offers an economical business environment and a workforce with a high level of education. Companies can leverage this advantage to establish a strong presence in the market.

Documents to Prepare When Opening a Subsidiary in Colombia

Before setting up a subsidiary business in Colombia, you must keep a few essential documents ready for submission. The list includes:

• The Memorandum and the Articles of Association
• Power of Attorney
• A written minute of the meeting of the parent’s company where the decision to incorporate a subsidiary business in Colombia was taken 
• Details of the NewCo (the company that is still in its incorporation stage) include the following:

1. 1. Name of the business
   2. Address of the business
   3. List of activities that the business will perform
   4. Number of shares 
   5. The decision to have a Board of Directors

• Copy of passports of all the legal representatives of the company
• Letters of acceptance of the legal representatives of the business
• Goodwill standing certificate

What Business Forms Can Colombia Subsidiaries Take?

Colombia supports different kinds of business entities. Hence, a subsidiary business in Colombia can take different forms. You can incorporate both partially and wholly owned subsidiary businesses in Colombia. 

In Colombia, limited liability businesses are relatively common. Depending on the type of limited liability, these corporations may or may not have a share capital. The procedures for incorporating these businesses are relatively straightforward. Their most vital feature is that the partners or shareholders have limited responsibility, which prevents them from using their assets to pay off the business’s debts.

Colombia Subsidiary Laws

For legal operations subsidiary business in Colombia to operate smoothly, you must adhere to all local labor laws and regulations imposed by the government. The idea behind incorporating these laws is to have a system for the business to function. Also, these subsidiary laws aim to protect employees’ rights in your company.

You must have the parent company’s certificate of incorporation and registration certificate for the subsidiary business. You must also open a bank account in Colombia to ensure that all business transactions are processed smoothly. 

Post-Incorporation Compliance

After successful company registration, here are a few post-incorporation compliances for a foreign subsidiary in Colombia.

• A subsidiary business must audit the financial statements before submitting them to the Registrar. 
• In the case of partnership businesses, every commercial action must be concluded by a partnership board meeting, which must occur at least once annually to approve the company’s financial accounts.
• You must register the employees with a severance fund and make annual deposits to the fund on behalf of the employees. 
• To comply with Colombian Foreign Exchange legislation, NewCo’s equity must be paid, and foreign investment must be registered before the Colombian Central Bank.
• You must register all the employees with the social security system, such as the health coverage and pension fund. 

Taxes on Subsidiaries in Colombia

A subsidiary business in Colombia is considered a regular business operating in the country. Hence, subsidiaries need to pay corporate tax at the prevailing rates. Currently, the corporate tax rate in Colombia is at 35%. The subsidiary businesses are taxed on their worldwide income.

Subsidiary businesses operating in industries like finance, insurance, and reinsurance also pay an additional 5% surcharge on their revenue. Companies operating in crude oil and coal extraction also pay a surtax ranging from 5% to 10%, depending on the market prices for the current year. 

Tax Incentives for Businesses Setting up a Subsidiary in Colombia

Foreign income taxes over non-domestic-source income are creditable against CIT, subject to certain conditions. The credit amount cannot exceed the Colombian taxes levied on the same income. Moreover, DTTs offer more complete credit systems.

It is explicitly stated that, for the dividend tax credit, the effective rate assumed by the foreign firm will be that which arises from dividing the tax paid among commercial earnings before taxes.

Other Important Considerations

The formation of a Colombian subsidiary requires time. It would be best to take a few weeks off to concentrate on growing the company and fulfilling all legal requirements. If your parent firm keeps you busy, you can assign the responsibility to a different business executive or collaborate with them.

You must also follow a budget to accomplish each step of establishing a Colombian subsidiary firm. Make a budget before starting a foreign subsidiary in Colombia since it will help you stay in control.

How Can Multiplier’s Employer of Record Help You Hire and Expand in Colombia?

To set up a subsidiary business in Colombia, you need assistance complying with all applicable labor laws and local ordinances. Use a service partner like Multiplier to help your business overcome this growth obstacle.

You need not worry because Multiplier will handle all the formalities of entering a new market. Our experienced staff are familiar with domestic and foreign laws and will help you establish a subsidiary business in Colombia. We ensure that Colombia’s labor laws and conventions are strictly followed. You can swiftly assemble teams globally and take advantage of new market opportunities with the help of a PEO like Multiplier.