02-11-2020
In Colombia, constitutional principles such as the right of association, the right to equality, and the protection of free enterprise and private initiative, enable the creation of entities that receive local and foreign investments. This article summarizes some relevant legal aspects about the most commonly used types of legal entities in Colombia.
1. Five things an investor should know about corporate regulations in Colombia
1). Corporate Law in Colombia enjoys great stability by means of stable legislation that has progressed with time.
2). Investors who wish to engage in permanent business in Colombia must, as a general rule, channel their investments through a legal vehicle, such as a subsidiary or a branch of a foreign company.
3). Colombia's commercial law is flexible and modern with regard to subsidiaries, and it allows the creation of sole-shareholder investment vehicles, whereby the liability of the sole shareholder is limited to the amount of the corresponding contribution.
4). In order to carry out businesses in Colombia, foreign investors do not need a local partner or investor. With few exceptions, the entire equity participation of a legal entity can be foreign-owned and there are no legal restrictions on its subsequent repatriation.
5). The incorporation of a legal vehicle is, in general terms, simple and expeditious, and does not require prior government authorization, except for special cases.
2. Common legal vehicles to carry out permanent activities in Colombia
The most frequently used vehicles to undertake permanent activities in Colombia are commercial companies and foreign company branches.
Colombia commercial companies
The most frequently used commercial companies to channel investments in Colombia are: (i) simplified stock company (S.A.S. by its acronym in Spanish); (ii) limited liability company; and (iii) corporation (S.A: by its acronym in Spanish). Its main differences are explained in this Chapter.
In the last years, the S.A.S. has become the legal vehicle of choice for the business community, particularly because of its flexibility in terms of the incorporation process, administration and the ample freedom its shareholders have to establish the terms and conditions for its functioning and internal structure.
With the entry in force of Law 1901/2018, the so-called Benefit and Collective Interest Companies (“BIC”) are created, with which it is intended to identify those companies meeting certain standards comprising the inclusion of three fundamental aspects in the corporate purpose: environment, community and workers. It is worth noting that this name does not entail the creation of a new type of company or the amendment to any of the existing ones and tax benefits have not been established. The name BIC Company represents for each company a “seal of quality” regarding the environment and good social practices.
2- Branches in Colombia
Branches are on-going concerns opened in Colombia by a foreign company for the development of its corporate purpose. This is the reason why they do not have a legal personality different from that of its main office, which is equivalent to say that the Branch and the main office are the same legal entity and, therefore, the branch does not have any legal capacity superior or different from that of its main office.
The Commercial Code establishes that in order for a foreign company to undertake permanent activities in Colombia, it must establish a branch with domicile in the national territory. The permanent activity concept which is different from the notion of permanent establishment for tax purposes) includes the following activities which have been listed in a non-exhaustive manner, as follows:
a. To open a commercial establishments and/or business offices in Colombia, even if these only provide advisory services;
b. Participate as a contractor in the performance of works or in the provision of services;
c. Participate in any form or activities aimed at the management, use or investment of funds from private savings;
d. To devote itself to the extractive industry in any of its branches or services;
e. Obtain from the Colombian Government a concession or that the concession has been assigned to any title, or that in any way participates in the exploitation of it; and
f. The performance of its associates assemblies, boards of directors, management or administration in the national territory.
For these purposes, in addition to taking into account the aforementioned activities, it is important to note that Colombian legislation does not provide for a specific criteria nor a term of duration in order to determine whether an activity is permanent or not, and therefore permanence will depend on the particular circumstances and of the development of the activity in Colombia, such as the nature or scope of the activity, the infrastructure required in the country for its performance, its regularity, the recruitment of personnel in Colombia, among others.
3- Document of incorporation in Colombia
Colombian commercial companies are incorporated by means of a public deed formalized before a notary public or a notarized private document, depending on the vehicle chosen by the investor to carry out its investment in Colombia. Branches will always require their registration through a public deed.
The comparative table at the end of this chapter indicates the way in which each type of legal vehicle is incorporated as well as its requirements.
4. Commercial registration in Colombia
Commercial corporations and branches must register in the commercial registry kept by the corresponding Chamber of Commerce of the city where is to be based.
To register the company, the corporation’s bylaws or for the branches the public deed, have to be submitted as well as other documents that the Chamber of Commerce may request, such as the letters of acceptance of the persons appointed as managers and statutory auditor (in the event the company requires one) The Chamber of Commerce also processes the form that is issued for the application/ registration in the National Tax and Customs Office (DIAN) in which the provisional registration is requested, for the “National Tax Registry” (RUT per its acronym in Spanish). This form contains the general data of the taxpayer, as well as tax and customs responsibilities. Additionally, in order to obtain the company’s registration the corresponding fees and taxes must be paid before the Chamber of Commerce.
You can check our Colombia company registration article to check further information on this topic.
5. Appointments of legal representative in Colombia
The appointment of directors, legal representatives, agents and statutory auditors, among others, must be registered before the commercial registry kept by the Chamber of Commerce of its domicile. For such purposes, the document deciding the appointment must be filed (in the case of general agents designated for a branch, the document has to be issued by the main office and has to be dully apostilled or legalized before the competent authority), with the letter of acceptance and a copy of the appointed person’s identification document.
The managers of the company may be foreigners not domiciled in Colombia. The statutory auditors must be Colombian public accountants.
6. Registration under the National Tax Registry (RUT)
The tax ID shall be obtained before the Chamber of Commerce, during the incorporation procedure, prior to the performance of any commercial activity, or it can be obtained directly with the tax authority (DIAN) once the company has been created and registered in the Chamber of Commerce.
Whenever said procedure is undertaken directly before DIAN, an appointment has to be requested and presented before this entity, with a copy of the identification document of the person who will be filing the request before the DIAN, for which the exhibition of the original identification card will be required. If the person who files the request is an attorney, a copy of the power of attorney must also be presented and the original copy must be exhibited as well. If the power of attorney is granted for a period that exceeds six (6) months, a certificate of its state of being in force is also requested by the authorities.
Once the corresponding RUT has been obtained, the company will receive the Tax Identification Number (NIT per its acronym in Spanish), which will have to be updated before the corresponding Chamber of Commerce.
It is important to bear in mind that the legal representative of the company or branch, as well as their substitutes, must in turn have a Tax Identification Number (NIT) of their own and an electronic signature, regardless of whether or not they are resident. The obtaining of the NIT for nonresident legal representatives may be done online with a copy of the identification document, and for residents it may be processed through a power of attorney. The foregoing does not imply any type of tax liability in Colombia per se, but rather seeks to demonstrate that the individual who is represented by the company has the capacity to comply with formal obligations and file tax returns on behalf of the company being represented.
7. Power of attorney and other documents issued abroad
If the prospective partners or shareholders (or the legal representative of the main office) cannot be in the country in order to attend the incorporation procedures for the company or branch, they must grant a duly legalized written power of attorney (the person who will be appointed by the power of attorney, does not have to be a legal attorney). If the investor country is signatory to The Hague Convention, the documents issue outside the country, which have to be notarized and legalized, may be apostilled. If the country is not a part of The Hague Convention, then the document will have to be legalized before the Colombian consulate where the consular office is.
For the incorporation of a company in Colombia, the following documents are required:
a. A document certifying the existence and validity of the main office (if it is a company who is going to act as shareholder), issued in the corresponding country of origin.
b. The documents that evidence that whoever is acting as authorized representative and signatory as shareholder, has the powers to do so.
For the registration of a branch in Colombia, the following documents are required in order to be included in the public deed:
a. The incorporation documents and the bylaws of the main office.
b. The documents that provide evidence of the existence and validity of the main office issued in the country of origin, by the corresponding authority.
c. The documents that evidence that whoever is acting on behalf of the main office, has the power to do so.
d. The resolution in which the decision of opening a branch in Colombia was made, which has to be issued by the corresponding organ of the main office, and has to include at least:
All documents granted abroad shall be apostilled or otherwise legalized before the corresponding Colombian consul, to be valid in Colombia.
Documents issued in a language different to Spanish must be translated by an official translator duly authorized in Colombia and whose signature is legalized by the Ministry of Foreign Affairs.
8. Payment of capital and registration of the foreign investment in Colombia
By general rule, Colombian legislation does not require a minimum capital contribution to incorporate commercial companies nor for the registry of a branch. The capital contribution is set by the shareholders or partners, with regards to the activities that the company plans to carry out in Colombia.
The contribution regime (cash, in kind and work) for commercial companies is quite flexible and it allows for great diversity for shareholders and partners, provided that the assets to be contributed are convertible into monetary value.
Depending on the legal nature of the company to be incorporated, there are rules applicable to the time of payment of the company’s capital.
a. For branches and limited liability companies, the capital must be paid at the time of its incorporation;
b. For corporations, at least one third of the value of each stock paid at the time of incorporation and 50% of the paid in capital, have to be paid. The outstanding placed capital has to be entirely paid within a year.
c. With respect to the simplified stock companies S.A.S., there are no capital ratios that determine the proportion in which shares have to be paid at its incorporation, yet the placed capital must be paid within a maximum period of two (2) years.
Foreign currency entering the country on behalf of nonresidents, which is destined to capital contributions of a company or a branch, must be registered as foreign investment with the Colombian Central Bank, by submitting through intermediaries of the exchange market (“IMC” by its acronym in Spanish) duly authorized in Colombia for that purpose. The required information for the operation (“Declaración de Cambio”) submission of the minimum required information will be sufficient to obtain the automatic registry of the foreign investment.
The transaction of funds from the main office can be channeled as a capital supplementary investment (ISCA per its acronym in Spanish) which is a direct foreign investment, and has to be registered before the Central Bank. However, registration before the Chamber of Commerce is not required.
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