ENTERING THE COLOMBIAN MARKET

Entering the Colombian market would offer many opportunities for companies undertaking Global Expansion or expanding into Latin America (LATAM). In the near future, Colombia is looking to play a broader role in global economies. The Colombian Government is continuing to develop an increasingly welcoming attitude towards private enterprise and entrepreneurial activity.

Consumerism is growing in this upper-middle income market, along with development in the electronics, chemicals, services and high-tech sectors, thanks to a highly-educated and well-motivated workforce. Traditional economic strengths still lie in mining for gold and precious gems, oil and petrochemicals, coffee, textile and agriculture.

Colombia has many free trade agreements on the global economic front, including with the US and European Union. It is a member of the Pacific Alliance trading bloc, among other regional trade organisations, such as Mercosur. Colombia’s geographical location in the northwest of South America adds to its trading potential. There is a Caribbean coastline to the north leading to the Atlantic, a Pacific coast to the west, and the land border with Panama is the route to Central and North America. Colombia also has land borders with Brazil, the region’s leading economy, and Ecuador, Peru and Venezuela.

Starting a business in Colombia

International companies planning on entering the Colombian market can take a foothold by launching a subsidiary as a limited liability company. This is known as a Sociedad de Responsabilidad Limitada, SRL and is regulated by the Commercial Code. Establishing the entity is necessary if companies intend to run payroll for their staff.

Compliance with the Code means satisfying the following requirements:

  • Obtaining Power of Attorney for a Colombian legal representative to liaise with authorities for the company.
  • Confirmation from the Single Business Register that the company name is unique in Colombia; the title must include the suffix ‘Limitada’ or ‘Ltda’.
  • Providing notarized company bylaws, Articles of Association, and the public deed registered with the Chamber of Commerce.
  • The minimum share capital of €1/US$1.
  • Obtaining the company tax registration certificate and Tax Identification Number (TIN) from the Tax Registry (Registro Unico Tributario, RUT).
  • A business bank account was opened after providing the tax and registration certificates.
  • Foreign investment must be declared through the Colombian Central Bank.

Expanding your business into Colombia

Opening a business in any overseas territory brings issues, as moving staff worldwide means lengthy processes to obtain Visas. Entering the Colombian market is no different. Once your employees are in place, who will handle their payroll? How will your company deal with regulations on taxation, entitlements and benefits, termination and severance? Drawing up an expansion blueprint is not enough. Your business plan will have to deal with all these issues.

Colombia is increasingly open to foreign investment, but there are always considerations surrounding compliance with the relevant legislation. In Colombia, this revolves around the Commercial Code and the Labour Code, which lays down the obligations of employers and the protected rights of their employees. There are other issues, too. Where will you find manufacturers, offices or distributors?

There is a simple and effective alternative. By partnering with a Professional Employer Organisation (PEO) and Employer of Record (EOR) such as Bradford Jacobs, companies can plot a time-efficient and cost-effective path to locating and employing staff in Colombia. But for those who want to “go it alone”, here we set out some of the necessary steps.

Finding an Office in Colombia

Colombia is one of the up-and-coming countries in South America for companies looking to explore the opportunities offered by the flourishing technology and tech bubbles and a burgeoning middle-class consumer market.

Bogota is the capital and the heart of Colombia’s commercial trade. Increased foreign investment through a positive government outlook has enabled multinationals to establish offices and flourish in the city, such as Microsoft and Proctor & Gamble.

Over 100 firms covering marketing and advertising have also been attracted to the business activity. Introducing a ‘new free-trade zone system’ designed to promote exports and economic recovery with tax and customs concessions with duty deferred or reduced; can give companies a larger pool of skilled labour, with centralised supply chains and modernised logistics. Also, check out Startup Grind, a community of enthusiastic entrepreneurs whose ethos is opening the door to new opportunities.

Medellin is a rising star for many local and foreign tech start-ups. It received a Netexplo award in 2020 for its transformation into a cultural and social ‘smart city’ offering support services, training and funding while encouraging innovation.

The ACI Medellin, the agency for cooperation and investment, is committed to the city’s continued development and its suburbs. To keep its position as an attractive destination for business, it offers sharing knowledge, maximising ideas through networking, and guidance with research and development opportunities.

Cali is situated in the Cauca Valley, and its beauty is matched only by its business acumen; However, a smaller city than Bogota and Medellin, it still attracts companies such as Johnson & Johnson and FullStack Labs. Cali is a particular favourite with the manufacturing industry and IT services and has a flourishing Internet of Things hardware and software enterprise, health and fitness and digital PR businesses.

Etix Everywhere is the latest company to establish a data centre with an investment of US$10 million alongside four others, servicing the retail, healthcare, finance and banking sectors increasing Colombia’s potential for doing business.

Free Trade Zones or FTZ

These areas were set up to help combat the higher corporate income tax (CIT) rate of 35% and promote competitiveness with preferential tariffs, e.g., reduced CIT (20%). They offer more relaxed regulations while providing centralised warehousing, distribution and shipping operations which is more beneficial for importing and exporting goods, including customs duties referral or reduction. There are around 112 FTZs around the country divided into three categories which are:

  • Permanent – used by many companies.
  • Special Permanent – for special large projects used by a single entity.
  • Transitory – designated for trade fairs, conferences, exhibitions etc., held for the benefit of international trade.

Some Colombian Facts

  • Capital – Bogotá.
  • Population – 52 million.
  • Regions – Traditional geographic regions are the Atlantic lowlands, the Pacific coastal region, the Andean region, the Llanos and the Amazonian rainforest.
  • Official language – Spanish.
  • Economy and world ranking – US$300 billion, 44th globally, in 2021. US$350 billion is predicted for 2022.
  • Leading sectors – (2020) Services 60%, industry 24%, agriculture 7%.
  • Main exports – Crude petroleum, coal briquettes, coffee, gold, refined petroleum.
  • Main imports – Broadcasting equipment, refined petroleum, cars, packaged medicines, corn.
  • Main trading partners – US, China, Mexico, Brazil, Germany, Ecuador, and Panama.
  • Government – Presidential system, unitary state, constitutional republic.
  • Currency – Colombian Peso.

Advantages and Challenges when entering the Colombian Market

The advantages of entering the Colombian market include the following:

  • Location: Strategically excellent position in the northwest, has Caribbean (access to Atlantic) and Pacific coastlines with land routes into Central and North America and borders with five nations.
  • Investment: Agro-industrial, tourism and technology are highlighted as growth areas for foreign involvement.
  • Workforce: Well-educated, entrepreneurial and highly motivated towards innovation with relatively low labour costs.
  • Growth: Gross Domestic Product is expected to grow to US$350 billion in 2022.

Challenges of entering the Colombian market include:

  • Security: Overcoming concerns regarding drug trade-related violence, which the government has made decisive moves to counteract. Now confined mainly to rural areas, where professional security research is still advised.
  • Business: The World Bank’s last ‘ease of doing business report in 2020 ranked Colombia 148th for paying taxes and 133rd for trading across borders, and 177th for enforcing contracts out of 190 nations.
  • Logistics:  Connections between cities can be inefficient, although the 4G road network project is expected to resume in 2022.

LOOKING TO EXPAND INTO COLOMBIA?

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