SUBSIDIARY ENTITY SET UP IN COLOMBIA

International companies planning to widen their global horizons can consider a subsidiary entity set up in Colombia. However, establishing a presence in a foreign country can be costly, both in time and money, without any certainty that the effort and financial outlay will bring success.

Suppose the blossoming economy of Colombia is the target for Global Expansion. In that case, foreign companies planning to hire or move staff there and operate payroll must establish a legal entity as a subsidiary. This is so they can deal with the Colombian Tax and Customs National Authority (Dirección de Impuestos y Aduanas Nacionales, DIAN) and the General System of Social Security in Health (Sistema General de Seguridad Social en Salud, GSSSH).

A popular choice is to establish a limited liability company operating under Colombia’s Commercial Code and known as a Sociedad de Responsabilidad Limitada (SRL). It has a minimum of two partners who generally have no liability. However, expanding overseas is a significant step. If the move fails, companies face the extra expenditure and stress of closing their operation, selling property and paying off employees. It is easy to stumble while chasing two objectives – advancing your company at home while crossing the world into new territory.

The sensible alternative is to use a Professional Employer Organisation (PEO) and Employer of Record (EOR), such as Bradford Jacobs, to locate the finest local talent and administer your payroll in Colombia. Your company will be up-and-running in days rather than weeks or even months and without running any risks.

How to Set Up a Colombian Subsidiary?

Are you considering a subsidiary entity set up in Colombia? First, decide on the business structure best suited to your vision for expansion. The typical choice is to move with a limited liability subsidiary. This operates under the Commercial Code in Colombia and is a Sociedad de Responsabilidad Limitada (SRL). It has a minimum of two partners who generally have no liability.

Registration and other procedures include the following:

  • Colombian resident legal representative must be appointed via Power of Attorney. Foreign companies and individuals must provide extra documentation, notarized in the home country, before being forwarded to Colombia.
  • Verify with the Single Business Register that the chosen company name is unique to Colombia and includes ‘Limitada’ or ‘Ltda’ in the title.
  • Have company bylaws, and Articles of Association drafted and notarized
  • Register public deeds with the Chamber of Commerce.
  • The SRL has at least two partners/shareholders, individuals or entities. Two directors of any nationality are required, not necessarily Colombian residents.
  • The minimum share capital of €1/US$1.
  • Obtain company tax registration certificate and Tax Identification Number (TIN), assigned through the Tax Registry (Registro Unico Tributario, RUT).
  • The TIN is required by all entities, individuals, withholding agents and those filing tax returns. The Tax and Customs National Authority (Dirección de Impuestos y Aduanas Nacionales, DIAN) use the TIN to access all information regarding taxpayers.
  • Open a business bank account by showing the tax and registration certificates.
  • Foreign investment must be declared through the Colombian Central Bank.

After establishing the subsidiary, companies must take on other procedures and responsibilities to run payroll for their staff. Essential requirements include:

  • The first step is to create an employment contract for the employee and ensure any foreign workers have the correct work visa and other required permits. Additionally, they must have a Foreigners’ or Alien Identity Card, and if their contract exceeds three months, advise the Colombia Migration Administrative Unit within 15 days of beginning or ending employment.
  • A company doctor must examine the individual at least three days before starting work.
  • Register with the General System of Social Security in Health (Sistema General de Seguridad Social en Salud, GSSSH) once the individual has been hired, with the employee selecting from the options for health insurance and pensions.
  • All enrolment forms must be completed on the first day of work. Digital signatures are not permitted, so the individual must sign them in person.
  • Employers must enrol the employees on the welfare system and insure them against employment labour risk.
  • Designated professions may require Special Temporary Enrolment granted by the Professional Councils.
  • Obtain employees’ tax registration certificate and Tax Identification Number (TIN) through the Tax Registry (Registro Unico Tributario, RUT). This number is required by all individuals, entities, withholding agents and those filing tax returns.
  • Register employee with the Colombian Tax and Customs National Authority (Dirección de Impuestos y Aduanas Nacionales, DIAN).

Benefits of Setting Up a Colombian Subsidiary

International companies having established a subsidiary entity in Colombia operate under the Commercial Code, while the Labour Code governs the relationship with their employees. The subsidiary has a separate legal identity from the parent company and is treated the same as a local company. The parent company’s liability is generally restricted to the invested share capital; neither is it responsible for any subsidiary debts.

The subsidiary provides the parent company with the potential for further expansion throughout Central and South America as a stepping stone into other regional economies. Additionally, the subsidiary can ‘test the market’ by following its business ideas and entering into different areas of operation for the owning company. The subsidiary can also draw up its contracts and agreements with clients.

Other benefits for a subsidiary: 

  • Easier to obtain potential benefits and incentives and enter into contracts with other Colombian, Central and South American companies.
  • More impact with clients and suppliers, as subsidiaries imply more permanency than branches.
  • Employees feel there is more stability and job security than from being with a branch.

However, there is a more straightforward option to the risks and costs of setting up a subsidiary in Colombia. Working with Bradford Jacobs and using a global Professional Employer Organisation (PEO) such as Bradford Jacobs means staff can be sourced, placed in their roles and be up and running within days rather than months. All the payroll, taxation and compliance difficulties are under control thanks to our Employer of Record (EOR) services.bo

Subsidiary Laws in Colombia

The Commercial Code regulates all companies operating in Colombia. Registration, compliance and management requirements include:

Registration and Documentation:

  • Power of Attorney for Colombian resident legal representative
  • Unique business name verified with the Single Business Register
  • Notarized company bylaws and Articles of Association
  • Incorporation through public deed registered with the Chamber of Commerce
  • Commercial registration must be renewed annually

Accounts and Taxation:

  • The minimum share capital of €1/US$1
  • Obtain a tax registration certificate and Tax Identification Number (TIN) from the Tax Registry (Registro Unico Tributario, RUT)
  • Subsidiary taxed on corporate profits; partners etc., tax on distributed dividends
  • Foreign investment must be declared through the Colombian Central Bank
  • All companies must file annual tax returns approved by partners
  • No statutory requirement for an auditor unless assets exceed limits as described by Law 43
  • The company bank account must be in Colombia

Management:

  • Two partners or shareholders can be individuals or entities. Maximum of 25
  • Partners must hold annual general meetings, but there is no statutory requirement for a board of directors
  • Partners are responsible for running the company, but they can appoint a manager
  • There is no requirement for a company secretary
  • There are no restrictions on the nationality of partners, shareholders, directors or officers, but their nationality and domicile must be registered on incorporation documents.

LOOKING TO EXPAND INTO COLOMBIA?

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