Setting Up A Subsidiary Company In Colombia

Expanding your business into Colombia offers exciting opportunities for growth, access to one of Latin America’s largest markets, and a strategic position for further expansion within the region. Colombia’s favorable business environment, competitive tax rates, and skilled labor force make it an ideal destination for foreign investors.

If you’re considering how to create a subsidiary in Colombia or looking to learn more about setting up a subsidiary company in Colombia, this guide will walk you through the essential steps and key considerations for establishing a successful business in the country.

Key Takeaways

• Types of Subsidiaries: Choose between wholly-owned subsidiaries, joint ventures, S.A.S., and corporations based on control, liability, and tax needs.
• Setup Process: Key steps include registering with the Chamber of Commerce, opening a bank account, and obtaining a taxpayer ID.
• Taxation & Compliance: Subsidiaries are taxed at 35%, with additional surcharges for specific industries. Regular financial reporting and compliance with labor laws are required.
• Operations: Subsidiaries need a physical address and must register employees for health and pension coverage.

What Are the Types of Subsidiaries in Colombia?

When setting up a subsidiary company in Colombia, businesses have several types of structures to choose from, each with distinct characteristics. Below are the most common subsidiary structures:

1. Wholly-Owned Subsidiary

A wholly-owned subsidiary is when the parent company owns 100% of the shares of the subsidiary, giving it full control over the subsidiary’s operations and profits. This structure is ideal for businesses looking for complete autonomy and control over their local operations. However, the parent company will also bear all the financial risks associated with the subsidiary.

2. Joint Venture Subsidiary

A joint venture subsidiary involves a partnership between the parent company and one or more local Colombian companies or investors. The ownership and control are shared, which helps mitigate financial risks while benefiting from local market knowledge and expertise. However, decision-making can be more complex in joint ventures.

3. Limited Liability Company (S.A.S.)

The Simplified Stock Corporation (S.A.S.) is the most common form for foreign businesses setting up a subsidiary in Colombia. It offers flexibility, limited liability for shareholders, and a simple structure that makes it suitable for both small and large enterprises. The minimum capital requirement is low, and the S.A.S. allows for more straightforward management.

4. Corporation (S.A.)

The Corporation (S.A.) is a more formal entity, typically chosen by larger businesses looking to raise capital through public investments. The minimum capital requirement is higher than the S.A.S., and the governance structure is more complex, making it better suited for multinational corporations or businesses looking to scale quickly.

Step-by-Step Guide to Setting Up a Subsidiary in Colombia

Setting up a subsidiary company in Colombia requires careful attention to detail and a thorough understanding of local business regulations. From legal documentation to obtaining a tax ID, each step is crucial to ensure your business complies with Colombian law. Below is a simple, actionable guide to help you through the process:

Step 1: Register the Business with the Chamber of Commerce

The first action to take when setting up a subsidiary in Colombia is to officially register the business with the Chamber of Commerce (Registro Mercantil). This process establishes the legal foundation for your subsidiary. Key steps include:

• Obtain a pre-taxpayer ID (pre-RUT): This is a preliminary identification required for registering your company.
• Pay registration fees: You will need to pay a 0.7% capital registration tax and a fixed fee of COP 34,000.
• Complete the registration form: This form costs COP 4,000 and should be submitted after it is properly filled out.
• Sign a public deed: Depending on the type of legal entity, you may also need to sign a public deed for your business incorporation.

These steps finalize the legal existence of your subsidiary in Colombia.

Step 2: Open a Local Bank Account

A critical part of the setup process is establishing a local bank account to handle transactions. You will need:

• Pre-taxpayer ID: Use this ID, obtained during your registration, to open the account.
• Nominal share capital: Deposit the required minimum capital of COP 500,000 into the account. This is the nominal share capital as defined by Colombian law.
• Necessary documents: These include your certificate of existence, legal representative’s identification, and the Tax Identification Number (TIN) or citizenship certificate.

This step is essential for conducting day-to-day financial operations in Colombia.

Step 3: Obtain a Final Taxpayer ID (RUT)

The next step is acquiring a RUT (Registro Único Tributario), which is necessary for fulfilling tax obligations in Colombia. The RUT is issued by the Colombian Tax Authority (DIAN). To apply:

• Submit documents: Provide your pre-taxpayer ID, a bank certificate, and other required paperwork to DIAN.
• Obtain the RUT: This ID allows your subsidiary to be officially recognized for tax purposes and conduct taxable business activities.

Step 4: Register with Regulatory Authorities

To ensure your subsidiary is fully compliant with Colombian law, it must be registered with multiple governmental bodies. These include:

• Family Compensation Fund (Caja de Compensación Familiar)
• National Learning Service (Servicio Nacional de Aprendizaje, SENA)
• Colombian Family Welfare Institute (Instituto Colombiano de Bienestar Familiar, ICBF)

The registration process can be completed online and typically takes around five days. However, it is important to complete the Family Compensation Fund registration within 13 working days after incorporation to avoid penalties.

This registration ensures that your subsidiary is recognized by all relevant governmental bodies.

Step 5: Enroll Employees in Health and Pension Systems

To comply with Colombian labor laws, all employees must be registered in both the national health system (POS – Plan Obligatorio de Salud) and the pension system. Here’s how to complete the process efficiently:

• Register all employees with a health provider (EPS) by submitting the required affiliation forms, which can be processed through either public institutions or private health promoters in about one day.
• Enroll employees in either Colpensiones (government pension fund) or a private pension fund by submitting the proper registration forms to secure their retirement benefits.
• Both health and pension enrollments are legally required in Colombia and must be completed to ensure full compliance with labor regulations.

Step 6: Register with the Administrator of Professional Risks (APR)

As part of Colombian labor law, businesses are required to register with the Administrator of Professional Risks (APR). This ensures that employees are covered for workplace accidents and occupational hazards. To complete this step:

• Register the business and employees: Submit the required registration forms to an APR. These administrators can be either public or private.
• Pay monthly contributions: The company is responsible for making monthly payments on behalf of employees to cover potential work-related injuries or accidents.
• Training: Some APRs may require employees to undergo a brief training session before full coverage is provided.

This registration ensures compliance with workplace safety laws and protects your employees from work-related risks.

Key Benefits of Establishing a Subsidiary in Colombia

Setting up a subsidiary company in Colombia opens up opportunities for businesses looking to tap into the Latin American market. With its strategic location, competitive tax rates, and skilled workforce, Colombia offers numerous advantages for foreign companies. Here, we break down the main benefits that make Colombia an attractive destination for international expansion.

• Access to Latin American Markets: Colombia’s strategic location in Latin America allows businesses to expand their reach to neighboring markets in South and Central America.
• Competitive Corporate Tax Rate: With a corporate tax rate of 35%, Colombia offers a lower tax burden compared to many neighboring countries, making it more cost-effective for businesses to operate.
• Efficient Online Registration Process: Most subsidiary registration formalities can be completed online, simplifying the process for parent companies and reducing administrative effort.
• Cost-Effective Business Environment: Colombia offers competitive labor costs and a skilled workforce, providing companies with the opportunity to establish a strong market presence at lower operational costs.
• Skilled Workforce: Colombia boasts a young, educated, and multilingual workforce, particularly skilled in areas like IT, engineering, and customer service.
• Improved Legal Protections: A subsidiary provides the parent company with limited liability, which means the parent company is not directly responsible for the subsidiary’s debts and liabilities.

Understanding the benefits is crucial, but setting up a subsidiary company in Colombia also requires a solid legal and financial foundation. Let’s take a closer look at the essential documents needed to get started.

Essential Documents for Registering a Subsidiary

In order to ensure a smooth and successful registration of your subsidiary, you’ll need to gather a few key documents. These documents are necessary for meeting the regulatory requirements set by Colombian authorities. Here’s a breakdown of the essential paperwork you’ll need to get your subsidiary properly registered:

• Memorandum and Articles of Association: This document outlines the parent company’s structure and governance, and is essential for registering the subsidiary.
• Power of Attorney: This grants authority to the legal representative in Colombia to act on behalf of the parent company during the registration process.
• Minutes of the Parent Company’s Meeting: A written record of the decision made by the parent company’s board to establish the subsidiary in Colombia.
• Details of the New Company (NewCo): Information about the new subsidiary, including business name, business address, business activities, number of shares, and the board of directors’ decision.
• Identification Documents: Copies of the passports of all legal representatives, as well as letters of acceptance from them confirming their appointment.
• Good Standing Certificate: A certificate proving that the parent company is in good legal standing in its home country.

Legal Structures Available for Subsidiaries in Colombia

Choosing the correct legal structure is one of the most important decisions when setting up a subsidiary company in Colombia. The structure determines the level of liability, governance, and operational flexibility of the business. Here are the available legal structures:

• S.A.S. (Simplified Stock Corporation): This is the most popular and flexible option for foreign investors.
• S.A. (Corporation): This is suited for large businesses looking to raise capital.
• Branch Office: A branch is not a separate legal entity from the parent company and retains full liability.

Taxation Rules and Incentives for Subsidiaries

Understanding Colombia’s tax system is essential when planning how to set up a parent company with subsidiaries in Colombia. A subsidiary in Colombia is subject to the same tax regulations as a local company.

The corporate tax rate is currently 35%, and subsidiaries are taxed on their worldwide income, meaning any profits generated, whether locally or abroad, are subject to taxation in Colombia.

Additionally, some industries face extra tax burdens:

• Finance, Insurance, and Reinsurance: Subsidiaries in these sectors are subject to an additional 5% surcharge on their revenue.
• Crude Oil and Coal Extraction: Companies in these industries face a surtax ranging from 5% to 10%, depending on the prevailing market prices for these commodities.

Regulatory and Compliance Requirements

Whether you’re setting up a subsidiary or exploring how to start a parent company in Colombia, ongoing compliance is crucial. Once your subsidiary is established, it must meet these legal, tax, and reporting obligations to remain compliant with Colombian laws:

• Annual Financial Reporting: Submit financial statements (balance sheet, P&L, cash flow) to the Chamber of Commerce and DIAN in line with Colombian accounting standards. Late filings risk penalties.
• Tax Compliance: File 35% corporate tax annually and 19% VAT monthly/quarterly (some goods at reduced rates). Missed deadlines trigger fines, audits, or interest.
• Labor Laws: Register employees with Colombian Social Security (CSS), covering health, pensions, and workplace insurance. Maintain compliant contracts and contributions.

Do You Need a Physical Address for a Subsidiary in Colombia?

Yes, a physical address is mandatory for setting up a subsidiary company in Colombia. The address must be used for official correspondence, legal notices, and tax communications from Colombian authorities. It is required for registration with the Colombian Chamber of Commerce and the tax authorities (DIAN).

While the business does not need to maintain a large office, the address must be a valid, accessible location within Colombia. Options include using a co-working space, a virtual office, or a physical office. The primary requirement is that it allows the subsidiary to receive all necessary official communications. Failing to provide a valid address can delay the registration process or result in non-compliance with local regulations.

Operational Setup for a Subsidiary in Colombia

After setting up a subsidiary company in Colombia, you need to focus on its operational setup. This includes hiring staff, securing office space, and ensuring compliance with local regulations. Below is a detailed explanation:

• Staffing: Hire local talent or transfer staff, ensuring compliance with Colombian labor laws, written contracts, social security registration, and timely contributions are mandatory.
• Office Space: Choose between prime locations (higher rent) in Bogotá/Medellín or cost-effective co-working spaces for flexibility.
• Logistics: Leverage Colombia’s strong infrastructure (highways, ports, railways) to streamline your supply chain and distribution.

How to Open a Business Bank Account for a Subsidiary?

Opening a business bank account is essential for operating a subsidiary in Colombia. Here’s a detailed breakdown of the process:

1. Obtain a Pre-Taxpayer ID (RUT): Before opening a bank account, your subsidiary must obtain a pre-taxpayer ID (RUT) from the Colombian tax authority (DIAN) during the registration process.
2. Prepare the Required Documents: You will need to provide documents like certificate of incorporation, NIT, proof of identity, business address, power of attorney and financial statements.
3. Choose a Bank: Select a bank that fits your business needs. Popular options include Bancolombia, Banco de Bogotá, and BBVA. Consider factors like international capabilities and online banking services.
4. Visit the Bank in Person: The legal representative must visit the bank in person to complete the KYC process and verify their identity.
5. Deposit Minimum Capital: A minimum deposit is required to activate the account, depending on the bank.
6. Due Diligence: Banks will conduct due diligence checks as part of their anti-money laundering (AML) procedures. This may take a few days.
7. Activate the Account: Once all documents are verified and due diligence is complete, the bank will activate the account and provide account details and online banking access.

Is an Operating Agreement Necessary for a Subsidiary?

An operating agreement is not required by law in Colombia for a subsidiary. However, it can help define the subsidiary’s operations, management structure, and decision-making processes.

While optional, an operating agreement can:

• Clarify Roles and Responsibilities: Establish clear roles for management and directors.
• Outline Governance: Define how decisions are made within the subsidiary.
• Prevent Disputes: Provide a framework for resolving conflicts among stakeholders.

While not legally necessary, an operating agreement can improve the subsidiary’s internal structure and reduce potential issues.

Opening a Branch vs. a Subsidiary: What’s the Difference?

When considering setting up a subsidiary company in Colombia, foreign businesses may wonder whether to establish a subsidiary or a branch. The main differences include:

How Commenda Can Help You Expand in Colombia

Whether you’re considering how to form a subsidiary in Colombia or exploring how to set up a parent company with subsidiaries in Colombia, understanding the process and complying with local regulations is crucial for success.

Setting up a subsidiary in Colombia can be complex, but Commenda simplifies the process, helping businesses expand with confidence. Whether you need guidance on establishing a subsidiary or support with legal requirements, Commenda provides the tools and expertise to set up your subsidiary efficiently and securely.

Talk to an expert for free today for support with how to establish a subsidiary company in Colombia.

FAQ

Q. How much does it cost to set up a subsidiary in Colombia?
The cost for setting up a subsidiary company in Colombia typically ranges from $800 to $5,000. The exact cost depends on factors such as the complexity of the business structure and the specific documentation required.

Q. How long does it take to register a subsidiary in Colombia?
The registration process usually takes between 3 to 6 weeks. This timeline depends on the type of business structure and how quickly the necessary documentation is provided.

Q. Can a foreigner fully own a subsidiary in Colombia?
Yes, foreigners are allowed to fully own a subsidiary in Colombia. There are no restrictions on foreign ownership, and foreign investors can control 100% of the subsidiary’s shares.

Q. What are the common challenges when opening a subsidiary in Colombia?
Common challenges include navigating the country’s complex regulatory environment and ensuring compliance with local tax incentives and labor laws. Understanding the legal landscape and meeting all requirements can be time-consuming for new entrants.

Q. Do subsidiaries in Colombia need a local director?
Yes, a legal representative who resides in Colombia is required to manage the subsidiary. This individual must handle all legal matters and ensure compliance with Colombian laws.

Q. Can a subsidiary hire employees directly in Colombia?
Yes, subsidiaries can hire employees directly in Colombia. They must comply with Colombian labor laws, including registering employees for social security, health insurance, and meeting wage requirements.