I'm sure you've heard about Colombia and the great things it has to offer. The beautiful country is well-known for its coffee, emeralds, and other natural resources that make it an attractive destination for international investors. However, what many people don't know is that there are a lot of opportunities in this country to start a business as well.
In this post, we'll explore some insights into how it's like to run your startup in Colombia and why we think so many entrepreneurs should seriously consider the Colombian market when starting their own company.
The start-up scene in Colombia is growing fast, and the country now ranks as one of the best places to start a business. In just two years it has jumped from position 52 to 34 on the World Bank’s Doing Business index, making it easier for entrepreneurs both locally and internationally to start their own company here. The Colombian government has created many incentives for foreign investors looking to start up a new business within their borders or even move back home after being abroad. With an emphatic agenda encouraging international corporations into the country along with various institutional support programs there are plenty of reasons why you should seriously consider starting your startup in Colombia too.
In 2016 alone, over 180 institutions were involved at some level in providing financial assistance tools that helped start-ups in Colombia. Many of these programs are focused on providing a good environment for foreign investors and entrepreneurs to start their business here, which is why we think that now more than ever there has never been a better time to start your next big idea right here in Colombia.
Every year the government publishes an annual report called “Estrategia de Desarrollo Económico y Social” (Economic and social development strategy). This document provides insight into some of the key strategies they employed over the last 12 months as well as listing some future goals for economic growth within this country. One example of such initiative was an attempt by President Juan Manuel Santos Calderón at simplifying bureaucratic procedures across various governmental institutions earlier this year. By cutting down the time it takes to start a new business, open up an incorporated company, secure property rights, and receive construction permits this strategy has benefited both national entrepreneurs as well as foreign investors looking to set up shop here in Colombia.
The Colombian economy is expected to grow by at least three percent for 2017 according to World Bank projections, which means that there are many reasons why you should consider starting your next project right here in Colombia. Many of these opportunities can be found within our StartupBlink directory with over 400 companies located across the major cities of Bogota Medellin, Cali Pereira, or Barranquilla.
Key steps to start a business in Colombia
There are several formal legal steps to starting your business in Colombia. Make sure to get assistance and advice from a local legal expert in the country, to ensure you comply with all corporate law and accounting requirements.
1. Draft and sign Power of Attorney
The first step to start your business in Colombia is to draft and sign the Power of Attorney (POA) document for your legal representative. If you are not physically located in Colombia, we recommend engaging a local lawyer or consultant who can represent you and sign all necessary documents on your behalf.
If the shareholders and the legal representative are not in Colombia, a power of attorney must be drafted to sign the bylaws, and submit them to the Chamber of Commerce.
If the shareholders are foreign persons or companies, the Colombian government will request additional documents from abroad. Both the additional documents and POA must be legalized before a Public Notary, apostilled, and sent through the Ministry of Foreign Affairs.
2. Choose the name of your company
The next step is to choose the name of your company. Through the government’s public database, in the Single Business Register or RUE, you must confirm that the desired name for your business is available. It is important to keep in mind that while it may be different from your brand (verbal trademarks), legally speaking this new entity will be known as your brand.
You can start searching the Single Business Register nowhere. If you are already in Colombia, this search can be completed at a local Chamber of Commerce or RUE office where they will be able to assist with completing the registration process. Your business must have an official name and legal status before it becomes operational.
3. Choose the legal structure
There are three common legal structures for start-ups in Colombia. The first option is the Simplified Shares Company or SAS, which has no limit on shareholders and corporate documents do not need to be made publicly available.
The second type of company is a Corporation or SA, where capital is divided into shares of equal value that are represented by negotiable titles.
The third option is a Foreign Company Branch, where an extension of a foreign parent company can be established in Colombia. The start-up must have the capital to cover all operational costs during its first year plus three months' worth of reserve funds set aside for contingencies. During this period, shareholders are not allowed to withdraw their investment or dividends, but the start-up can continue to reinvest profits. After this period, shareholders are allowed to withdraw their investments or dividends until the business becomes profitable and has paid back all initial costs plus three months’ worth of reserves set aside for contingencies.
4. Write the company bylaws
Once you have decided on the type of start-up and the name of your company, it is important to draft and sign the bylaws for your start-up. This is like a constitution: it determines how things will be done in your start-up; who makes decisions; what happens if someone leaves or dies; that sort of thing.
The bylaws of a startup must include:
- A brief history of the start-up, including its objectives and activities. It is important to state if it will be involved in any other business besides what is stated in the memorandum of association.
- The company’s registered office (where official documents are sent) and fiscal domicile (where accounting records must be kept), and the start-up’s registered agent (the person who represents the start-up).
- The start-up's representative(s) in addition to any legal representatives. This document must be signed at a Chamber of Commerce or RUE office before sending it for notarization by a public notary.
- The start up’s start date, which is the day it becomes legally operational even if no business activity has yet taken place or products have not been offered for sale.
- A description of the company's organizational structure and requirements to be president/chairman/chief executive officer (CEO). This must include information about start-up capital, the company’s assets and liabilities, distribution of income/dividends to shareholders or partners.
- The start-up's initial share capital (shares that have not been subscribed) plus the number of shares needed for a quorum at shareholder meetings. If you want preferred shares, this must be stated here as well.
- The start-up's accounting year, which can be any date that makes sense for the start-up. It is recommended to choose a month start that allows you to close books at end of June each year and avoid paying taxes on two months' profits in one fiscal period.
- How many general shareholder meetings will take place per year and the start up's fiscal year.
- A list of shareholders and how many shares each one holds. If there are preferred shares, this must be stated here as well.
- The start-up’s rules for amending bylaws or dissolving the startup, which require a majority vote at shareholder meetings to take place.
- The start-up’s rules for distributing dividends or profits, which must be approved by a simple majority vote at shareholder meetings.
- A detailed description of what happens in case shareholders or partners leave the start-up.
5. Register with the Chamber of Commerce
Colombia’s Chamber of Commerce is responsible for regulating the creation of companies in Colombia. For this registration, you must provide a set of documents outlining your company’s activities, the bylaws and Power of Attorney, and shareholder information.
The Chamber of Commerce will review this documentation to confirm that it adheres to the legal requirements and company creation policies in the country.
Registration approval will take only 24 hours, after which time your company can start operations.
6. Obtain tax identification (NIT)
Once you have registered with the Chamber of Commerce, your start-up must obtain a tax identification number (NIT) so it can pay its taxes and be taxed on its income.
The NIT is issued by Colombia’s National Directorate of Taxes and Customs, which is part of the Ministry of Finance.
After you register as a start-up, the start-up must start to pay taxes within three months. You can submit your NIT application online at what is called el SII (Servicio de Impuestos y Aduanas).
The process usually takes about two weeks if you are filing for an individual or sole proprietorship, but it may take several weeks if you are filing for a start-up that will have other owners.
As part of the process, you must submit your start-up registration with the Chamber of Commerce and start-up certificate (the document issued by the DIAN at the time of start-up registration). A notary public can obtain this document from either DIAN if they are in the start up’s same office building or from the Chamber of Commerce.
Once you have received your NIT, it must be reported to the DIAN by completing a form (Form 040) and attaching other relevant documentation such as proof that start-up capital has been deposited with an authorized bank. This document must be submitted on time because start-ups that fail to do so are subject to fines.
The NIT must be renewed every two years, but you can request an extension for up to five additional years if the start-up is still in operation and has not closed down or sold its assets.
7. Open your corporate bank account
When you start a start-up in Colombia, it is necessary to open a corporate bank account.
There are many different banks and each one offers its benefits and agreements for opening an account for start-ups and entrepreneurs.
To open this type of account, you must present the certificate from the Chamber of Commerce certifying that your start-up is registered in Colombia, your tax certificate (NIT), the identification number of the start-up's legal representative, and the start-up capital.
Each bank may request additional information for this step, you will need to speak with a manager at each bank individually if they ask for any specific documentation or registrations.
In general, start-ups should open a bank account with a private Colombian financial institution that is regulated by the Superintendency of Banking and Insurance (SIB) because start-ups often face cash flow problems, which can make it difficult to obtain loans from commercial banks.
In some cases, start-ups may be able to open an account at a public or semi-public financial institution, but start-ups must often pay high fees for these types of accounts.
If you decide to open a foreign bank account instead (which may be necessary if your start-up is invested in by an international entity), then the start-up should use its NIT to obtain a certification that it has filed tax returns and paid taxes on income earned abroad.
The start-up must then present the certification to a bank for it to apply for an account. The start-up can request this document from any DIAN office or UAF (Unidad de Análisis Financiero) where processing takes two weeks, but there is no guarantee that the start-up will receive approval by this time.
To start a start-up in Colombia, you must register your start-up with the Chamber of Commerce and request a start-up certificate from DIAN within three months of registration.
If it fails to do so, then the start-up is considered illegal and will have its assets seized by the government. As part of the start-up registration process, start-ups must pay a VAT (IVA) payment to the National Tax Authority (ANATI).
The start-up can request an extension of this deadline if it has not yet received its start-up certificate.
When it receives this document, then the start-up must present two forms at DIAN to start up legally.
The start-up must also open a corporate bank account in Colombia by presenting the start-up certificate, tax identification number (NIT), and proof that its start-up capital has been deposited with an authorized Colombian financial institution. This document must be submitted on time because start-ups that fail to do so are subject to fines.
Finally...
If you want to learn more about this, go and check out this short presentation below for more information on starting a business in Colombia.
About 4Geeks
Founded in 2012, 4Geeks is a global software engineering and revenue growth consulting firm for Fortune 500, Global 2000 and fast-growing SMBs. Provides top solutions to multiple industries including Retail, Healthcare, Banking & Financial Services, B2B SaaS, Manufacturing and Education. HQ in the USA, and delivery centers across Latin America.
