Top Challenges Colombia

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Colombia is home to an exciting domestic economy with a keen focus on international markets and foreign trade, but navigating the complex tax, legal and regulatory challenges can be difficult without the help of local personnel.

Open, transparent and ready to trade are three cornerstones of the Colombian economy. With extensive trade relations, there are more than 9,700 exporter companies trading with 181 countries. Thanks to strong international integration with eight free trade agreements in force, three signed agreements and five under negotiation, there is also preferential access to a market of more than 1.5 billion customers for companies investing in the Latin American powerhouse.

Domestically, the country is conducive to business. Technology infrastructure is supported by five underwater cables and a national fiber-optic ring that connects 300 municipalities in the country. Easy access to global markets thanks to its privileged geographical location and developed logistics also help businesses trade with ease, opening up Latin America and providing a gateway to Central American states and North America.

But the complex fiscal and regulatory environment can make exploring the many opportunities at hand a tricky endeavour, which is why having local help on board is essential in order to make the most of your Colombian venture.

Starting a Business
The first step to starting a business is to register with the Register of Commerce and the National Tax Office (DIAN) at the Chamber of Commerce. New businesses must then deposit capital into a Colombian bank account and register the company with the Administrator of Professional Risks (ARP). Employees are also required to be registered with several government agencies.

Dealing with Construction Permits
Companies are required to file for and obtain construction licences and pay variable charges and tax on urban delineation at the bank, which can be a rather substantial cost. Once certified, connections are to be conducted by EAAB before final inspection can be carried out by the Mayor’s office.

Getting Electricity
Getting electricity is by far the most arduous aspect of starting a business in Colombia. The World Bank and International Finance Corporation (IFC) rank it in 134th place in the world out of 185 economies thanks to the excessive time it takes (average of 165 days) and the cost of completing the procedure.

Registering Property
It takes just over two weeks on average to register property and requires a lawyer or notary to oversee most aspects. Once registration fees have been paid at the bank and all other matters have been sorted, the public deed must be registered at the Registry Office in order to complete the process.

Getting Credit and Protecting Investors
There is good private bureau coverage in Colombia, although the lack of a public registry can make getting credit quite difficult. The World Bank and IFC rank Colombia among the top 10 countries in the world for investor protection.

Paying Taxes
Tax payments are an extremely complex affair and can absorb around 200 hours of business time a year. Corporate income tax - flat rate of 33% - takes 50 hours to process alone and there are several other levies that can catch firms off guard, such as the financial transactions tax and municipality tax.

Trading Across Borders
The cost of trading across borders is far higher than in most Latin American and Caribbean countries and exceeds the OECD norm by around two times. It can also be a rather timely endeavour, taking around two weeks to both import and export.

Enforcing Contracts
It can take close to four years to enforce a contract in Colombia, largely down to the number of procedures which are required to be completed. Filing and service takes well over two months, and the judicial procedures can take years.

Resolving Insolvency
Resolving insolvency takes an average of 1.3 years to complete, and the recovery rate is very good compared to many of Colombia’s Latin American and Caribbean neighbours.

As a collectivist culture, family is the central unit of Colombian society. Communication is often subtle and indirect, which can cause problems when it comes to business negotiations. Punctuality and time keeping is far more relaxed in Colombia than elsewhere in the world, so take an informal approach to doing business in the country.

TMF Group
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Colombia or just want to streamline your Colombian operations, talk to us.