If you’re looking to set up a business in Colombia as an expat, it’s always best practice to know where potential pitfalls for new companies lie.
At Expat Group, we’re always being asked by our clients and partners about which barriers are most telling for foreign nationals who look to start a Colombian enterprise, and top tips for overcoming these obstacles.
For this reason, we’ve picked out our five most notable challenges for doing business in Colombia as an expat.
Let’s get started.
1. Acquiring business resources
Considering GDP per capita has doubled in the last 15 years, you’d think Colombia is a country that’s well equipped for handling foreign investment.
There are still unforeseeable roadblocks, however, for new businesses who’re looking for physical capital to establish their new Colombian enterprise.
Take building a property. If you want to construct an office – depending on what department your business is operating in – the process for acquiring a permit can take as long as six and half months. Likewise, overtly bureaucratic measures means that this may require up to 19 different procedures to occur if you want legal permission to construct in an urban or rural area.
Additionally, there is a significant labor mismatch between the Colombian workforce and the job market. On the whole, Colombian workers who have a very technical skillset, such as those in the IT or electronics industry, are underemployed or underpaid by Colombian-based businesses. While this might seem like an opportunity rather than a hindrance, locating the right Colombian workers for your company can be challenging, as so many workers are poorly recruited into inappropriate positions.
To mitigate this, the majority of foreign embassies with a presence in Colombia offer materials and information on your best course of action when it comes to business investment. Take the American embassy, who offers the Colombian-American Chamber of Commerce and the Council of American Enterprises in Colombia in terms of resources for American citizens.
2. Getting credit and financial support
Establishing a line of credit in Colombia can be an arduous process, loans for foreign nationals is very rare.
Despite the Colombian government releasing a $12 trillion COP ($3 billion) relief fund for Colombian businesses affected by the COVID-19 pandemic, this money will unlikely be made available to new businesses with foreign owners.
Furthermore, direct financing is not available to foreigners, unless they’re married to a Colombian national who also lives in Colombia, so acquiring financial support from commercial banks is a tough ask.
In terms of mortgages for property, interest rates typically lie between 15-18% and are for the most part given to Colombian nationals. If you’re looking to apply for a mortgage for your business, here are some basic requirements you’ll need to comply with:
- Being married to a Colombian national
- Living in Colombia for more than six months
- Planning to buy the property as part of your business and not as second home
- Already having a local bank account
Alternatively, if you’re looking for financial advice for setting up your new business, book an appointment with Expat Group today for a professional consultation.
3. Language barrier
One of the greatest challenges to foreign nationals who aren’t from hispanic countries is doing business in another language.
While Colombia is revered for being one of the best places to learn Spanish for the clarity in which Colombians speak, conducting business is a daunting prospect if you’re only starting out.
Negotiating contracts, buying and selling resources, setting up bank accounts and complying with trade regulations all require an intermediate to advanced level of spoken and written Spanish.
If you’re Spanish isn’t quite at the level you need it to be for starting a business in Colombia, you can reach out to an experienced business creation services agency while you’re taking Spanish classes who can help you fulfil the legal and accounting processes needed to set up your company
4. Colombian Taxation
Put simply, paying your taxes for your business in Colombia can be onerous to say the least.
For starters, corporation tax (CIT) in Colombia sits at around 32%, with a minimum amount of income tax to be paid as 0.5% of your net equity as of 31st December of the previous year.
Capital gains tax sits at around 10% of all profits made on the sale of a property, and there’s also an extra municipal tax that’s paid to the local governing body of the department your business is located in. Municipal tax is around 4% of your net profit.
Fortunately, foreign nationals are only required to pay tax on Colombian business, and not on any international trade they do. The process of paying your corporation tax through websites like DIAN, although, can be very tricky and require people that are both fluent in Spanish and accustomed to using their site.
Remember that to register your business in Colombia, you need to have a recognized Colombian accountant attached to your documentation when creating your company. If you’re at a loss with searching for a trustworthy accountant, request an appointment with Expat Group today.
5. Contract Enforcement
Last but not least, making sure contracts are enforced with clients is crucial to your business’ success. Especially important to B2B enterprises, enforcing contracts is complicated in Colombia, as the courts system is very slow.
If you have a case of insolvency for a client’s side, for example, the timeframe for a full resolution of this can be up to 20 months. Once again, Colombian bureaucracy comes back to haunt as procedurally-heavy steps for enforcing contracts with the full force of the law have been known to take four years.
In a nutshell, there’s many reasons to do business in Colombia.
As a country with fast economic growth and a relatively skilled workforce, Colombia has a lot of untapped potential for foreign investors to utilize. There are some clear drawbacks and hindrances to doing business, and in moments of difficulty, it’s always best to have an experienced business services consultant in your corner.