Use these 7 practical tips to continue doing business in Colombia during uncertain and challenging current conditions.
The Colombian government has implemented several temporary Decrees and ‘Circulars’ (Circulares) to manage commercial operations and strains on company cash flows and counter the spread of COVID-19.
At present, these measures are deemed temporary and there is currently no intention to enforce permanent changes to doing business during this time.
Doing business in Colombia: challenges and advice
Last week, Biz Latin Hub’s Managing Director Craig Dempsey participated in the webinar ‘Commercial Implications of COVID-19 in Colombia,’ organized by the Australia-Colombia Business Council (ACBC) and Australia-Latin America Business Council (ALABC). As part of his presentation, Craig provides key practical advice to support businesses who have experienced delays or are unable to move forward with their original business plan.
Consider the following information and guidelines to continue doing business in Colombia under current temporary restrictions.
1. Hire staff through a PEO to sidestep visa and company incorporation issues
Temporary visa restrictions
While Colombia’s borders remain closed, companies cannot obtain working visas for foreign nationals currently outside of the country. This is challenging for companies in the middle of hiring processes, whose candidates were not inside Colombia’s borders at the time they closed.
Companies doing business in Colombia can choose to try and find local staff under their own initiative. However, for those facing a language barrier, or with little knowledge of the local workforce and expectations from employees and the government, this can prove difficult.
Company incorporation issues
At present, companies are unable to incorporate in Colombia. Generally, there is an accessible online process for company incorporation, that can usually be undertaken by a Colombian legal representative.
However, a crucial element of the company incorporation process includes requesting tax identification – also known as a RUT – from the National Tax Authority, DIAN (Dirección de Impuestos y Aduanas Nacionales). Currently, the DIAN is not accepting requests for a RUT during this time.
One key solution to continue doing business in Colombia is to hire local talent through a Professional Employer Organization (PEO) in Colombia.
A PEO in Colombia can support companies to hire locally and alleviate language and bureaucratic burdens for the employer. By partnering with a PEO through a ‘co-employment model,’ the PEO becomes the ‘Employer of Record’ for the hired personnel in the eyes of the Colombian government. The PEO can hire staff on behalf of the company, and can also ensure the hiring company is fully compliant with local employment regulations for that employee. A PEO in Colombia will handle the relevant paperwork and manage payroll and social contributions for a company’s employees in Colombia.
Additionally, as traditionally large organizations with key local market knowledge, PEOs have the capability to find and support the best talent for your company.
2. Open your bank account online and choose your bank wisely
Companies may be able to open a corporate bank account in Colombia during this time, but it depends on the bank.
Banks are working towards implementing fully online procedures to open a corporate bank account in Colombia. Many banks now accept digital copies of required documents to open a corporate account. Itaú, a prominent Brazilian bank operating in Colombia, accepts digital signatures for documents and online processes.
However, note that some banks may still require physical copies of documents. Ensure to find a bank that administers a fully online bank account application process. Confirm with your local legal representative which banks offer this service.
3. Manage currency exchange risks with a compensation account
The Colombian market and its currency, the peso (COP), are more volatile during this time. The COP has depreciated significantly.
With a fluctuating currency, companies cannot easily forecast their cash flow and run the risk of generating lower income amounts.
The key solution to prevent unpredictable cash flow and avoid any further volatility of the peso is to establish a compensation account. This is a corporate account established in Panama, in which companies can receive and hold US Dollars. Though the account technically sits in Panama, the compensation account is considered to be Colombian for administrative purposes.
Additionally, be aware that companies may review exchange rates set in a contract if the rate fluctuates by more than 20% of the agreed amount.
4. Negotiate costs and be persistent with outstanding payments
It’s a crucial time for companies to do everything they can to manage business risk by minimizing costs and receiving outstanding cash payments.
Negotiate rent, utilities, printing and cleaning contracts, and any other regular expenses you may be incurring that your company is not utilizing, or is unable to utilize at this time. Based on current observations, companies may be able to negotiate between a 10-30% discount on these expenses.
Be persistent in following up on outstanding payments. Your legal representative may send a letter of demand to those owing payment to the company.
Important: note that in Colombia, it is difficult to enforce contracts that are not written in Spanish. If needed, prepare English and Spanish versions of contracts.
5. Take note of extensions for administrative/filing deadlines
Companies doing business in Colombia must renew their commercial license each year. Due to current restrictions on business and lower capacity of government institutions, the Chamber of Commerce has extended the deadline for companies to renew their commercial license from 31 March to 3 June.
Tax declaration deadlines have also been extended. These extended deadlines differ for each company depending on their tax identification number. Information about the deadlines specific to your company’s identification is available on the DIAN website.
Companies may also carry out their General Shareholder Meeting online in order to fulfil their annual obligation
6. If necessary, apply for a tax residency waiver
Colombia’s decision to close its borders means that people doing business in Colombia on temporary visas are unable to leave, even though their visa may be expiring. Normally, people who stay in Colombia for more than 183 days must start paying taxes.
People stuck inside the country due to these unforeseen circumstances (‘force majeure’) can apply to extend their visa through a residency ‘waiver’. This ‘residency waiver’ stops visitors from becoming eligible to pay tax. Waivers can be obtained on a case-by-case basis through a request to the DIAN.
Decree 941 gives Colombian authorities 35 working days to respond to requests of this nature.
Find out as soon as possible if you or your staff are eligible for this waiver and apply as far in advance as possible.
7. Take note of changing administrative processes
Government institutions are implementing online and digital processes in order to improve the ease of doing business in Colombia. The country is investing in technology and innovation to achieve this.
Many of the mandatory procedures set by Chamber of Commerce can be carried out online.
Public Notaries, which play a big part in company incorporation, liquidation and other procedures, may still require physical presence from the company owner/legal representative.
A company’s legal representative, with the appropriate credentials, can therefore fulfil most of the administrative needs of the company online.
Have patience with these institutions, expect some delay during this time and where necessary, operate with a local legal representative to avoid further setbacks.
Work with trusted experts to continue doing business in Colombia
We’re here to support your expansion and ease of doing business in Colombia, even during challenging times such as these.
Through our suite of multilingual market entry and back-office services, we can enable business continuity in Colombia. This includes legal, accounting, taxation, and PEO services in Colombia.
For more information and personalized assistance, reach out to our team here.
Learn more about our team and expert authors.