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Doing business in Colombia as an expat and knowing where potential pitfalls for new companies lie is always best practice.
At expatgroup.co, our clients and partners always ask us which barriers are most telling for foreign nationals looking to start a Colombian enterprise and the 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 that Colombia’s GDP per capita has doubled in the last 15 years, you’d think the country is well-equipped to handle foreign investment. However, there are still unforeseeable roadblocks for new businesses looking for physical capital to establish their new Colombian enterprises.
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 a half months. Likewise, overly bureaucratic measures 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. Overall, Colombian workers with very technical skills, such as those in the IT or electronics industry, are underemployed or underpaid by Colombian-based businesses. At the same time, this might seem like an opportunity rather than a hindrance. However, locating the right Colombian workers for your company can be challenging, as many workers are poorly recruited into inappropriate positions.
To mitigate this, most foreign embassies in Colombia offer materials and information on your best course of action regarding business investment. Take the American embassy, which provides 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, and loans for foreign nationals are very rare. 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:
Alternatively, if you’re looking for financial advice for setting up your new business, book an appointment with expatgroup.co 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 fulfill the legal and accounting processes needed to set up your company
At expatgroup.co we help you to create your business and get your Colombia Visa As an expat, you can either start a business or investing in an already created organization and becoming a partner.Click on the button and get professional advice today.
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 35%, 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. However, paying your corporation tax through websites like DIAN can be very tricky and requires people who are both fluent in Spanish and accustomed to using their site.
Remember that to register your business in Colombia, you must have a recognized Colombian accountant attached to your documentation when creating your company. If you’re at a loss when searching for a trustworthy accountant, request an appointment with expatgroup.co 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 court system is very slow.
For example, if you have a case of insolvency on the client’s side, the timeframe for a complete resolution can be up to 20 months. Once again, Colombian bureaucracy comes back to haunt us as procedurally heavy steps for enforcing contracts with the full force of the law have been known to take four years.
Final Thoughts
In a nutshell, there are many reasons to do business in Colombia.
As a country with fast economic growth and a relatively skilled workforce, Colombia has many untapped potentials for foreign investors to utilize. However, 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.
