How to Open a Company in Colombia: Challenges, Opportunities and Allies for Startup Expansion

Find out how to open a company in Colombia if you are planning an international expansion. This article will help you set up your company and make better business decisions.

Entrepreneurship in Colombia is going through an unprecedented moment of splendor. According to the Global Entrepreneurship Monitor (GEM) 2021-2022, this country has the most developed entrepreneurial ecosystem in Latin America. This has driven entrepreneurs’ interest in opening a company in Colombia.

In the last decade, Colombian entrepreneurship has evolved significantly in the country. “Founders have reached a level of growth, relevance and impact much greater than 10 years ago. This is largely due to the work plan we developed since the national government created an entrepreneurship and innovation agency,” says Clara Ricaurte, VP of connection and experiences at iNNpulsa Colombia.

And that is not all. This country is the second most attractive destination in Latin America for startup expansion in the region (after Mexico), according to the Soft Landing in Latin America report, produced this year by Endeavor in collaboration with Google and General Atlantic.

The report notes that the founders of 80 startups decided to expand to Colombia as part of their growth plan. This shows the potential of the Andean country for startup expansion.

Reasons to expand to Colombia

But what makes the Colombian market attractive and why should you consider it for your company’s international expansion? The country offers several opportunities that can make it easier for your company to enter successfully.

Here they are:

1. Government support: There is support for entrepreneurs from public policy, with programs, tools and access to funding sources through government bodies such as iNNpulsa and ProColombia.
2. Legal framework for entrepreneurship: Colombia has the Entrepreneurship Law 2069 of 2020, which according to Ricaurte encourages the opening of new companies in the country, as well as the growth and consolidation of those already operating with innovative models.
3. Venture capital investment: Private equity funds have paid special attention to startups in the Colombian market such as Rappi, Frubana and Habi, among many other companies that have raised mega investment rounds. In 2019 alone, venture capital funds invested 1,122 million dollars, while in 2020 funding was 506 million dollars, according to data from Pitchbook and LAVCA.
4. Boost for innovation: Ricaurte highlights that Colombia is adopting regulatory sandboxes, which let entrepreneurs explore and implement innovative business models in highly regulated industries such as fintech. It is an opportunity to break into the market and take your company to another level.
5. Ease of opening companies: If you submit the documentation to the corresponding authorities on time and in the right form, you can open your company in an average of 10 days. The registration process in the Commercial Registry, which is linked to registration in the Single Tax Registry (RUT), can take up to four hours. It is much faster than opening a company in countries such as Argentina, Brazil and Peru.
6. Trade agreements: Colombia has relationships with different countries through 12 free trade agreements, including the one it has with all the MERCOSUR economies. Its main trading partner is the United States. These agreements could make your company’s exports easier and increase them.
7. Large market: Colombia is the third most populous country in Latin America. It has 50.8 million inhabitants, of whom 48.8% are economically active. It is an emerging market and large enough that you could serve it with your value proposition.
8. A country with great needs: Colombian children face different problems that your company can help solve with an innovative model. One of them is school dropout. Of every 100 students, only 82 complete their education in urban schools, while in rural areas, 48 children complete their education, according to data from the United Nations Children’s Fund (Unicef).
9. Technology adoption: If your startup offers a technology product, Colombia is a suitable country for its implementation. Internet use is 65%, while smartphone penetration is 59% of the population.
10. Promising industries: This country has also become a magnet for foreign investment, with opportunities in sectors such as infrastructure, energy, creative industries, information and communication technologies, tourism, hospitality, real estate and agribusiness, among others. In 2019, foreign investment received by this country was 14.5 billion dollars, according to Invest in Colombia data.

Basics for opening your company

Now that you know the characteristics of the market in Colombia and why it makes sense to start a business there, it is time to get ready to set up your company.

For many founders and country managers, starting an expansion is like starting another company from scratch in another country. And indeed it is.

For this reason, we share some general considerations that will help you legally register your company at the Chamber of Commerce of the locality where you will set it up.

1. Validate your company’s name: The first thing to do is check whether your startup’s name already exists in Colombia. If it does, you will not be able to use it. Check whether it is available in the Single Business Registry (RUES).

2. Draft the corporate bylaws: The next step is to draft the corporate bylaws with the help of a lawyer. This contract sets out how the company is incorporated, the relationship between partners, corporate purpose, share distribution and name, among other aspects. They must be registered at the Chamber of Commerce.

3. Get the Pre-RUT: Once this is done, you will need to get the Pre-RUT at the National Tax and Customs Directorate (DIAN). It is a document that lets you obtain the Tax Identification Number (NIT) and make a preliminary registration of your company.

4. Incorporate your company: One of the most important steps is incorporating your company. Before completing the corresponding procedure at the Chamber of Commerce and the DIAN, you need to know which type of company fits your company’s profile.

According to the Foreign Investment Guide in Colombia prepared by Invest in Bogotá, there are 6 types of companies in this country:

1. Corporations (SA)
2. Simplified joint-stock companies (SAS)
3. Limited liability companies (Ltda.)
4. General partnerships
5. Limited partnerships
6. Limited partnerships with shares

The legal form most used by entrepreneurs in Colombia is the SAS, since it makes procedures easier and simpler, and lets you open companies on a low budget. It is estimated that more than 54% of the companies created in Colombia have been incorporated under this form.

1. Taxpayer registration: It is important that you obtain the Tax Identification Number (NIT) through the National Customs and Tax Directorate (DIAN). The NIT lets you be registered as a taxpayer and pay the taxes established by law. To get it, you need to register in the Single Tax Registry (RUT). You can do this at no cost over the internet.
2. Accounting: Don’t forget that in Colombia all companies are required to register their accounting books at the Chamber of Commerce, according to the city where your company operates. This is to ensure the company does not operate illegally.
3. Hiring staff: Another step to consider when opening your company is hiring employees. You should know that labor regulation in Colombia is governed by the International Labour Organization, and lets you hire under indefinite, fixed-term, occasional or project-based contracts for a set period.

Also consider that the working day is 8 hours a day (maximum 48 hours a week), vacation equals 15 working days of paid rest per year of service, and you can hire workers through agencies, independent contractors or intermediaries.

If you need more information, here you can check a guide by Invest in Bogotá on the labor regime and benefits you must provide to your employees.

Strategic allies

To make it easier for your company to enter the Colombian market, Ricaurte suggests approaching entities that will accompany you in the soft landing process. That way you can connect with the public sector, private sector, entrepreneurs, funders, business allies, customers and other stakeholders in the business ecosystem.

These are some strategic allies that can support you:

• iNNpulsa Colombia
• Endeavor Colombia
• ProColombia
• Bogotá Chamber of Commerce
• Ruta N Medellín
• Ecopetrol
• Sum Bogotá

Ricaurte explains that Colombia also has incubators, accelerators and entities that support both local entrepreneurs who want to expand to other international markets and foreign founders who want to enter the Colombian market.

One of these is ProColombia, a government entity that attracts foreign investment and companies that want to establish themselves in the country.

Another alternative is to approach iNNpulsa, a government agency with a work plan to connect founders with different players in the entrepreneurial ecosystem who give support in the soft landing process.

A challenging expansion

Despite the opportunities and ease the Colombian market offers, there are three main challenges that come up when expanding, regardless of a company’s size, industry or geographic destination. They are: hiring local talent, adapting the team to local culture, and adapting the business model to the destination market. This is noted in Endeavor’s Soft Landing in Latin America report.

In this sense, Ricaurte suggests entrepreneurs learn the regulation for the sector their companies belong to, analyze the advantages they can have in the Colombian market, learn how the different regions of the country work in order to adapt the business model, and adapt the value proposition to the culture of the entity.

“Legal regulations, tax collection systems and operating costs, variations in culture, political systems and economic policy can make international expansion quite challenging,” warns Ricaurte.

However, both the public and private sectors in Colombia have worked with different initiatives to build connection dynamics with the world and train new generations of entrepreneurs and successful companies. All of this with the aim of improving the conditions to start a business and expand internationally.

Now you know. This is what you should consider in your expansion plan to Colombia to achieve a soft landing without complications. Best of luck, entrepreneurs!

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