This is apart of our weekly series associated with the The Global Subsidiary Index. The series is designed to help businesses identify the best countries for establishing a subsidiary based on key operational factors. GEOS provides a data-driven ranking of jurisdictions worldwide, assessing across 40+ criteria to bring you insights into global expansion opportunities.
Each country on the index is scored on an overall score out of 100, with each individual criterion out of 5 or 10. Higher scores indicate a more favorable environment for businesses. By leveraging these insights, companies can make informed decisions on where to establish a legal presence.
Colombia is ready when you are. Its startup ecosystem is growing fast, with a 28% annual rise from 2019 to 2023. Fintech, e-commerce, and digital health are leading the way. The country is also now Latin America’s fourth-largest economy, with a GDP of $386.1 billion in 2024.
Just last year, Medellín hosted the Centre for the Fourth Industrial Revolution, further strengthening Colombia’s role in tech innovation. Thinking about expanding your business? This guide covers what you need to know.
Why Should You Expand to Colombia?
Colombia is attracting serious investment. It holds a GEOS Global Subsidiary Index score of 59.2, making it one of Latin America’s top business markets.
With coastlines on both the Pacific and Atlantic Oceans, Colombia connects trade routes between North and South America. As a result, it has trade agreements with the United States, the European Union, and Latin American partners like the Pacific Alliance and Mercosur integration.
The federal government plays a crucial role in overseeing and regulating business activities in Colombia, ensuring compliance with international standards and fostering a stable investment environment.
Colombia’s banking system is also strong. It scores a 3 out of 5 on the GEOS Financial Infrastructure scale, so businesses can easily tap into international financial markets.
Foreign investment in Colombia is picking up, hitting 3.1% of GDP in Q3 2024, up from 2.8% the previous quarter. Over the next five years, Colombia is set to outpace Brazil, Mexico, and Argentina. Investors like what they see: a stable economy, solid legal protections, and quite a bit of market potential.
The banking sector is expanding. Net interest income in Colombia is expected to hit USD 15.75 billion in 2025, with traditional banks making up USD 14.31 billion. Digital banking is also growing fast, driven by high smartphone use and the demand for mobile financial services.
Tech is on the rise. The software and IT industry contributed 3.0% to GDP in 2023, with USD 2.17 billion in sales. IT exports grew 23% annually from 2016 to 2023, supported by better connectivity, a strong digital economy, and skilled workers. On top of that, big tech like Amazon, SAP, and Johnson & Johnson have already established a presence.
Startups are scaling up. Colombia is ranked fourth in Latin America in the Global Innovation Index 2024. For good reason, too. Venture capital and private equity investment are on the uptick, and government incentives are helping businesses grow.
Colombia’s combination of robust banking, tech growth, and rising foreign investment places it among Latin America’s most attractive business markets.
Competitive Tax System & Government Incentives
Colombia offers tax breaks to attract businesses, especially in tech, renewable energy, and manufacturing. Although the standard corporate tax rate is 35%, companies in Free Trade Zones (FTZs) can pay a lower 20% rate by meeting export-focused requirements. Limited liability partnerships can also benefit from these tax incentives, providing liability protection to all partners involved.
VAT Registration: Businesses earning over COP 148,442,000 (~USD 38,000) per year must register for VAT.
Payroll Taxes: Employers cover social security, parafiscal contributions, and severance payments, earning Colombia an Employer Payroll Cost Score of 2/5. Payroll costs include social security, parafiscal contributions, and severance payments.
Beyond these basics, the government offers even more perks to encourage companies to invest in key areas like research, renewable energy, and local development projects:
30% tax credit for businesses funding scientific research or professional training.
15-year tax exemption for companies generating wind, biomass, or agricultural energy, if they reinvest half of their Greenhouse Gas Reduction Certificate earnings into local social projects.
Foreign tax credits allow companies to offset taxes paid abroad, though limits apply.
“Works for Taxes” program lets businesses pay corporate taxes by funding infrastructure projects like public education, water supply, and digital connectivity in underdeveloped areas.
Colombia gives companies a leg-up with attractive tax breaks, making it ideal for growth.
Skilled Workforce & Labor Market Considerations
Colombia offers a strong workforce without the high price tag, making it a strong option for businesses looking to scale. The country is home to a growing, educated bilingual talent pool in key industries like tech, finance, and logistics. Major talent hubs like Bogotá, Medellín, and Cali provide a steady stream of qualified workers.
Colombian labor laws require strict employee protections, including severance pay and compliance with local regulations. The Employment Law Complexity Score sits at 6/10, as businesses are required to follow detailed employment rules and contribute to social security, which increases costs. High informal employment also makes enforcement challenging.
Despite these complexities, Colombia is still a strong choice for companies seeking skilled, affordable talent. The Availability of Talent scores 3/5, with strong candidates in technical, sales, marketing, and finance roles at a lower cost than in North America and Western Europe.
The Shared Services Center (SSC) sector is also expanding, with finance roles making up 70% of jobs, IT at 36%, and HR at 23%. Some industries are seeing rising salaries, but the overall market remains competitive for companies looking to grow.
How to Set Up a Business in Colombia
Choosing the Right Legal Structure
Picking the right business structure in Colombia affects liability, taxes, and compliance. Understanding various business structures, such as sole proprietorships and LLCs, is crucial for making an informed decision.
That’s why many foreign investors choose the Simplified Stock Company (S.A.S.) because it’s flexible, limits liability, and keeps paperwork simple. It also has low regulatory requirements and strong legal protection, making it the best option for most businesses.
A joint venture is a collaborative business entity created by two or more parties for a particular project or activity. In joint ventures, each party retains its legal identity but agrees to collaborate for mutual benefits. It is crucial to outline legal rights and obligations in a partnership agreement to ensure smooth operation and clear understanding between the parties.
Simplified Stock Company (S.A.S.)
The S.A.S. allows a single shareholder, has no minimum capital requirement, and offers broad corporate flexibility. There’s no need for a board of directors unless the bylaws require one.
Shareholders are only liable for their contributions, keeping personal assets safe. It’s easy to manage, easy to scale, and has fewer compliance headaches. Most investors pick this structure because it keeps things simple while offering strong legal protection.
Limited Liability Company (Ltda.)
A Limited Liability Company (Ltda.) is another option, but it has more restrictions. Limited liability companies, such as an Ltda., require at least two and no more than 25 partners. Partners have limited liability, but they are personally responsible for labor and tax obligations.
Unlike the S.A.S., transferring ownership requires partner approval, which can slow things down. It works for smaller businesses, but it comes with more legal and financial obligations. Most foreign investors prefer the S.A.S. because it offers more flexibility and easier ownership changes.
Public Corporation (S.A.)
A Public Corporation (S.A.) suits larger businesses, especially those looking to raise capital. It requires at least five shareholders, and no single shareholder can own more than 95% of the company.
Shares are freely transferable, making it ideal for businesses that want multiple investors. However, it comes with stricter regulations and reporting requirements. While it works for companies planning to go public, most foreign businesses prefer the S.A.S. for its simpler setup and fewer restrictions.
Branch Office
A Branch Office lets a foreign company operate in Colombia without forming a separate legal entity. It provides a local presence, but the parent company is fully liable for the branch’s debts and taxes.
Compared to a sole proprietorship, which is favored by new entrepreneurs for its simplicity and complete control by a single owner, a Branch Office also lacks legal separation but is used by multinational companies. However, the lack of legal separation adds financial risk. Most businesses looking for liability protection and independence choose the S.A.S. instead.
Company Registration
Registering a company in Colombia takes a few steps but isn’t too complicated. The Chamber of Commerce handles the process, which usually takes two to three months. Businesses must:
Choose a legal structure
Submit bylaws
Get a Tax ID (NIT) from DIAN
In Bogotá, this can be done directly through the Chamber of Commerce. In other cities, businesses may need a provisional Tax ID before receiving the final one.
Local Director Requirement
Colombian law requires every company to have a legal representative. This person, who can be a resident or a foreigner, is responsible for:
Compliance and tax filings
Signing legal documents
Overseeing regulatory obligations
While business owners don’t need to live in Colombia, having a local director makes operations smoother.
Political Risk
Colombia is business-friendly, but companies should stay aware of potential risks. It ranks high in investor protection, scoring 7.6 out of 10 – higher than the US, Germany, and Israel. Foreign direct investment has grown from USD 13.5 billion in 2016 to USD 17.05 billion in 2022, showing strong international interest.
However, Colombia has a Political Risk Score of 3/5, meaning businesses should keep an eye on regulatory changes and security concerns. Issues like illegal mining, drug trafficking, and ongoing peace negotiations create some instability. The government has also struggled to pass economic reforms due to political opposition, which could affect business regulations.
Pension & Union Complexity
Colombian labor laws require strict payroll compliance. Employers must register workers with the Family Compensation Fund, the Colombian Family Institute, and the Governmental Learning Service. Employees can choose between public and private pension funds, and businesses must handle deductions properly.
Colombia has a Pension & Union Complexity Score of 3/5, reflecting the challenges of managing payroll under strict labor regulations. Unions have strong protections, so companies must follow employment laws closely.
Workforce challenges, like high unemployment and low labor force participation (51% for women in 2023), make hiring and payroll management more complex. Planning ahead helps businesses stay compliant and avoid issues.
Tax & Accounting
Colombia’s tax system is fairly complex. Subsidiaries need to manage corporate tax filings, VAT payments, and payroll taxes while keeping up with frequent rule changes. Residents pay tax on worldwide income, while non-residents only pay on Colombian-sourced income.
Sole proprietorships in Colombia benefit from simpler tax obligations compared to corporations, but the owner is personally liable for business debts. This structure is often preferred for low-risk businesses and as a testing ground before moving to a more formal business entity.
Dividend taxes depend on whether corporate tax was already applied. Rates range from 0% to 39% for residents and 20% for non-residents. Mistakes in tax filings can trigger audits or fines. Businesses need a solid tax plan to stay on top of these obligations.
Currency Controls
Colombia has strict foreign exchange rules. Certain transactions, like foreign investments and cross-border payments, must be reported to the Central Bank. Failing to comply can lead to fines or restrictions. These controls can affect cash flow and financial planning. Companies need to track and report foreign currency transactions properly to avoid issues.
Compliance Reporting
Colombia has high compliance requirements. Companies must file regular tax reports, disclose financial statements, and follow foreign investment regulations. Personal income tax rates range from 0% to 39%, and corporate tax depends on income levels.
Pension income is tax-exempt up to TU 1,000. Tax authorities monitor businesses closely, and audits are common. Keeping accurate records and working with local tax professionals can make compliance easier.
The first platform dedicated to streamlining entity setup and management.
Managing a Legal Entity
Managing a legal entity in Colombia involves a comprehensive understanding of its structure, operations, and compliance requirements. Depending on the type of business entity, management responsibilities can fall on owners, directors, or officers.
Effective management includes ensuring compliance with tax laws, maintaining accurate financial records, and making strategic decisions to foster growth. For instance, a Limited Liability Company (Ltda.) requires at least two partners who are responsible for labor and tax obligations. In contrast, a Simplified Stock Company (S.A.S.) offers more flexibility with fewer compliance requirements, making it easier to manage.
Regardless of the business structure, staying compliant with Colombian federal laws and maintaining proper documentation is essential for the smooth operation and success of the business.
Things To Consider When Expanding into Colombia
If you’re planning to hire foreign employees in Colombia, you’ll need work visas. The Temporary Worker’s Visa covers professionals, transferred employees, and paid artists or athletes. Employers must provide a notarized contract summary and proof of the company’s legal registration (issued within the last three months). There’s also a USD 50 visa study fee per applicant. Employees will need a valid passport and, if required, legalized or apostilled qualifications.
First-time applications have to go through a Colombian consulate abroad, but renewals or additional visas can be processed in Bogotá. Dependents can apply for a beneficiary visa, though they’re not allowed to work. Companies need to follow these steps to hire foreign employees legally.
Immigration & Work Permits for Foreign Employees
Bringing foreign talent into Colombia takes some paperwork, but it’s manageable. The immigration complexity scores about 3 out of 5, meaning work visas are available but come with strict guidelines.
Your best option is the Temporary Worker’s Visa. First-time applications happen at a Colombian consulate abroad. Renewals or extensions can be handled in Bogotá.
You’ll need a notarized employment contract summary and proof of your company’s legal status issued in the last three months. Employees must have valid passports and qualifications (apostilled or legalized if required). Each application costs USD 50.
Family members can apply for a beneficiary visa. However, beneficiaries aren’t permitted to work. Keeping these rules in mind makes hiring internationally in Colombia straightforward.
Cost of Living & Office Space
Bogotá and Medellín offer strong infrastructure, a skilled workforce, and busy commercial pockets. But secondary cities like Cali, Barranquilla, and Cartagena also have plenty to offer, especially if you’re looking to lower costs.
Bogotá attracted USD 284 million in investment in 2024, creating 8,200 new jobs. The city also hosted major international events worth another USD 53 million.
Medellín is strong in tech and innovation, with reliable infrastructure and highly skilled talent.
Cali offers lower costs but maintains a competitive workforce. Key sectors include pharmaceuticals, healthcare, and manufacturing.
Barranquilla received USD 551 million in investment, generating 1,778 jobs in logistics and manufacturing. It’s an affordable alternative to bigger cities.
Cartagena attracted USD 485 million, leading to over 1,400 jobs. It balances industrial opportunities with a growing tourism sector.
Choosing the right city depends on your business priorities. Major hubs like Bogotá and Medellín deliver infrastructure and connectivity. But if cost control is key, secondary cities offer value without cutting back on talent quality.
Regulatory & Compliance Risks
In Colombia, compliance rules are strict and closely enforced. Employment laws protect workers, so contracts and terminations must follow clear guidelines. Companies must stick to minimum wages, overtime rules, and mandatory working conditions. Employees’ rights are non-negotiable – even with consent.
Taxes are another area to watch. Businesses file taxes yearly and pay installments based on their classification. Audits are common, focusing on expenses and reporting accuracy. Authorities closely watch for transactions without clear business reasons.
Data privacy is also tightly regulated. Companies must get explicit consent to handle personal data and follow strict confidentiality rules. Laws like Statutory Law 1581 and Law 1266 set clear standards for managing sensitive data.
In short, staying compliant in Colombia means paying close attention to labor laws, tax reporting, and data protection. Doing it right keeps your business running smoothly and avoids penalties.
Setting Up Your Business for Success
Setting up your business for success in Colombia involves several critical steps. First, choosing the right legal entity structure is paramount. Whether you opt for a Simplified Stock Company (S.A.S.), Limited Liability Company (Ltda.), or another business structure, each has its own advantages and legal responsibilities.
Next, you need to register your business with the relevant authorities, such as the Chamber of Commerce, and obtain necessary licenses and permits. This process includes submitting legal documents like bylaws and securing a Tax ID (NIT) from DIAN.
Creating a robust business plan is also essential. This plan should outline your business goals, strategies, and financial projections. Securing funding, whether through venture capital, loans, or other means, is another crucial step. Building a strong management team with expertise in key areas like finance, marketing, and operations will further set your business up for success.
A well-structured legal entity not only provides protection for personal assets but also facilitates fundraising and enhances credibility with customers and partners. By following these steps, you can establish a solid foundation for your business in Colombia, ensuring long-term growth and success.
How GEOS Simplifies Your Expansion into Colombia
Ready, set, grow. GEOS makes your expansion into Colombia easy and efficient. It handles every aspect of your setup, from registering your company to staying compliant with local tax and labor laws. With GEOS managing the details, you’re free to launch confidently and quickly.
End-to-End Entity Setup & Compliance Management
GEOS guides you through the entire process of establishing your business in Colombia. It handles company registration, paperwork, and filings – so you don’t have to. GEOS also helps appoint a compliant local legal representative, keeping you fully aligned with regulatory standards. Compliance worries become a thing of the past.
AI-Powered Global Expansion Support
GEOS doesn’t stop there. With Geovanna, your AI-powered compliance assistant, you gain instant access to strategic insights and updates on local regulations. Geovanna provides personalized recommendations, reducing your risk and helping you grow smoothly in new markets.
Is Colombia the Right Fit for Your Business?
Colombia could be your next big move. With a GEOS Global Subsidiary Index score of 59.2, Colombia provides a promising gateway to Latin America’s expanding markets. Its stable economy, strategic location, and friendly business climate make it attractive for global businesses.
Curious about Colombia? Talk to GEOS today to explore how your business can succeed there.
This article does not constitute legal advice.
About the Author
Shane George
Based in Toronto, Shane has spent his career scaling international revenue teams. As a Co-Founder of GEOS, he’s now focused on helping clients set up their own fully owned foreign subsidiaries along with the appropriate employment infrastructure.
