When does the duty to incorporate a business vehicle in Colombia arise?

When does the duty to incorporate a business vehicle in Colombia arise?

The most frequent question posed by a foreign potential investor is, when do I need to incorporate a business vehicle in Colombia; or, do I need to do it at all? Colombian law prescribes, that who intends to perform “permanent activities” in Colombia, is required to establish a business vehicle in the country. The question of course becomes, what is to be understood by “permanent activities”? Here is an analysis.

Rule of law:

Article 471 of the Colombian Commercial Code: Any company that wishes to carry out permanent activities in Colombia has the obligation to incorporate a branch domiciled in Colombian territory.

Article 474 of the Commerce Code: If a foreign organization performs any of the following activities within a business scheme, such organization is considered to be developing a permanent activity in Colombia:

a. Opening within the Colombian territory, commercial establishments or business offices.

b. Participating as contractor in the performance of works or rendering of services.

c. Participating in any private savings managing activity.

d. Carrying out activities related to the extractive industry.

e. Obtaining or participating in a government concession.

f. Performing its shareholders meetings, boards of directors, management or     administration.

Analysis:

Doctrine issued by the Superintendence of corporations has noted that it is not possible to interpret the text of the article literally, to determine the existence of permanent activity in Colombia. The Superintendence concluded that it is necessary to interpret the norm in attention to its finality by taking into account the characteristics of the action to be performed, such as its duration, the quality of the service rendered, the infrastructure that must be deployed by the foreign company in the country and the frequency of the operations, among others.

Under such circumstances, it is necessary to note that the duration of the contracts, and the infrastructure to be deployed in Colombia are the factors that would determine the obligation of a foreign direct investor to create a vehicle in Colombia.

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