When to incorporate a business vehicle in Colombia?

When to incorporate a business vehicle in Colombia?

 

Foreign potential investors always have a common concern: when do I need to incorporate a business vehicle in Colombia? do I need to do it at all?

Colombian law states that anyone who intends to perform “permanent activities” in Colombia, is required to establish a business vehicle in the country. We will start by understanding the meaning of “permanent activities”

According to Article 474 of the Colombian Commercial Code, there are six activities within a business scheme that would indicate an organization is developing a permanent activity in Colombia1:

  1. Opening, within the Colombian territory, commercial establishments or business offices.
  2. Participating as contractor in the performance of works or rendering of services.
  3. Participating in any private savings managing activity.
  4. Carrying out activities related to the extractive industry.
  5. Obtaining or participating in a government concession.
  6. Performing its shareholders meetings, boards of directors, management or administration.

It is important to clarify that there might be other activities, not included in the list, that might also be considered as “permanent” according to each case.

Moreover, with Article 471 the Colombian Commercial Code also states that if a company wishes to carry out permanent activities in Colombia has the obligation to incorporate a branch domiciled in Colombian territory.

The Superintendence of corporations has noted that it is not possible to interpret the text of the article literally, to determine the existence of a permanent activity in Colombia. They concluded that it is necessary to interpret the norm in attention to the company’s purpose by considering the characteristics of the activities to be performed, such as:

  • The duration.
  • The quality of the service rendered.
  • The infrastructure that must be deployed by the foreign company in the country.
  • 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 and each case is different.

 

Jose A. Abusaid

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