Colombia payroll and tax overview.

Foreign Direct Investment in Colombia

Foreign investment is strongly encouraged by the Government of Colombia, with the country quickly becoming one of the best markets in Latin America in which to invest. The country has political stability and an attractive emerging economy. The country relies heavily on its natural resources (including oil, coffee and gold), its competitive workforce and booming tourism sector.

Colombia has the advantage of being the only country in South America with coastline on the Pacific and Atlantic Ocean which helps improve access to the global market. Despite Spanish being the official language of Colombia, English is also widely spoken, especially in larger cities such as Bogotá and Medellín.

Company Registrations and Establishing an Entity in Colombia

A company is required to have a legal entity established in order to process a payroll.

The most common forms of entity in Colombia are:

• Limited Liability Companies (LTDA)
• Corporations (SA)
• Simplified Stock Companies (SAS)

Limited Liability Companies (LTDA)

The company should typically be incorporated by a public deed and must have a minimum of two shareholders with a maximum of 25 shareholders. There is no requirement for a Limited Liability Company to have a board of directors, however the social purpose for the business must be clearly defined. The capital of the company must be paid in full at the time of incorporation.

Required documentation:

• Approved Bylaws by a Board's resolution
• Legalised and apostilled copies of the documents of the governance of shareholders
• PoA

Required local registrations:

• Notary Public Office
• Local Chamber of Commerce
• National Tax Authority
• Municipal Tax Authority

Corporations (SA)

The company should be incorporated by a public deed and must have a minimum of five shareholders, each shareholder is liable for the amount of capital contribution represented by negotiable shares.

Required documentation:

• Approved Bylaws by a Board's resolution
• PoA

Required local registrations:

• Notary Public Office
• Local Chamber of Commerce
• National Tax Authority
• Municipal Tax Authority

Simplified Stock Companies (SAS)

The SAS is the most popular type of entity in Colombia and is particularly popular with both large and small businesses. The company can be incorporated by a public deed or private document and only one shareholder is required. Unlike the two mentioned above, a SAS is not required to state the purpose of their entity, leaving a business free to conduct any lawful business activity.

Required documentation:

• Approved Bylaws by a Board's resolution
• PoA

Required local registrations:

• Local Chamber of Commerce
• National Tax Authority
• Municipal Tax Authority

Business Banking in Colombia

It is mandatory to make payments to both employees and the authorities from an in-country bank account.

Generally, banks are open to the public from 09:00 to 16:00 Monday to Friday in Bogotá and from 08:00 to 11:30 and 14:00 to 16:30 in the rest of the country. Banks close at noon on the last working day of the month. Some banks are open from 9:00 to noon on a Saturday.

Working Week in Colombia

By law, the maximum a person can work in Colombia is 48 hours per week, usually between Monday to Friday or Monday to Saturday. If an employee has to work between the hours of 22:00 and 06:00, the rate of pay must be 35% more than the equivalent daytime salary. If agreed between the employee and employer, the employee can have a flexible schedule. No more than 10 hours must be worked in one day, four of which must be during the daytime.

Basic Facts about Colombia

General Information

Full Name: Republic of Colombia

Population: 49.07 million (World Bank, 2017)

Capital: Bogotá

Main Exports: Crude petroleum and coal briquettes, coffee and spices, gems and precious materials, plastics, fruit and nuts.

Main Language: Spanish

Monetary Unit: Colombian peso

Internet Domain: .co

International Dialling Code: +57

The tax year runs from 1 January to 31 December.

Income Tax in Colombia

Individual Income Tax

Colombia residents are taxed on worldwide income no matter where it is generated. An individual is considered a resident of Colombia if they spend longer than 183 days in the country during the tax year. The first COP$1,090 an individual earns is considered tax free.

Non-residents are only taxed on their income from Colombia. An individual is considered a non-resident if they spend less than 183 days in Colombia during the tax year.

Corporate Income Tax (CIT)

Businesses incorporated in Colombia are taxed on worldwide income. As it stands, the CIT rate for the 2020 financial year is 32%. In 2021, the rate will be 31% and for 2022 onwards, the rate will decrease to 30%.

Social Security in Colombia

Colombia has a mandatory social security system, employers and employees are both required to contribute to the system. Employers in Colombia must register with different entities that are part of the social security system.

New Employees in Colombia

When a new employee is hired, a written contract is created by the employer, following this they will be enrolled in the social security system. The employee will choose from a variety of health insurance plans and pension entities and must be enrolled in a labour risk entity for professional risk and workers insurance. The final step is for the employer to enrol the employee in the welfare entity.

The above may seem straightforward, however this is where the complexity of hiring a new start begins. All of the above registrations must be completed on the same day that the new employee commences employment with the company. All documents must be signed in person and on paper, no digital signatures are allowed when submitting documents to the social security office.

In addition to the above, the employee must have a mandatory medical exam by a doctor (provided by the company) three days prior to commencing employment.

Colombia has a somewhat open view to hiring foreign employees and they have the same rights as Colombian employees. The Colombian migration policy promotes the entry of foreign employees with the skills to contribute towards the development of economic, scientific, cultural or educational activities that can benefit the country.

If you are an employer and wish to hire a foreigner, you must follow the below steps:

• The employee must acquire a visa that allows you to develop the activity, occupation or authorized trade.
• Obtain an Alien Identity Card when your stay is equal to or greater than three months.
• Inform the Migration Colombia Administrative Unit in writing about the connection, hiring or admission and its withdrawal or termination of the contract, within 15 calendar days following the initiation or termination of work.

It is important to keep in mind that in the country there are some regulated professions which require a Special Temporary Enrollment granted by the Professional Councils for the exercise of the profession of each area of ​​knowledge.

The employer or contractor must bear the return expenses of the foreign worker and his family or beneficiaries as long as the foreign worker is hired abroad to carry out an activity in Colombia.

Leavers in Colombia

Payment for leavers must be made within 10 consecutive days of the employee’s last day. If it is a pre-determined contract, payment must be made by the next working day after the last day worked.

The employer may terminate the employment relationship without just cause. An employee discharged without just cause must be given advanced notice. If the employee is paid weekly or at shorter interims, 8 days’ notice is required. If the employee is paid less often than weekly or has been with the employer for longer than one year, a minimum of 30 days’ notice is required, with 3 more days added for each additional year of service at the company up to a 90-day prior notice.

During the period of notice, employees may take leave for up to two hours a day with pay. If the employer fails to give the required notice, the employee is entitled to be paid his or her regular salary for the period of required notice.

Discharge for a just cause does not require an advanced notice.

The authorities must be notified of any leavers.

It is legally acceptable in Colombia to provide employees with online payslips.

Payroll reports must be kept for a minimum of 20 years.