15 de September de 2021
The branches of a foreign company in Colombia are the legal vehicle through which national companies that are abroad can establish their respective businesses within the country. Next, we will explain the importance of this legal vehicle and how it can benefit organizations.
Learn about the types of companies in Colombia.
Legal nature of Foreign Branch Entities
According to the Colombian legal system, these branches are classified as open trade establishments in Colombia by a company based in another country, whose leader has the powers to represent it legally.
In this way, the branch of that parent company located abroad will be able to carry out its commercial operations within Colombian territory.
Setting up a Foreign Branch Entity
It is carried out by means of a decision made by the parent company (main headquarters) located abroad. To execute this action, mention must be made of:
- Name of the branch
- The type of economic activity to be carried out
- The capital to be invested
- The geographic location of the place where the business will develop
- The lifetime of the entity
Once these requirements have been met, the incorporation of the company in Colombia is legalized and it can function legally in the country like any other organization.
Benefits to the economy
This tool plays a preponderant role in the country’s economy because it facilitates the establishment of companies in Colombia, which considerably benefits the country’s free trade with other nations. This action will increase the Colombian GDP and drastically reduce unemployment and poverty margins.
On the other hand, it is relevant to point out that the main headquarters located abroad must bear in mind that once the branch is formally installed in Colombia, it must adapt to the laws of the country. This means that many business policies practiced by the parent company in another nation may not be allowed by Colombian labor law, which sometimes creates inconveniences.
Branches have two main objectives. These are:
- Perform permanent activities
- Carry out investments in certain sectors of the economy
It is relevant to note that there are a series of economic operations that are classified as permanent activities. According to article 474 of the Commercial Code, it is established that, for the purposes set forth in article 471 of the same Code, the following are considered permanent activities:
1st) Open commercial establishments or business offices within the territory of the Republic, although these only have a technical or advisory nature.
2nd) Intervene as a contractor in the execution of works or in the provision of services.
3rd) Participate in any way in activities aimed at managing, using, or investing funds from private savings.
4th) Dedicate to the extractive industry in any of its branches or services.
5th) Obtain from the Colombian State a concession or that it has been assigned to any title, or that in any way participates in the exploitation of the same and,
6th) The operation of its assemblies of associates, boards of directors, management, or administration in the national territory.
It is important to note that whatever the type of permanent activity that the branch in Colombia intends to develop, it should be established as the main operation of the foreign company and not as additional work that results from other organizational projects.
This is how it will be possible to determine if the branch will be able to start its commercial operations in the country.
The social bodies are those individuals who are in charge of making the decisions corresponding to the type of economic activity that the branches will develop, which will be channeled by an organizational leader.
This means that each branch must have its respective organizational leader and a series of assistants who are in charge of representing it consistent with the type of business it will carry out in the country.
Once the company has been legally set the company up in Colombia, it is essential that the branch also have a tax assistant who is in charge of keeping track of commercial operations so that he can calculate the amount to be paid in taxes.
These are the most common mistakes in bookkeeping for a business.
As we have seen, the creation and registration of companies in Colombia is a process that requires full attention and regulation, since this will define the approval of your activity. Our experts at JLC Auditors want to share with you the step by step you must follow so that your business or company complies with all the requirements established by law before the different national entities, therefore it is important to leave the process in expert hands.