In the exercise of our professional practice and legal advice to foreign clients with businesses in Colombia, we have frequently encountered the performance of preparatory commercial activities, or market knowledge, which are coordinated from abroad without the existence of a subordinate company or branch established in the Colombian territory.
With this bulletin we would like to present some legal effects that would have the realization of such preparatory acts within the Colombian territory.
FROM A CORPORATE POINT OF VIEW: Normally, the performance of commercial activities by foreign companies in the Colombian territory must be carried out either through their own subordinate company or branch, or through the appointment of an attorney-in-fact in Colombia. In any case, it is important to bear in mind that Colombian commercial law defines certain activities as permanent and therefore require that they be carried out through a branch office duly incorporated in the country. Among these activities are:
1) To open within the Colombian territory mercantile establishments or business offices even if they are only of a technical or advisory nature;
2) To intervene as a contractor in the execution of works or in the rendering of services;
3) To participate in any form in activities whose purpose is the management, use or investment of funds from private savings;
4) Engage in the extractive industry in any of its branches or services;
5) To obtain from the Colombian State a concession or that it has been assigned to it under any title, or that in any way participates in the exploitation of the same and,
6) The operation of its members’ assemblies, boards of directors, management or administration in the national territory.
The above are merely defined as examples and are not exhaustive. According to the Superintendence of Companies, the fact that a foreign company has a permanent activity in Colombia and, consequently, is obliged to open a branch, or not, must be analyzed individually. The Superintendence of Companies has additionally stated that stability, perseverance, durability and immutability are characteristics that define a permanent activity.
PERMANENT ESTABLISHMENT FROM A TAX POINT OF VIEW: Without prejudice to the provisions of the double taxation conventions signed by Colombia, a permanent establishment is understood to be a fixed place of business located in the country, through which a foreign company, whether a corporation or any other foreign entity, or an individual without residence in Colombia, as the case may be, carries out all or part of its activity. It shall also be understood that there is a permanent establishment in the country when a person, other than an independent agent, acts on behalf of a foreign company, and has or habitually exercises in the national territory powers that empower it to conclude acts or contracts that are binding for the foreign company (Art. 20-1 of the Tax Statute).
Once a permanent establishment is declared for Colombian tax purposes, it will be taxed on the income and occasional gains from domestic and foreign sources attributable to it.
EFFECTS IN LABOR MATTERS: Colombian labor law governs the rendering of personal services within Colombian territory, regardless of the nationality of the service provider. Thus, those foreign companies that carry out their preparatory or commercial activities in the Colombian territory through persons hired and paid from abroad, may become liable for labor obligations as employers.
This is how a worker could argue the existence of an employment contract by demonstrating: the personal rendering of a service, subordination and payment of remuneration. Once these elements are demonstrated, the employer -foreigner- will end up being responsible for the payment of social benefits, indemnifications, vacations and other obligations under Colombian labor law.
EFFECTS IN MIGRATION MATTERS (VISAS): Finally, we draw attention to the fact that the performance of preparatory commercial activities that entail the need for constant travel to Colombian territory by persons of foreign nationality will require obtaining the corresponding visa or entry permit.
In many cases we find that foreign personnel enter Colombian territory without the need for a visa, under the protection of tourism activities, however, in the face of constant entries into Colombia, the immigration authority may validly question the purpose of the trip and require the obtaining of the corresponding visa or entry permit.
