LEGAL EFFECTS APPLICABLE TO COMMERCIAL ACTIVITIES -WITHIN THE COLOMBIAN TERRITORY- BY FOREIGN COMPANIES
Colombia Holding Companies
June 10, 2022Shares of shareholder that has not paid his shares in a SAS may be sold at his own risk and expense through a commission agent
June 10, 2022In the exercise of our professional practice and legal advice to foreign clients with business 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 subordinated company or branch established in the Colombian territory.
With the present bulletin we want 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 keep 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 these 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 coming from private savings;
4) Engage in the extractive industry in any of its branches or services;
5) Obtain from the Colombian State a concession or that this has been assigned at any title, or that in any way participates in the exploitation thereof; and,
6) The operation of its shareholder meetings, boards of directors, management or administration in the Colombian territory.
The above are merely defined as examples, and therefore are not limited to. According to the Superintendence of Corporations, 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 Corporations has additionally stated that stability, perseverance, durability and immutability are characteristics that define a permanent activity.
PERMANENT ESTABLISHMENT FROM A TAXATION POINT OF VIEW: Without prejudice to the provisions of the double taxation treaties signed by Colombia, a permanent establishment is understood as a fixed place of business located in the country, through which a foreign company, whether a corporation or any other foreign entity, or a natural person without residence in Colombia, as the case may be, carries out all or part of its activity. It will 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 of national and foreign source attributable to it.
EFFECTS IN LABOR MATTERS: Colombian labor law governs the rendering of personal services within the Colombian territory, without distinction to the nationality of the service provider. Thus, those foreign companies that carry out their preparatory or commercial activities in the Colombian territory by means of individuals hired and paid from abroad, may become liable for labor obligations as employers.
Thus, a worker could argue the existence of a de-facto employment contract by proving: the personal rendering of a service, subordination, and payment of a remuneration. Once these elements are demonstrated, the employer -foreigner- will end up being responsible for the payment of fringe benefits, indemnifications, vacations and other obligations under Colombian labor law.
MIGRATION MATTERS (VISAS): Finally we call 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 the Colombian territory without the need of a visa, under the protection of tourism activities, however, in the face of constant entries to Colombia, the immigration authority may validly question the purpose of the trip and require the obtaining of a visa or entry permit.
