Discusses the distribution network within the country from how products enter to the final destination,
Colombia offers a full range of sales channels to consumers, with various distribution methods depending on the type of product offered. These methods range from traditional wholesalers selling to traditional shops which then sell to the public, to more sophisticated methods, such as large department stores and superstores, which are increasingly popular outlets.
While most imported items, especially capital equipment and raw materials, are still purchased through agents and distributors, some large domestic manufacturing companies import these items directly. Furthermore, some major distributors, wholesalers and end-users are opening purchasing offices and warehouses in the United States and contacting suppliers and manufacturers via the Internet, thus avoiding intermediaries in Colombia.
Consumer products from around the globe are available in Colombia at acceptable price levels. Under-invoicing of goods (usually of Chinese origin) and contraband articles sold at deep discounts remain a problem for legitimate retailers. The Colombian government has attained encouraging results in its effort to reduce contraband. Free trade zones and bonded warehouses are commonly used for imported merchandise and processing of export-oriented goods. Modifications to the Free Trade Zone legislation took effect in November 2007 and offer interesting benefits. The MUISCA electronic customs system will address contraband and invoicing issues.
Using an Agent to Sell U.S. Products and Services
Colombian law does not require foreign firms to secure local representation for private sector sales. However, Colombians prefer to deal with companies that have a local representative to ensure access to after-sales services. The one exception to this law is for sales to the government, which do require foreign bidders to have legal representation in Colombia.
To secure an agent, representative, or distributor, the foreign company must execute a contract that meets the provisions of the Colombian Commercial Code. This contract must be registered with the Chamber of Commerce in the city where the agent/representative is located. Agency or representation agreements do not require government approval.
An agent or representative differs from an appointed distributor. The former is legally associated with the principal and may enter into legal agreements on the principal’s behalf, while the latter may act independently from the principal. Distributors may purchase items from a foreign supplier or wholesaler and then sell them locally at their own discretion and risk.
The U.S. Commercial Service recommends that U.S. companies consult a local attorney to execute an agency or distribution contract and to thoroughly vet the prospective partner by conducting a background check. Formality, personal relationships and trust are key ingredients for a long lasting contract. Colombians want to know their supplier or business partner personally before deciding whether he or she is trustworthy. U.S. companies seeking agents, distributors, or representatives in Colombia should consider contacting the U.S. Commercial Service office to request assistance in entering the Colombian market.
Establishing an Office
There are three common forms of organizing your business in Colombia: a corporation, a limited liability partnership, and a branch or subsidiary of a foreign corporation. U.S. firms should obtain legal and tax related advice from a Colombian law firm or accounting firm. The U.S. Commercial Service’s Business Service Providers webpage provides a list of Colombian attorneys.
A branch office of a foreign corporation must operate under the rules applicable to Colombian corporations. Its liability is limited to assigned capital and it must be registered with a Notary Public in its place of domicile. The following documents must be registered with the Public Notary:
1. Certificate of existence and legal representation of the parent company, issued by the competent authority of the country of incorporation. In case of a natural person, a copy of the passport must be provided.
2. Power of attorney authorizing a representative to act on behalf of the parent company.
3. Bylaws of the parent company.
4. Resolution from the company in the United States authorizing the opening of its branch in Colombia.
The documents above must follow the legalization process established according to Colombian legislation. Be sure to check with the Colombian Embassy in Washington, DC about whether specific documents originating in the United States require an apostille from the Colombian Consulate or Embassy to validate their use in Colombia.
Companies should follow these additional steps, at a minimum, when establishing a business in Colombia:
I. Formalize a public document:
All the aforementioned documents will be required for this step. Prepare company bylaws (Escritura Pública) and register the entity with a Public Notary, (Notario) stating the purpose of the firm, capital, legal representative, etc. This step takes two to three days and costs approximately 0.0027 percent of the amount of capital being registered. A 16 percent Value-Added Tax (VAT) will be charged. The public deed must be signed by the representative of the foreign company in Colombia.
II. Acceptance letters of the representatives of the branch:
Letters of acceptance must be obtained from the representatives approved in the bylaws of the company, such as the legal representative and his/her deputy. Such letters should include the full name of the person accepting the position, title, document, identification number and signature.
III. Get a Unique Tax Registry (RUT- Registo Unico Tributario):
This procedure may be done personally or through a representative at the Tax Office, in order to obtain the NIT (Taxpayer Identification Number) of the branch. The bylaws, letters of acceptance, and additional forms for tax purposes (RUT and NIT if any) must be filled out indicating the taxes to which the company is subject to and must be registered with the Chamber of Commerce assigned to the address where the branch is located. Registry in the Chamber of Commerce is subject to payment of registration tax, equivalent to 0.7 percent of the amount of capital allocated to the branch. This registration must be renewed annually at the Chamber of Commerce.
IV. File the Company’s Ledgers and other corporate books at the Chamber of Commerce:
All companies (including branches of foreign companies domiciled in Colombia) must register themselves and their accounting books, including: daily journal entries, balance sheet, meeting minutes, and other required documents by law in the Commercial Register of the Chamber of Commerce in the cities where they are located.
Please check the current cost to register the books at Bogotá’s Chamber of Commerce website.
V. Open an account at the bank of your choice:
Every new branch must open a bank account. Investors will deposit the capital in this account.
VI. Register the foreign investment with the Central Bank:
Once the investment is made, that is, once the initial capital assigned is registered by the company, any subsequent capital increases must be registered with the Central Bank (Banco de la República). The registry process varies according to the destination of the funds.
The number of franchises in Colombia has more than doubled over the past ten years. After Brazil, Mexico, and Argentina, Colombia has the 4th largest number of franchises in Latin America. This boom has been driven by a better understanding and acceptance of the concept of franchising by many local firms, and by the improvement in international perception of the business environment due to the implementation of newly-signed free trade agreements.
After a pilot project of the Inter-American Development Bank (IDB) and ten Colombian Chambers of Commerce to foster the development of franchising from 2006 through 2009, an ever-growing number of companies have adopted franchising as a safe and less complex way of expanding their business.
International concepts have increased vis-a-vis national franchising concepts, with the former taking up 52 percent of the total share of businesses in 2014, with 48 percent of franchise concepts being Colombian. The breakdown by country of origin of international franchises in Colombia has the United States at the lead, with 23 percent of the total. Next come European countries such as Spain (eight percent), Italy (five percent), England (three percent) and France (three percent); as well as a few Latin American countries such as Argentina (two percent) and Brazil (two percent).
According to Colfranquicias, the service sector, particularly the hospitality, health, and beauty industries, offers significant opportunity for growth. The restaurant and retail sectors have benefitted from policy reforms and continue to grow steadily. Franchising in the fashion industry grew seven percent from 2015 to 2016, with the entrance of many Spanish brands contributing to this growth. The franchises currently with the biggest growth in Colombia are BodyBrite, Subway, Sandwich Qbano, Efecty Servientrega, and Prontowash.
Franchises are concentrated in the major cities of Bogota (50 percent), Medellin (12 percent), Cali (six percent), Barranquilla (four percent), and Bucaramanga (three percent). The smaller cities of Barranquilla, Cartagena, Bucaramanga, Armenia, Manizales, and Pereira offer opportunities for growth.
The concept of franchising in Colombia has yet to obtain the same degree of development as it has in developed countries such as the United States. However, Colombia is currently dealing with significant changes in the economy; the drop of oil prices since 2015 has strongly influenced the Colombian peso devaluation. The following U.S. franchises: T.G.I. Fridays, Taco Bell, Krisky Kreme, and Chilli’s closed operations in either 2018 or the beginning of 2019.
Over the last decade, Colombia’s GDP per capita increased from just over $6,000 in 2000 to $7,700 by 2018. It is also estimated that the middle class grew from approximately 15 percent of the population in 2002 to 31 percent in 2017. This amounts to almost 15 million people out of Colombia’s total 49 million inhabitants. It is estimated that only three percent of the Colombian population is in the high-income bracket, which explains why Colombia, like many other Latin American markets, is a very price sensitive market. Familiarity with international franchising concepts remains closely correlated with income bracket, with only the higher brackets being familiar with newer and more novel concepts. Still, while the group with stronger purchasing power is more likely to adopt foreign concepts, some franchising concepts have demonstrated how they can quickly gain market appeal in the lower demographics by offering good products with interesting discounts.
In terms of intellectual property, Colombia has in place adequate institutions to guarantee the rights of companies that have been diligent in the registry of their brands and other intellectual property. There are no specific regulations pertaining specifically to the enforcement of franchising activities and agreements, which are regulated by Commercial Law and treated as “mercantile contracts” (Contrato Mercantil).
As Colombia’s economy is expected to continue growing at a stable and dynamic rate, it is very likely that franchising will continue to develop, both in terms of national and foreign concepts. Furthermore, with the increase in the development of new shopping centers in primary and intermediate cities, growth is likely to benefit both established and up and coming players.
In terms of outlook by franchising category, food and beverages will continue to benefit the most from current economic trends, followed by clothing retail concepts. Services franchises are just starting to gain traction and have yet to become an attractive business opportunity for most investors, with the largest share found in the specialized services health and education and training categories.
Direct marketing is popular in Colombia. Its growth has been fueled by such factors as technological advances in printing and distribution, the spread of cable TV, the increased use of credit cards and flexible payment plans, and changing lifestyles. Other factors include: more women entering the job market and people seeking ways to save time in making household purchases. Many stores and large distributors are producing their own catalogs for phone, mail orders, e-mail, or the web with products that can be paid for with cash, check, debit or credit cards.
E-commerce is a viable marketing alternative. The U.S. Commercial Service suggests that U.S. companies consult a local attorney before entering into e-commerce sales or contractual agreements. Internet sales in Colombia are growing rapidly as is TV marketing. Courier services are available for legal credit card purchases in the United States to be shipped to addresses in Florida and then on to Colombia. Direct shipping to Colombia is also an option.
International direct marketing is becoming more popular in Colombia. U.S. firms can take advantage of improved legislation for postal, express, and courier shipments. To learn more about postal and courier shipping services, please go to the express delivery heading.
Globalization has created a pressing need for a range of new technologies in Colombia. Although joint ventures and licensing agreements have been important business practices in Colombia, recently they have become even more important as businesses strive to become more competitive.
To remain competitive with their neighbors, Colombian industries urgently need to modernize many of their processes, (this implies product diversification for alternative markets through changes in production facilities) and to upgrade obsolete equipment. To reach these goals, local industry is acquiring new capital equipment and state-of-the-art technology.
Leasing is also used to finance modernization projects in Colombia. One of the essential characteristics of leasing, as a financial service within the framework of the Colombian economy, is that it is an adequate tool for investment financing under industrial re-conversion policies. Leasing may be used for government contracts, and in some cases eliminates the need for a tender as the asset will not be retained by the state at the end of its useful life.
The approval of the FTA between the United States and Colombia further strengthens prospects for joint ventures and licensing agreements, as the investment, intellectual property and dispute settlement chapters should create more certainty for U.S. companies and investors interested in doing business with Colombian companies and individuals.
U.S. firms can take advantage of improved legislation for postal, express, and courier shipments. The Colombia Customs Code (Decree 390 from 2016) contains postal and courier/express shipping rules. The recently released Customs Code establishes the following four categories for the import regime of express delivery:
Category 1: Postal shipments (correspondence, postcards, and printed materials) are exempt from licensing requirements and payment of duties.
Category 2: Products with a FOB value of US$ 200 or less will be able to enter Colombia without being subject to payment of duties and value added tax (VAT).
Category 3: Courier or express shipments with a FOB value between US$200 and US$2,000 and a weight of under 50 kilograms are freely imported and classified under HS 98.03.00.00.00, but are subject to a 10 percent Cost Insurance and Freight (CIF) tariff and 16 percent VAT on the CIF-duty-paid value of shipments. The shipments should not exceed six units of the same type of product. Rules apply to both air and surface shipments.
Category 4: Courier or express shipments with a FOB value higher than US$ 2,000 are subject to payment of duties and value added tax (VAT) depending on the products’ harmonized codes. The products are subject to the clearances, permissions, and authorizations issued by the respective authorities, and to submit the Importation Registration form when is required.
Firms are advised to re-check existing regulations to determine the impact of the proposed changes on their business plans.
The following companies provide postal and courier/express shipments from the U.S. to Colombia:
- Box Express Courier
- DHL Express
- Federal Express
- Jet Box
- JV Trading Group
- Makro Logistics Group
- Pasar Express
- Premier Global Service
- Tego Delivery
- Thomas Greg Express
U.S. companies should take care in selecting their Colombian partners. U.S. small and medium-sized businesses can save time and money by contracting with the U.S. Commercial Service to perform an International Partner Search (IPS) to find pre-qualified global partners who express interest in their products and services. The U.S. Commercial Service can generate a customized International Company Profile (ICP) to evaluate your potential business partner. Researched and prepared by our trade specialists, ICPs enable U.S. small and medium-sized businesses to more effectively assess overseas companies. To contract for an IPS or an ICP, visit trade.gov’s list of U.S. offices to find the closest U.S. Commercial Service office.
Prohibition against doing business with Specially Designated Nationals (SDNs)
On October 21, 1995, then President Clinton signed Executive Order 12978 entitled “Blocking Assets and Prohibiting Transactions with Significant Narcotics Traffickers,” which blocks all property subject to U.S. jurisdiction in which there is any interest of members of the various Colombian drug cartels. In addition, the order blocks the property and interest in property of persons who have been determined to play a significant role in international narcotics trafficking centered in Colombia or determined to materially assist in or provide financial or technological support for, or goods or services in support of, the narcotics trafficking activities of persons designated in the Order. It is illegal for U.S. citizens to buy, sell, trade, give away, or otherwise engage in transactions involving persons and companies designated pursuant to the Order, who are referred to as Specially Designated Nationals or SDNs.
A list of the names of such persons and companies is available from the Treasury Department’s Office of Foreign Assets Control (OFAC) website. The U.S. Commercial Service recommends that companies check the OFAC list every three months at a minimum and conduct an ICP on their business partner once a year to ensure compliance with the guidelines.
U.S. companies and individuals doing business in Colombia should be aware of the above Executive Order aimed at curtailing the money laundering operations of the Colombian drug cartels. SDNs include entities or individuals directly involved in the drug trade, companies or front companies they own, and companies or individuals, which supply or do business with any of the preceding. U.S. companies found doing business with SDNs will be notified by OFAC to cease and desist. Failure to do so can result in financial penalties and criminal prosecution. Most established Colombian companies are not involved in the drug trade. Nonetheless, in addition to doing financial background checks on potential business partners, U.S. companies should also contact OFAC to obtain the most current listing of SDNs.
The Colombian government regulates the financial, commercial, credit and services personal information managed by information companies through the “Habeas Data” law (Ley 1266 of 2008). One of the most important changes is that, before the law, bad “behavior” on the personal, financial, and commercial obligation history was maintained for at least four years in the information management companies’ databases. This law ensures every person’s right to clear bad credit history information after a year in order to have access to credit and services in the financial and commercial sectors. Otherwise, in many cases, it was necessary for a person to wait for four years to have access to those services and credit.