Below you will find additional incentives and regulations for startups in Colombia.
Creation of companies
To create a company, the venture owner needs to know the steps required to have a company in good standing under the law, so that he may bring his business idea to fruition at a bigger magnitude. To this end, among other things, he must choose the type of company that he wants to incorporate according to the line of business chosen.
In Colombia, there are limited liability companies (LLCs or “limitadas” – Ltdas. – in Spanish), partnerships, limited partnerships (comanditas simples), or stock partnerships (comanditas por acciones), stock companies or corporations (SAs), or simplified stock companies (SAS). The latter company type is quite appealing because it is flexible in point of incorporation, the number of members or shareholders required, the amount of capital, and the freedom to define the rules for corporate organization and management/governance of the company.
Once the company has been incorporated online through the so-called Single Corporate Online Window (VUE – ventanilla única empresarial in Spanish), the mercantile registration fee of the company must be paid within the first 3 months of every year to the corresponding Chamber of Commerce.
Small companies are required to pay taxes such as VAT (on sales of products or services), excise taxes (for specific, taxable products and services), income taxes (on net income or profits as made during a year), and the so-called ICA (a municipal tax levied upon industrial, commercial or services activities).
Because of the economic crisis generated by the Covid-19 pandemic, the city of Bogota enacted a Marshall Plan or City Ordinance 720 of 2020, which brings some changes in ICA rates. A certain percentage of the ICA rate will be deducted or added to the rate paid by companies which have suffered losses or have had increased revenues respectively. Besides, the tax rate will be progressive for micro-companies starting in the year 2021 and through 2027.
To promote the development of micro, small and medium-sized companies, Law 590 of 2000, regulated by Decree 525 of 2009, provides for a gradual reduction of payroll taxes for micro, small and medium-sized companies. It also determines that the Fondo Nacional de Garantías (the National Guarantees Fund) establishes the amount and the special conditions for credit lines and guarantees established for micro, small and medium-size company owners.
Young entrepreneurship law
Law 1780 of 2016 (or the so-called young entrepreneurship law) provides benefits such as the exemption from the payment of the mercantile registration fee and the renewal thereof for the first year for new companies where their members or shareholders holding at least more than half of the corporate capital are between 18 and 35 years old.
Besides, any employers hiring new personnel which at the start of the labor contract are between 18 and 28 years old will not have to pay any family subsidy for such employees during their first year of work. Please click here to know more about the benefits, requirements, and requisite paperwork established by Law 1780.
The Orange Law
To provide financing incentives for business owners who create cultural and creative ventures, Law 1834 of 2017 was enacted to promote the so-called orange economy (creative economy). Under this law, the national government must create credit lines and technical cooperation means to drive the construction of cultural and creative infrastructure in regions and territories through the so-called Territorial Development Financial Institution (Findeter in Spanish), an agency that works hand-in-hand with the Ministry of Culture.
Collective Benefit and Interest Companies Law
Law 1901 of 2018 created a special condition for companies which makes them Collective Benefit and Interest (BIC) companies. This law was regulated by Decree 2046 of 2019. Under the law, any type of company may elect voluntarily to adopt this condition, so that companies may adjust their corporate practices to the Sustainable Development Goals of the United Nations. These goals are aligned with Colombian national commitments and strategies in point of human rights, the environment, and the respect for the rights of workers and employees.
Considering the above, as from 2018, Law 1901 has sought to open the way for a stronger and more responsible economic system. Indeed, the law created the above-mentioned BIC corporate model in Colombia which seeks that companies, besides accomplishing their normal for-profit goals, embrace the welfare of their employees and the society, and generate a positive impact on the environment.
In addition to this, through Decree 2046 of 2019 the national government provides the following benefits for BIC companies:
- To adapt the services portfolio in industrial property matters that is applied by the Office of the Superintendent of Industry and Commerce, to provide for preferential rates for the registration of trademarks (distinctive signs) or new creations.
- Preferential credit lines for the special benefit of entrepreneurs.
- Special tax treatment for any profits distributed to workers and employees as the allocation of corporate shares or equity interests. If these companies are stock companies or simplified stock companies and are income taxpayers, the above profits will be treated as nontaxable income in the income tax return of the corresponding year
- The shares or equity interests that are allocated to BIC-company workers and employees as profit distributions must carry effective economic and voting rights. The tax treatment provided for in Article 108-4 of the Colombian Tax Code will apply. Under this rule of the law, the worker or employee acquires the right to exercise the option to acquire shares or equity interests in the company that employs him –or in a related company–, or who receives, as part of his compensation, shares or equity interests in the company that employs him –or in a related company.
Economic Growth Law
Law 2010 of 2019 (the so-called Economic Growth Law) and Decree 286 of 2020 established an income tax exemption that is to apply over 7 years for orange economy companies whose exclusive lines of business are any of the ones indicated in Article 235-2 of the Tax Code. The exemption applies if the relevant orange company meets the minimum requisite hiring standard (through regular labor contracts), obtains revenue under 80,000 tax value units or UVTs (more or less 2.9 billion COP 2021), and starts its activity before December 31, 2021.
Business owners can apply for the income tax exemption by presenting their business project through the following webpage: https://www.economianaranja.gov.co/.
Besides, the law established an income tax deduction equal to 165% of the amounts invested in or donated to creative economy projects through nonrevocable commercial trusts, provided this meets the requirements established by Decree 1702 of 2020.
Law 2069 of 2020 established the regulatory framework for the creation and consolidation of sustainable ventures in the country. This law provides leverage for the needs of micro, small and medium-sized companies, and it does this by providing means to increase their productivity and growth, simplify paperwork, add strengths and abilities to them, generate innovation and strengthen their ability to make business associations for them to articulate into the main value chains.
In a general sense, the development of ventures in Colombia has shown that Colombia has room for improvement through startups that are based upon science, technology and innovation, and the structuring of their corporate capital. Because of this, the law provides for rules that make institutions more dynamic, thus enabling a greater impact and sophistication of micro, small and medium-sized companies in the market. These rules also seek to consolidate a single attention avenue for entrepreneurs and to increase the country’s competitiveness.
Accordingly, iNNpulsa is made stronger so that it becomes the single agency in charge of managing entrepreneurship state resources, increasing effectiveness and access to financing, and improving articulation with the private sector. Besides, the law provides for income tax deductions for donations made to this agency.
The law promotes some funds such as the following: The so-called Fondo Mujer Emprende (Women’s Startups, which is earmarked for women’s startups and enterprises); the so-called Special Fund managed by ICETEX (designed to provide economic, assistance, and formation benefits to startup owners who have obtained credits with this agency); and the so-called Fondo Nacional de Garantías (FNG) (modified to secure risk investments made in startups and the securing of funds through soft loans, investments and innovative mechanisms such as FinTech and crowdfunding. Financing alternatives such as angel investors networks and risk equity funds are strengthened by this law as well.
Social Investment Law
Law 2155 of 2021 adds measures to promote the hiring of personnel by creating incentives for the generation of new jobs that will allow for the financing of labor costs such as Social Security contributions and payroll taxes. This incentive is established for employers that generate new jobs by hiring additional workers and employees.
For the tourism sector, the exemption from payment of the special surcharge or contribution in the power sector is extended through December 31, 2022, for those that provide tourism services and have an active and valid registration with the National Tourism Register (RNT in Spanish).