My Experience Starting A Business in Colombia – Step-by-step
“Don’t worry about failure; you only have to be right once.” –Drew Houston, Dropbox Co-Founder and CEO
In 2008 I started to work as a digital marketing freelancer in Southern California. Mostly doing SEO (search engine optimization) for clients. Optimizing their websites’ content and code.
I moved to Colombia in 2010 and continued as a freelance SEO guy. Life was great, I was working for U.S. clients, making about $2,000 a month, moving to a different shared apartment, in a different part of Medellin every 6 months. I even had enough time to teach English at Blendex and do lots of extracurricular things (a.k.a hardcore partying).
I met Joel Duncan (my best friend and business partner), a great photographer and digital marketer, in 2012. Apart from partying, we started to work on some digital marketing projects together. Our partnership worked out so well that a year later we decided to start a business, Red Door Studios.
We were naive and stupid
We thought we could offer digital marketing services to local clients, lol. We spent a very rough year doing all sorts of marketing. Including door to door sales. I’d go to local businesses, which I knew had very poor to no internet presence and I’d offer them our service. I would even offer free services, just to get our foot in the door.
We hit up places like Chef Burger and The Dann Carlton, to small businesses like our neighborhood market (who makes cash hand over fist, yet doesn’t even have a computer with point-of-sale software, let alone a website where a client could make an online order for a delivery.)
We didn’t starve that year, but it sure did suck.
“Ideas are a commodity. Execution of them is not.” –Michael Dell, Dell Chairman and CEO
Catering to gringos and building a team
In 2014 Joel and I went back to the drawing board. We decided to focus on acquiring U.S. clients only. After a couple months we had our first few clients. We used online freelancer websites like Guru.com, Freelancer.com, and UpWork.com to get even more clients. We did a good job and clients gave us great reviews.
My brother, Francisco (22 years old at the time), moved to Medellin to come work for our company. He slept on our couch, which doubled as his workstation during the day. We all worked out of the living room that year.
As we gained more clients we needed more people, so we put up an ad on various Facebook groups. I wanted to hire a Colombian that spoke English very well and that had a lot of desire to work.
After a couple interviews, we found an amazing person. We’ve repeated the formula, and today, Red Door Studios has 13 employees (part time and full time) here in Medellin.
How I started a business in Colombia
Just like in the U.S. there are various entity options in Colombia:
- Sociedad Colectiva.
- Sociedad encomandita simple.
- Sociedad encomandita por acciones.
- Sociedad Limitada (LTDA).
- Sociedad Anónima (S.A).
- Sociedad por acciones simplificadas (S.A.S).
In our case, Red Door Studios is what is called a Sociedad por Acciones Simplificada (S.A.S). We created an S.A.S. because Joel needed a visa, so we opted for the TP7 Colombian visa.
After our first year in business, we realized that processing all income through the S.A.S. wasn’t a very smart move because the tax liability is 25%. For a startup with no seed money, just grit and hustle, it was a hefty bill. I found this great presentation on the ridiculous amount of paperwork and taxes an S.A.S has to pay in Colombia.
Obviously, we needed a better solution.
Our accountant, yes, you need an accountant, we pay ours about $300,000 pesos per month to keep our books in order and do our taxes, recommended I create a business entity as Colombian citizen (persona natural).
I took his advice and created MDdigital and have run the business through that entity instead of Red Door Studios. The business’ brand is Red Door Studios; however, all employee contracts, invoices, bills run through MDdigital.
My accountant and the business lawyer, who helped us set up our business is free for a consultation, please fill out this form and he’ll get in touch. He speaks English.
“Act enthusiastic and you will be enthusiastic.” –Dale Carnegie, Author and Motivational Speaker
You can register a company in Colombia
When registering your business you will have to deal with three different institutions.
- Camara de Comercio – The Chamber of Commerce
- The public entity that regulates the creation of new companies from a legal perspective.
- DIAN – Colombian Tax and Revenue Department, Departamento de Impuestos y Aduanas Nacionales
- Adds your new company to the tax system by giving you a unique tax number.
- Private bank of your choice
- You will need to open a bank account for your business.
Steps to create a business entity in Colombia
It has never been easier to create a business in Colombia. A couple of years ago, the process of creating a company was simplified, eliminating a lot of steps in the paperwork that now you can do online. According to the Chamber of Commerce, there are 10 steps you need to follow in order to create a business in Colombia.
- Check if your company’s name is available: Click here to go the national website for business creation, where you can check the availability of the name you want for your business.
- Write and present your company’s statutes: This is the contract that will regulate the relationship between the business partners and their responsibilities (in case you are creating a partnership). If your company is an S.A.S, you can download the statutes here.
- Apply for a pre-RUT: You need to have a RUT (Registro Único Tributario) before creating a business. When you take your company’s statutes to the Chamber of Commerce, make sure you have already applied for a pre-RUT online. When you register for a pre-RUT, they give you a temporary NIT (Número de Identificación Tributaria). Both of them are for tax purposes.
Before going to the Chamber of Commerce, make sure you have with you the statutes, filled out forms (which you can find here), a copy of the legal representative’s and substitute’s ID or passport.
- Commercial Registration: Every business that performs a commercial activity needs to have a Registro Mercantil. This is also done at the Chamber of Commerce and you need to pay a registration tax, which is 0,7% the value of the assigned capital.
- Open a bank account: This is mandatory in order for the DIAN to give you a definite RUT and NIT.
- Take your bank certificate to the DIAN: So that they can give you your definite RUT and NIT.
- Take your definite NIT to the Chamber of Commerce: This is necessary so that your company is registered in the Certificado de Existencia y Representación Legal (certificate of existence and legal representation). Without this, your company basically wouldn’t exist, so to speak.
- Request a billing resolution: The legal representative or substitute needs to request this at the DIAN. Without a billing resolution, your company can’t start providing services.
- Inscprición de Libros at the Chamber of Commerce: Every business needs to be registered in the Minutes Book and the Shareholders Ledger.
- Social Security registration: Your company needs to be registered in the Seguridad Social in order for you to be able to start hiring employees.
Though some of these steps may seem more confusing than others, you can always ask for assistance at the DIAN and Chamber of Commerce. Functionaries in these institutions can give you guidance, which can make the process easier.
You must either modify your dreams or magnify your skills. – Jim Rohn
Getting a business visa
Any foreigner can start a business in Colombia, and they don’t even need to come here in order to do so since all the paperwork can be done by a representative. However, if you are planning on coming to Colombia and opening a business here, you need to get a Visa. There are 2 types of visas regarding the creation of a business in Colombia:
- NE-1: This visa is available to “the foreigner who wishes to enter the country with the purpose of undertaking commercial and entrepreneurial activities, promoting economic exchange, making investments and creating companies”, according to the Chancellery. This visa has a duration of 3 years with multiple entries, with a maximum of 180 days stay, continuous or not, per year.
- TP-7: This visa is designed to help foreigners who want to start a business in Colombia, buy a business or invest in a company. This visa has a duration of 1 year with multiple entries, and it allows you to perform academic activities as well.
You can find your nearest Colombian Consulate where you can issue your visa here.
If you’d like to talk to the English speaking attorney that helped Joel get his business visa please fill out this form.
Business taxes in Colombia
Now that you know all the steps to creating your business, it’s important to know what kind of taxes your company will have to pay. In Colombia, businesses have to respond to these tax charges:
- Income Tax (Impuesto de renta): It annually taxes the utilities the company created from January 1st to December 31 of each year.
- Value-added Tax (Impuesto al Valor Agregado-IVA): It taxes the sale of goods and provision of services. Currently, the rate is at 19%, which means a company has to calculate and add this 19% to the value of the good or service they are providing.
- Industry and Commerce Tax (Impuesto de Industria y Comercio-ICA): This one is a local tax, which means its rate differs in each city. It taxes all industrial, commercial and service provision activity.
- Tax on Financial Transactions (Gravamen a los movimientos financieros): It taxes the withdrawal of funds from checking accounts, savings accounts, and official checks. It responds to a 0.04% of the value of each transaction.
- Withholding Tax (Retención en la Fuente): This one is not officially a tax, but every company has to pay it annually. It is the anticipated payment of the income tax.
- Equity Tax (Impuesto al Patrimonio): It taxes the possession of wealth by the 1st of January of each year. For purposes of this tax, the concept of wealth is equivalent to the total gross estate of the taxpayer-owned on the same date minus the debts payable by the taxpayer in force on that date.
Personal Income Taxes in Colombia
As well as declaring your company’s taxes, in Colombia, you will probably have to declare personal income taxes or Declaración de Renta. Anyone who lives in Colombia for more than 183 days and makes more than $41,654,000 (about $13,800 US) will have to declare income taxes. You will also have to pay this tax if your gross estate in the past year was more than $133,889,000 (about $44,600 US). If you made purchases of more than $83’308,000 in cash, with credit cards or loans, and if you’re responsible for the value-added tax of sales of more than $104,000,000 (about $34,600 US).
I feel that luck is preparation meeting opportunity. – Oprah Winfrey
Real entrepreneurs doing business in Colombia
In my seven years in Medellin, I have seen many try to set up shop. The majority have failed. It is not easy to run a business. It takes a ton of time, dedication, sacrifice, hard work, leadership skills, organizational skills, communication skills, and people skills.
I am one of the founding members of the Medellin Entrepreneur Society and know quite a few REAL entrepreneurs that own businesses here. Some who are my personal friends and mentors.
As you know my business deals with U.S. clients and is all digital. Therefore, I wanted to give an example of a business that solely works with a retail product here in Colombia.
Q: What made you decide to come to Colombia?
A: Henrik came here first. His plan was initially to study a semester in the Universidad de Antioquia and then go back to Berlin, Germany, finishing his studies. But he never took off again! After a short while, Konstantin came over to better up his Spanish and we got the idea to create Colombia’s first certified organic drink.
Q: What is your business about?
A: Basically we are making fruity refreshing beverages with traditional Colombian ingredients like mango, passion fruit, guava, orange or panela. At the same time all the ingredients we are using are 100% local, we pay the farmers “fair trade” prices, the glass bottles we are using are returnable to avoid waste production and we have a “farmers fund”, which helps local Colombian small-scale farmers to receive their organic production certificate so they are better off on the market. So at the end what has become of the project is way more than just simply producing any juice.
Q: How long have you been in business?
A: We started the project in 2014. When we first met you, Andrew Macia, back in 2015 we were on an all-time low – We were running out of funds and we had a minimal value product (MVP) that didn’t work at all. So we were basically at a point where we had lost almost all hope for the future.
Shortly after we became a little lucky and a bigger new investment came in. We were able to finally launch our first juice in March 2016. Some weeks ago we launched the second flavor of the brand.
Q: How did your business idea come about?
A: It was actually out of personal necessity. When we first came to this beautiful we recognized the attractive weather, which basically makes one thirsty all of the time. Now both of us are not too much into consuming soft drinks for various reasons. And the freshly made juices u find all over town – well they are really cool and part of the culture. But at the end, you never really know where the fruits are coming from, how much preservatives the farmers are using (there is actually NO upper limit to pesticide usage in Colombia) and how much sugar the seller put in it. Most of the time it is more sugar than one would like to consume. So we were kind of frustrated with the drinks situation in Medellín, that’s when we thought: We have to create something better ourselves. The added values, like the sustainability and social aspects, are mostly things that we know from German beverage projects.
Q: What were some of the biggest obstacles you had to get over when starting your business?
A: First of all, there was and is always the language and business culture barrier. When we came here we hardly knew any Spanish, which made it especially hard because almost nobody of the contacts we made on the way speaks English or even German fluently. Also doing business over here works very different from what we were used to in Germany. Not saying that it’s better or worse, it’s just totally different.
Then, as mentioned before, we had huge technical problems with our MVP. That’s mainly because nobody here knows how to produce drinks in a scalable manner without using preservatives or other chemicals. Konstantin and Henrik, we both have a business background, so the technical part was something that didn’t come easy for us. But bit by bit we got the knowledge we needed and we are still learning new stuff every day.
Q: Were there any times that you felt like giving up?
A: Of course there were. When we first met you, Andrew, we were actually one week away from booking our flights home and just leaving Colombia behind us. But then we got a little lucky and a new investment came in. We wiped away everything that we had done until then and started from scratch with a whole different product. And luckily this time it worked.
Q: Are you a SAS or persona natural?
A: We have been “constituidos” as a S.A.S. for more than 3 years already because it helps with the visa process.
Q: Do you have employees?
A: At the moment we are five people, four of us working full time in Medellín and a sales manager in Bogotá. Also, we have a big “external team” of e.g. lawyers, social media guys, photographer, technicians, the production plant staff and warehouse employees.
Q: Are they independent contractors or salaried employees?
A: It depends. We like to work with “Prestación de servicios”, which means people work independently and are free to choose what to do and when. But Henrik and Konstantin, we are of course salaried employees by our own company.
Q: How do you deal with accounting and taxes in Colombia?
A: We have a very good accountant, who has been very helpful whenever it comes to personal and company taxes as well as accounting.
Q: What’s the best part of owning a business in Colombia?
A: Ha, good question. Well, Colombia is a country with a growing economy, which is something you can recognize all over the place. People are just getting better over time it feels. They are eager to consume, to gain new experiences as consumers and to try new products.
Compared to the German business culture, everybody is way more positive about alliances and not a skeptic, which really helps. Also, people are generally very friendly which makes the day to day business way more bearable, especially if it gets hectic sometimes.
Q: If you were to give someone that is looking to start a business in Colombia what would be your advice?
A: In the four years we have been in Colombia we have seen a lot of people come and some of them even set up good ideas. But we have also seen a lot of people go again and vanish. Maybe it was for the better, maybe their ideas at the end weren’t as good or they just couldn’t go on with their start-ups.
But our experience up to today has been that perseverance is what really pays in this country. Yes, everything takes time. Yes, there are a lot of people who don’t do what they are supposed to do or even what they promised to do. Yes, bureaucracy is a bitch in Colombia and even more for us foreigners. You can believe us when we tell you that there were like 1000 moments for us in which we could have just given up and say “it isn’t worth it”. Everybody would have understood. But we never did, we just kept on. And right now, after years of hard work, our business is finally starting to grow and to prosper. Today we can proudly say that chances couldn’t be better for D’CADA to become a successful beverages brand in Colombia and even internationally in the future. Of course, there is still a long way to go. For our part, we will just keep on keeping on!
Being an entrepreneur in Colombia is rewarding
Entrepreneurship is tough and not for the faint of heart. I’ve started and failed at business since I was 18 years old. at 23 I lived out of my car in San Jose, California, selling knock-off perfume from the trunk of my car. At 25 I lost all my money and got deep into debt trying to capitalize on the fall of the Real Estate market in 2007. I can go on with examples of my trials and tribulations; the point is that business ownership is tough, no matter where you are in the world.
Today Red Door has been in business for about 4 years and we have 12 employees. Now more than ever I’m working with laser focus. Now that we’ve broken through and are growing we are at a crucial point in. That’s why I keep working as I did when I was broke.
I have 12-hour days because I want more.
I wake up at 5:45 am to go swim or to the gym, and get to my desk by 8:00 am. I love my life and I love what I do. My team means everything to me and I don’t want to let them down.
“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.” –Steve Jobs, Co-Founder, Chairman and CEO, Apple
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About the writer – Andrew Macia
Hello, my name is Andrew Macia and the Medellin Buzz is my blog. I moved to Medellin in 2010 and fell in love with the city. I taught advanced level English for four years and then started a digital marketing company.
I love Colombian, and Medellin is my home. I like to write and I want to give back to the community. This is the best way I know how. I hope you enjoy my blog!
About the Medellin Buzz
I started the Medellin Buzz as a resource for my English as a foreign language student. A site where they could read about their city in English, that wasn’t boring. It slowly turned into a personal blog and hub for information for people discovering Medellin. I check comments frequently, so feel free to leave your comment and/or questions below.