Fabio Osorio’s experience
Fabio Osorio helps companies do business in Latin America. He is part of the Praxity Global Alliance, which is a network that assists companies not only in Colombia and Mexico but also in more than 100 countries with tax compliance and financial services focused on administrative and tax operations.
What are the top three mistakes that people make when opening a business in Colombia?
First, it is very important to understand the tax regime in Colombia and its benefits. Many people assume it is similar to other countries in Latin America, but this can be a mistake.
Secondly, people often don’t choose the right legal entity. They usually opt for an SAS, which is the most common type in Colombia, but it is not necessarily the best choice; it depends on the specific case.
Lastly, it’s crucial to understand the market and how they will establish their presence. Additionally, they should consider whether they can utilize free trade zones as a benefit for their operations.
Do you think this also applies to buying a business rather than opening one?
Yes, in these cases, many don’t invest in due diligence to identify potential impacts before acquiring a company. They may realize after the acquisition that there are tax or financial issues they hadn’t considered, which could lead them to pay more than necessary.
What are the biggest perks of doing business in Colombia in terms of tax benefits specifically?
I would say it depends on the types of activities the company will engage in, but there are several advantages. For instance, if you are a manufacturing company or even a company that provides services, you can take advantage of the free trade zone regime. The corporate tax rate in free trade zones is 20%, while outside of these zones, it is currently 31%. This represents an 11-point difference, but the free trade zone regime is not available to all entities, so it depends on the type of activity being performed.
Also, one must consider the «orange economy» in Colombia, which provides many tax incentives for at least seven years for qualifying businesses, depending on their activities. This initiative was originally designed for technology companies or those offering similar services, allowing them to avoid paying taxes in Colombia for at least seven years. There are other specific exemptions for local energy entities and renewable energy companies, which is very important.
Is Colombia tax-friendly compared to other places?
I would say it can be, yes. It is not the most expensive country in terms of taxes, but it is not the least expensive either. It is friendly in that international companies can benefit from various opportunities while doing business in Colombia. There are many possibilities for business here, and one of the most important aspects for companies looking to operate in international markets is Colombia’s strategic location in Latin America. It allows for easy business dealings in Central America, North America, and South America. It is a good place to establish a business nowadays, especially for manufacturing and companies providing IT or technological services, as Bogotá and Medellín are two cities expanding in these sectors and are also free trade zones. Working within the orange economy can be a significant advantage for companies, so we can say that Colombia can be tax-friendly if you follow the right path.
Tell us about your experience with the Europa Network. Why would you recommend someone use it?
I think the Europa Network is a great resource for doing business and establishing entities in Colombia. It provides valuable assistance in understanding what companies need to consider when starting a business here. The European Network has built a strong network of various entities and advisors who can offer not only advice but also insights from other investors who have already established businesses in Colombia. This perspective is very important as it helps to avoid mistakes that others have made when starting their businesses. So, I believe that being part of the European Network is a significant advantage.
