A growing number of companies eager to expand into Latin America are choosing Colombia as their entry point. Why? Well, for starters, the country is home to a growing number of educated and skilled professionals, and it provides easy access to both the North and South American markets.
But before you can start onboarding your first hire, you need to ensure you can legally employ them. One way is by opening a local entity.
Establishing an entity lets companies operate locally and hire Colombian employees, but it also includes legal obligations, including accounting, tax filings, payroll compliance, and compliance with labor laws.
For many businesses, especially those expanding internationally for the first time, forming a legal entity can feel confusing and complex. But the good news is that with the right preparation and support, creating a Colombian entity is … well, not exactly a snap, but definitely manageable.
Key Takeaways
- Creating a legal entity in Colombia requires multiple steps, including registering the company, obtaining tax identification, and opening a corporate bank account.
- The most common structure for foreign companies is the Simplified Stock Company (SAS), which offers flexibility and limited liability.
- Companies that want to hire employees in Colombia without opening their own entity can work with an Employer of Record, such as RemoFirst.
Why Companies Expand to Colombia
Colombia offers many advantages: a growing tech ecosystem, improved infrastructure, and business-friendly reforms. Labor costs are lower than in North America or Western Europe, and time zone alignment with the United States makes collaboration easier for distributed teams.
Another major advantage is both the amount and quality of available talent. Cities like Bogotá, Medellín, and Cali have become hubs for technology, finance, and customer support roles, and an increasing number of skilled professionals enter the workforce each year — perfect for companies building distributed teams.
Choosing the Right Legal Structure
Foreign companies looking to operate in Colombia can choose from several legal structures, each with unique governance, liability, and administrative requirements. The right choice depends on your company's size, ownership, and long-term expansion plans.
Simplified Stock Company (SAS)
The Simplified Stock Company (Sociedad por Acciones Simplificada) is by far the most common choice for Colombian entrepreneurs and international companies entering the market.
Key features include:
- Limited liability for shareholders, meaning personal assets are generally protected from company debts.
- Flexible ownership structure, allowing one or more shareholders, including foreign individuals or corporations.
- No minimum capital requirement, which makes it easier for startups and expanding companies to incorporate.
- Flexible governance rules allow companies to define their own management structure in the bylaws.
For this reason, the SAS works well for a wide range of businesses, from startups and technology companies to multinational subsidiaries.
Most foreign companies planning to hire employees or establish operations in Colombia choose the SAS model.
Limited Liability Company (Ltda)
A Limited Liability Company (Sociedad de Responsabilidad Limitada, or Ltda) is a more traditional business structure that is often used by smaller, closely held businesses.
In this scenario, ownership is divided among partners rather than shareholders, and the number is limited.
Key characteristics include:
- Between two and 25 partners are required.
- Limited liability protection, meaning partners are generally only responsible for their capital contributions.
- Restrictions on transferring ownership, which typically require approval from other partners.
- More structured governance requirements compared with an SAS.
Due to ownership limits and less flexibility, Ltda is uncommon for international firms but may suit family businesses or those with a few long-term partners.
Corporation (SA)
A Corporation (Sociedad Anónima, or SA) is a more complex entity type typically chosen by larger organizations or companies planning to raise significant capital.
Corporations must meet stricter governance and reporting requirements than other entity types.
A SA typically includes:
- A minimum of five shareholders
- A board of directors, which is required by law
- Greater regulatory oversight and formal corporate governance
- The ability to issue different classes of shares
Because of these requirements, the SA structure is generally used by large enterprises, financial institutions, or companies preparing for public investment.
Branch of a Foreign Company
Foreign companies that want to operate directly in Colombia without forming a separate subsidiary can establish a branch office (Sucursal de Sociedad Extranjera).
A branch is considered an extension of the parent company rather than a separate legal entity.
Important aspects of this structure include:
- The parent company retains full legal liability for the branch’s activities.
- The branch must appoint a legal representative in Colombia.
- The parent company must register corporate documents and financial statements locally.
- Certain activities may require additional regulatory approvals, depending on the industry.
Branch offices can work well for companies expanding temporarily or conducting specific projects. However, many organizations prefer creating a separate subsidiary, such as an SAS, to limit liability and maintain clearer corporate separation.
Steps to Create a Legal Entity in Colombia
Setting up a Colombian company typically involves several government registrations and administrative steps. While the exact process can vary depending on the entity structure, most companies follow a similar path when establishing a legal presence in the country.
1. Choose Your Business Structure
The first step is to select the legal entity type for your company. As you begin, consider the following factors, which will shape the rest of the registration process:
- Ownership structure
- Future investment plans
- Governance preferences
Many companies consult with local legal or corporate advisors at this stage to ensure they choose the entity type that best aligns with their long-term goals.
However, most foreign businesses choose the SAS model because it offers a balance of operational simplicity, limited liability protection, and fewer administrative requirements than more traditional corporate structures.
2. Conduct a Company Name Search
Before registering your business, you must confirm that your preferred company name is available by searching El Registro Único Empresarial to ensure no other registered business is using the same name.
If the name you want is already registered, you’ll need to choose an alternative before moving forward with incorporation. It’s a good idea to check several possible names in advance to avoid delays.
3. Draft Incorporation Documents
Next, you must prepare the company’s articles of incorporation.
These documents typically include:
- Company name
- Business activities
- Shareholder information
- Corporate governance structure
- Capital contributions
The articles of incorporation serve as the legal foundation of the company and define how it will be managed. Because these documents establish ownership and governance rules, many businesses work with legal professionals to ensure they meet all regulatory requirements.
4. Register With the Chamber of Commerce
Once the incorporation documents are finalized, you must register with the local Chamber of Commerce in the city where the business will operate. This registration formally establishes the company as a legal entity in Colombia and allows it to begin conducting business activities.
During this process, the Chamber of Commerce reviews the submitted documentation and records the company in the commercial registry. After approval, the company receives its official registration certificate confirming its legal status.
5. Obtain a Tax Identification Number (NIT)
After registration, the company must obtain a Tax Identification Number (NIT) from Colombia’s tax authority, the Dirección de Impuestos y Aduanas Nacionales (DIAN). This number allows the business to pay taxes, issue official invoices, and register employees for payroll and social security purposes.
Obtaining the NIT is an essential step before the company can fully operate in the country. Without it, the business cannot legally carry out many financial or administrative activities.
6. Open a Corporate Bank Account
Companies operating in Colombia typically need a local corporate bank account to manage financial operations such as payroll, vendor payments, and customer transactions. To open an account, banks usually require:
- Incorporation documents
- Shareholder identification
- Proof of tax registration
In some cases, banks may also request information about the company’s business activities and ownership structure as part of their compliance procedures. Because these requirements can vary between financial institutions, the process may take several days or weeks.
7. Register for Payroll and Social Security
If you plan to hire employees, the company must register with Colombia’s social security system and comply with local employment regulations. Employers are responsible for contributing to programs that fund healthcare, pensions, and workplace risk insurance.
Employees must also be enrolled in the appropriate social security programs before they begin working. Completing these registrations correctly helps companies avoid compliance issues and ensures workers receive the benefits they are entitled to under Colombian law.
Ongoing Compliance Obligations
After your company is established, there are several ongoing requirements you must meet to remain compliant in Colombia. These generally fall into three main areas:
- Accounting and tax filings
- Business registration renewals
- Employment compliance
Accounting and Tax Filings
Companies operating in Colombia must maintain proper accounting records and prepare financial statements in accordance with Colombian accounting standards.
Businesses are also required to file tax returns with the national tax authority, DIAN. Depending on the company’s activities, this may include corporate income tax, value-added tax (VAT), and withholding tax filings.
Annual Registration Renewal
All registered companies must renew their commercial registration with the local Chamber of Commerce each year. This process confirms that the business remains active and updates company information if necessary.
Failure to renew on time can result in penalties and administrative complications.
Employment and Social Security Compliance
Companies that hire employees must comply with Colombian labor laws including registering workers in the national social security system and making the legally mandated contributions.
Maintaining payroll and benefits compliance is essential for avoiding fines and legal disputes.
An Alternative to Setting Up a Legal Entity
While opening a legal entity gives companies full control over their operations, it’s not always the fastest or simplest option.
Establishing a company can take weeks or months, be costly, and require ongoing compliance management.
It makes sense if you’re planning a long-term operation that will require hiring a large number of employees. But if you’re starting with only one or two, or want to test out the market before making a bigger commitment, an Employer of Record (EOR) may be a better option.
An EOR, like RemoFirst, allows you to hire employees in Colombia without creating a local entity. Instead, the EOR becomes the legal employer on paper and handles payroll, benefits, taxes, and compliance while you directly manage your Colombian team members.
This allows businesses to enter new markets quickly while avoiding the time and costs of setting up an entity.
How RemoFirst Helps You Hire in Colombia
If your goal is to employ talent in Colombia rather than build a full legal presence, RemoFirst can simplify the process.
With RemoFirst, companies can:
- Hire employees in 185+ countries without opening entities
- Manage and pay contractors in 150+ countries
- Maintain compliance with local labor laws
- Manage payroll and taxes in one platform
RemoFirst will also take care of:
- Creating employment contracts
- Equipment provisioning (if needed)
- Onboarding
- Managing employee benefits, including private health insurance
We can also help you hire and manage contractors in Colombia and in 150+ other countries. Book a demo to learn more.
Frequently Asked Questions
Is Colombia a Good Place to Hire Remote Talent?
Yes. Colombia has a large and growing talent pool, strong universities, and time zone alignment with North America, making it an attractive location for remote hiring.
How Long Does it Take to Create a Legal Entity in Colombia?
Setting up a legal entity in Colombia typically takes several weeks to months, depending on document preparation, registration timelines, and banking requirements.
What Is the Most Common Business Structure in Colombia?
The Simplified Stock Company (SAS) is the most common because it offers flexibility, limited liability, and fewer administrative requirements.
Can a Foreign Company Own a Business in Colombia?
Yes. Foreign individuals and companies can fully own Colombian entities in most industries without needing a local partner.
Do I Need a Legal Entity to Hire Employees in Colombia?
Not necessarily. Companies can hire workers without opening a local entity by using an Employer of Record such as RemoFirst.
