Repatriating Profits in Colombia

Foreign investors in Colombia will likely wish to move profits out of the country and back home. This process is known as repatriation and is essential to a business’s operations. Companies need liquidity to perform their work, prove ROI, and make investments.

Repatriating Colombian profits involves several taxation and compliance concerns that investors must perform correctly to avoid setbacks. This guide provides the basics foreign entities should consider and tips for success.

Key consideration for repatriating profits from Colombia

Several governmental policies and procedures guide the process of repatriating profits earned in Colombia. Investors should have a working knowledge of the following considerations that influence how much they’ll net in earnings and how they’ll move funds between countries.

Taxes

The Tax Code of Colombia stipulates certain tax percentages foreign investors must pay on earnings. These rates are determined by the type and source of income. All repatriated profits are subject to reporting and taxation.

Dividend payments have unique tax rates. Colombia has double taxation treaties with some countries, preventing entities from paying taxes locally and abroad on dividends. But this is not the case for all countries. It’s important that investors inform themselves of the standing treaties between Colombia and their countries of origin.

Dividend payment tax considerations are central to a business’s strategy. If your foreign shareholders are taxed heavily on repatriations, they may be less likely to invest.

Transfers

Colombia has instituted certain restrictions on transferring profits abroad to prevent capital flight. Investors must submit an application to the Ministry of Commerce, Industry, and Tourism (MCIT) to get permission to make a transfer. The application asks the investor to detail the nature of the transfer and prove that the correct corresponding tax payments were made on the funds. The taxpaying entity must also demonstrate that it is currently in good standing with the local tax authority. After filing the application, the entity must wait for a response, which could take weeks and result in a limitation on the amount that can be transferred abroad.

While repatriation implies money leaving Colombia (and not entering it) it’s also important to consider remittances that flow into the country. Foreign investors inevitably have to transfer money into Colombia in order to start a foreign branch or local business, and the transfer of these funds must be compliant with the country’s AML (anti-money laundering) initiatives and other regulatory processes.

Investment Treaties

Colombia participates in several Bilateral Investment Treaties (BITs), intended to make participating in the country’s market attractive to investors and prevent expropriation. These agreements help make the repatriation process fair, ensuring that profits earned not only benefit the foreign investor but also make a positive impact locally. Investors must comply with the regulations set out by these agreements.

Repatriating wisely: pointers for success

Learning to do business in a new landscape implies challenges, but the work is worth the reward. Investing in Colombia can be lucrative. Set your operation up for success with the following best practices for repatriation.

• Stay up on regulatory initiatives: Colombia’s regulatory changes can impact your business, as compliance is essential to proving profits are free and clear of illicit sources. In turn, your operation remains in good standing with the government.
• Hire a tax professional: Allow a tax professional versed in foreign investments in Colombia to help you understand your business’s tax burden. Knowing your obligations and the rate at which different funds are taxed will help you clearly project profits and estimate the value of your operation.
• Have a strategy: Take taxation and regulatory concerns into account in a repatriation strategy that maximizes profits and avoids potential pitfalls like double taxation on dividends. Prepare to adapt your strategy as regulations and the local market shift.
• Keep clear records: Following impeccable accounting and tax best practices and ensuring that the corresponding documentation is readily accessible are the first steps in a successful repatriation process. You’ll need this information for proceedings with the government, and not having it on hand can cause setbacks and errors. This being said, the Colombian government demonstrates a commitment to making foreign investment as attractive and straightforward as possible, so while bureaucratic procedures are inevitable, they’re also focused on streamlining—in this case, making repatriation as easy as possible.

Succeed in the Colombian market with expert help

Investors should have basic knowledge of Colombian regulatory proceedings, tax obligations, and the local laws impacting foreign businesses. But they need not be Colombian legal and tax buffs to succeed.

Get professional advising from LaGrande Global and trust an expert to keep up with changing regulations and guide your operation on the nuances of doing business in Colombia.