Opening a U.S. Subsidiary Office in Colombia

by | Feb 17, 2022 | Colombia | 1 comment

After three years of traveling the world as nomadic expats, my wife noticed my excitement during online English classes with engineers. These were English language learners working to improve their career prospects so the conversation would inevitably evolve into something closer to a business consulting session.

The Attraction of Medellín

I had a long, successful career in global technology corporations and loved the creative process when working with clients. She saw that I wanted to get back into “the game.” Former co-workers at a start-up in California were interested in expansion into Latin America. After some dialog, we agreed to open a regional office and establish a legal entity in Medellín, Colombia.

Medellín became to be one of our favorite cities. A great climate, welcoming people, and international cuisine make it a place we decided to always return to. Medellín also happened to be a technology hub with outstanding local tech talent. It is central to the major business markets in LATAM (Mexico, Brazil, Peru, Chile).

Medellín is well known for its innovative talent in city planning and job creation. As a result, my new employer and I agreed it would be the best choice to open an office here and hire local staff.

Part of the excitement (and anxiety) was that I had never opened a new operation before. I have years of experience developing underperforming markets, but here we were starting from zero. There was one small pilot project, but other than that, no true business development had begun.

Leveraging Local Resources

Like any small start-up, our budget was tight and leveraging local economic development resources was key to establishing a presence. Medellin has a few organizations that helped us move forward quickly.

Aiming high by Eileen Brill Wagner
Aiming high by Eileen Brill Wagner

ACI Medellín is the economic development office for the city. They were key to introductions to establish a business, among these were a lawyer, an accountant, and a bank that would allow us to hire employees and remain in compliance with Colombia business laws.

We had excellent support from these resources and couldn’t have done it without them. The bank opened a local savings account for us without being full-time residents yet. It was helpful having a local debit card that can also be used on the Metro.

The government agency ProColombia has offices all over the world and the local office helped us navigate the maze of regulations. Colombia, like most emerging markets, still has a legacy of bureaucracy that limits economic growth. They are working to streamline the process, but it remains difficult.

One surprise was that the VAT of 19% applies to all transactions, including business-to-business invoices. For operations like ours, with ambitions of doing millions of USD, this is a huge number.

The Cost of Workers’ Rights

Workers’ rights in Colombia are strong as they are in most Latin American countries, so employment contracts reflect an employee bias.

There are numerous clauses that protect an employee in case of termination which mandate a lengthy process and severance payments. Employer contributions for pension, medical and severance benefits are significant.

A high-tech hub by Eileen Brill Wagner
A high-tech hub by Eileen Brill Wagner

I was told to factor in an additional 40% to base pay to cover these costs. In our case, this was balanced out with wages much lower than standard in the USA for staff with outstanding credentials.

Engaging new clients was an interesting process. Colombians by nature are very welcoming and the business community is no different. My meetings were productive but also there was a sense of hesitation that was natural considering I am not a local “paisa.” Hiring local staff helped bridge this cultural divide and build trust.

When my time was complete, it was satisfying to know I had built a sound foundation for the business and left Colombia with lasting friendships I know I will return to for years to come.

Opening a subsidiary in another country? Starting a new business? We want to hear about your experience.

by: Michael Wagner