Foreign Capital Inflows: Registration Procedures

Companies are frequently incorporated in Colombia with non-resident shareholders, making it essential to understand how to properly register the inflow of foreign currency into the country.

What options are available?
Banco de la República’s Circular DCIP-83 outlines three options for non-resident shareholders (NR) to transfer foreign currency to the Colombian company (CC). These are: capitalization, foreign debt, and payment for services rendered.

What is the procedure?

Capitalization:
The CC issues shares which the NR subscribes. Once subscribed, if the NR chooses to pay in foreign currency into the CC’s account in Colombia, the transaction must be processed through the foreign exchange market by submitting the foreign investment registration declaration (FIR). If the NR chooses to make the payment to the CC’s account abroad, this transaction must be recorded as a movement of a compensation account (CA). If the account is not yet registered as a CA, it must be registered through the Foreign Exchange Information System within the calendar month following the date of receipt of the transfer, since this is a transaction that must be mandatorily channeled. If the NR decides to pay in Colombian pesos without transferring foreign currency, the transaction must still be reported to the Banco de la República via the Foreign Exchange Information System as a foreign investment without foreign exchange movement.

Foreign Debt:
The CC enters into a loan agreement (LA) with the NR. This LA must be registered with the Banco de la República through the Intermediary Market Channels (IMC) prior to the first disbursement, using the “External Credit Report Granted to Residents” along with the required annexes. Only after the BR assigns the credit registration code may the NR disburse the funds. If the disbursement is made in foreign currency into the CC’s Colombian account, it must be registered by submitting the external credit registration declaration. If the payment is made to the CC’s foreign account, it must be registered as a movement of the CA within 15 business days. If the account is not yet registered as a CA, it must be registered following the procedure described above. Once a transfer is received under these concepts and the CA is registered, all subsequent movements in that account must be reported to the BR on a monthly basis, regardless of whether or not there were movements, or whether the operations are mandatorily channeled or not.

Service Provision:
The CC enters into a service agreement with the NR, and the latter transfers the funds as payment for said services. This transaction is not subject to mandatory channeling and can be registered using the previously known Form No. 5.

The choice between these options will depend on the specific needs of the CC and the tax implications associated with each option.