Choosing a Real Estate Entity in Medellín: S.A.S. vs. Natural Person
Medellín, known for its pleasant climate and growing economic appeal, has emerged as a pivotal destination for real estate investments in Colombia. Both local and foreign investors seek to capitalize on opportunities within the sector, facing a critical decision: whether to invest as a Natural Person or establish a Sociedad de Acciones Simplificada (S.A.S.). This article will analyze the advantages and disadvantages of both options, highlighting tax, legal, and operational factors influencing the choice of the optimal structure to maximize profits and protect assets in Medellín’s dynamic real estate market.
Unlike some countries that have imposed restrictions on foreign persons, such as Canada, North Korea, China, India, Indonesia, Thailand, Philippines, Switzerland, and Mexico, among others. In Colombia, any person, national or foreign, can acquire properties. This also includes companies domiciled abroad, if they comply with the established legal requirements.
According to Law 27 of 1977, any person over 18 years of age is capable of entering into contracts, including the purchase of real estate. To acquire real estate in Colombia, foreigners must have a valid passport and the necessary resources for the transaction.
Some Questions to Help You Decide How to Invest in Colombia’s Real Estate Sector
Do you want to apply for a residence visa? If the answer is yes, you may want to consider investing as a ‘natural person’ instead of creating or investing in a company in Colombia. It is also possible to invest through a foreign company that is not resident in the country. If you prefer to apply for a visa, this is an important factor to consider.
What is the approximate amount you have available to invest in Colombia? Depending on your budget, you can choose between the ‘Visa de Inversionista,’ which requires an investment of 350 Salarios Mínimos Legales Vigentes (SMLV), equivalent to COP 455,000,000 (approx. USD 113,750) in 2024, to purchase property. Alternatively, for other types of direct investment, an investment of 645 times the minimum wage is required, amounting to COP 845,000,000 (approx. USD 211,250).
Colombian regulations also offer the ‘Visa de Socio o Propietario,’ which allows you to obtain a residence visa by either creating a company or investing in an existing business. In this case, you must invest at least 100 times the legal minimum wage. In 2024, this amounts to COP 130,000,000, approximately USD 32,500. Ultimately, after reviewing the options and considering your investor profile, you can make an informed personal decision.
For more information on legal options for investing and obtaining visas in Colombia, feel free to contact our WhatsApp: +57 301 3891014. Email: info@medellinadvisors.com.
What is a SAS in Colombia?
According to Law #1258 of 2008, a Sociedad de Acciones Simplificada (S.A.S.) is a flexible and modern legal structure that allows investors to protect their personal assets while enjoying certain tax benefits. This type of capital company always has a commercial nature, regardless of the activities outlined in its corporate purpose. For tax purposes, it is governed by the same rules that apply to corporations. The S.A.S. is established through a private document and gains legal status upon registration with the Chamber of Commerce. However, if the initial contributions include real estate, the incorporation must also be formalized through a public deed.
The only special formality is the authentication of the private incorporation document by all participants. This authentication does not imply a public deed, but rather a simple notarization of signatures.
Steps to Create a Sociedad de Acciones Simplificada (S.A.S.) in Colombia
If you are a foreign investor interested in creating a Sociedad de Acciones Simplificada (S.A.S.) to invest in real estate in Colombia, here we will tell you (in a simple way) the steps to follow:
(1). Empower an Attorney-in-Fact for the Management of the S.A.S
You must grant a power of attorney to an attorney-in-fact, allowing them to prepare documents and sign the incorporation of the S.A.S. on your behalf. A Colombian lawyer is the ideal professional to handle this process. If you are the sole shareholder, this document is referred to as the “Act of Incorporation.” If there are multiple shareholders, a “Constitutive Agreement” will be signed.
The power of attorney must be signed before a notary in Colombia, with your passport and your lawyer or attorney-in-fact’s identification presented. If you are outside the country, the process can be completed at a Colombian Consulate in your location.
(2). Choose and Consult the Name of your Preference
Before registering the S.A.S., you must choose a unique name and verify that the name is not in use by another company, this process is available online at the Registro Único Empresarial y Social (RUES).
(3) Define the corporate purpose of the SAS
The corporate purpose must detail the activities to be carried out by the company, for example the purchase and sale of real estate. This is important to define it clearly to avoid confusion or restrictions later on. Consult the CIUU codes that identify the activities to be carried out by the company.
(4). Capital Stock
Determine the value of the initial capital that the company will have. This will be key to register the S.A.S. in the Chamber of Commerce of the place where you are going to invest.
(5). Drafting the Bylaws
The bylaws are the rules that will govern the operation of the S.A.S. They must include information about the shareholders, the capital, the number of shares, the distribution of profits and the responsibilities of the legal representative. They must be drafted by a lawyer in accordance with Colombian regulations.
(6). Completion of Registration Forms
You must sign some forms, which will be submitted to the Chamber of Commerce to obtain the commercial registration and acquire legal personality of the SAS.
(7). Appointment of the Legal Representative
A natural or legal person may be appointed as the legal representative of the new SAS. This person will be responsible for the company’s operations within the country. If you decide to appoint another person, his or her acceptance of this role must be included in the company’s bylaws.
(8). Registration with the DIAN
The S.A.S. must obtain the Registro Único Tributario (RUT) before the DIAN. A lawyer can manage this process, which culminates with the assignment of the NIT (Tax Identification Number). In some cases, depending on the complexity of the company, it may require the additional assistance of an accountant.
(9) Registration at the Chamber of Commerce
Your attorney-in-fact will present the by-laws, the letters of acceptance of positions, the RUES form, the Pre-RUT at the Chamber of Commerce. This procedure has a cost that will depend on the capital of the company. If everything is correct, the S.A.S. will be registered within 48 hours.
(10). Opening of a Bank Account for the S.A.S.
Finally, after the previous points you will be able to open a bank account in the name of the S.A.S. in a Colombian bank. You will need the certificate of existence and legal representation, the RUT, the NIT, and an initial balance made by an accountant. The minimum opening amount varies according to the bank, but generally it is quite affordable in 2024 would be 300,000 pesos (Approx. 75 USD).
Approximate Costs of Creating a SAS in Colombia
One of the most important aspects when deciding between an investment through a Sociedad de Acciones Simplificada (S.A.S.) or as an individual is to assume the initial costs of formation of the company. Below, we offer an approximate idea based on our previous experience, clarifying that the final cost will depend on the capital stock chosen and, of course, on the individual factors of each specific case.
Often, some expatriate investors think that creating an S.A.S. is a simple process and decide to do it on their own. However, this can be risky and become a real challenge if you are not familiar with the country’s regulations, language, and procedures. Therefore, it is important to consider whether you will have enough time to successfully carry out these activities without making mistakes or facing delay
General Guidelines for Tax Management in Colombia:
Firstly, you should know that if you plan to be in Colombia for more 183 days out of the last 365 days, you will be considered a tax resident. This means that you will be obliged to declare your income at a global level, so you should have an adequate strategy to optimize your tax management and avoid risks.
On the contrary, if you are not considered a resident (i.e., if you will be physically in the country for less than 183 days a year). You will only pay taxes on your domestic source income, such as rent or sale of real estate located in Colombia.
Colombia has been signing agreements with various countries regarding the exchange of information on citizens and businesses, in order to prevent tax evasion and double taxation.
Below, we have prepared the following summary table to give you an approximate idea of the tax topic in Colombia, which applies to both S.A.S and natural persons.
S.A.S: A versatile Option for Investing in Colombia
In general, The S.A.S offer a series of advantages for investors in the real estate sector, among them, we have:
Flexibility: S.A.S adapt to different types of businesses and allow for a wide variety of corporate structures.
Wealth protection: Shareholders’ liability is limited to the capital contributed.
Confidentiality: The names of shareholders are not public.
Tax benefits: In certain cases, SAS may enjoy tax benefits at the time of sale of real estate.
It is important to consider that managing 1–2 properties is significantly different from managing a larger portfolio of 5–10 properties. The administrative and operational complexity increases with the number of properties, which can make individual management complicated. In these cases, creating a Sociedad de Acciones Simplificada (S.A,S) can be an efficient strategy to limit the liability of the partners to the invested capital and facilitate the management of multiple properties under a single legal entity.
Although the maintenance costs of an SAS can be high. These costs are diluted when distributed among several properties, making the SAS a more efficient and economical option in the long term for large investment portfolios. Additionally, an SAS can operate more efficiently in terms of administration, accounting, and compliance with tax obligations, which is beneficial for investors with multiple properties.
Disadvantages of S.A.S. When investing in Real Estate in Colombia
Now we will tell you in summary the main disadvantages of foreign investment in the real estate sector when using the S.A.S. structure:
Maintenance Costs: SAS entities must maintain accounting records, renew their registration with the Chamber of Commerce, and pay industry and commerce taxes quarterly. These costs can be significant and represent a considerable financial burden for some small and medium-sized investors.
Corporate Taxes: The corporate tax rate for SAS entities is relatively high, ranging from 33% to 35%. Which can reduce the net profitability of investments.
Administrative Complexity: Managing an SAS is more complex compared to individual ownership, as it requires the presence of a legal representative and compliance with the country’s formal obligations.
You may not apply for the Visa de Inversionista: Art. 79 of Resolution #5477 of 2022 establishes this visa for natural persons, although there is a “Visa de Socio o Propietario” for business owners.
Therefore, you should analyze these matters and make the decision that is most convenient for you based on your specific objectives and vision.
Investing as a Natural Person Will Allow you To Enter the Colombian Market More Quickly
Some of our clients are considering starting their real estate investment journey in Colombia as individuals. That is, without creating a separate legal entity. This approach allows them to better understand the market’s potential and later decide if it’s necessary to switch to a more complex structure with limited liability, such as an S.A.S.
Advantages of Investing as an Individual “Persona Natural“:
Simplicity: You can literally purchase a property with your foreign passport and money within a few days.
Visa de Inversionista: This method allows you to obtain a Visa de Inversionista in Colombia for up to 3 years.
Understanding the Scope and Responsibilities of Investing as a Natural Person
If you decide to invest in Colombia as a natural person, that is, under your own name, some of the consequences are:
Personal responsibility: You will be liable with your assets and wealth for the obligations you undertake personally, including contractual or extra-contractual civil liability. Unlike S.A.S., where there is a clear limitation of the invested capital, as an individual, the responsibility is broader.
Diversity of taxes: In Colombia, there is extensive tax legislation that includes property taxes, income taxes, and other obligations at the national, departmental, and municipal levels. This can be confusing for most foreign investors, so it is advisable to familiarize yourself with the matter and consult a specialist to avoid errors that could lead to administrative sanctions.
Transparency of information: In Colombia, public records can be consulted online with relative ease, including information on property owners, so it is not possible to maintain the anonymity of owners or ultimate beneficiaries. Additionally, banks report to the DIAN the amounts of money they receive from their clients.
In 2024, all individuals with assets of COP 190,854,000 (approximately USD 47,113) or income of COP 59,377,000 (approximately USD 14,844) must file an income tax return. However, There are exemptions and benefits that can be used to deduct some expenses and family burdens. With the right strategy, you can manage the situation.
Conclusions
Choosing between creating an S.A.S. or investing as an Individual is a key decision when entering the Colombian real estate market. The answer can never be unanimous, as it primarily depends on your short- and medium-term investment goals. Another crucial factor in making this decision is whether you intend to obtain a long-term residency visa as an investor. Obviously, the budget you’ve set for expenses and taxes is a significant and often delicate matter. Expatriate investors frequently have unrealistic or inflated expectations about the process, or they arrive with a tight budget, underestimating the costs of investment and the regulatory framework, which can lead to disappointment along the way.
In the end, both options—forming an S.A.S. or investing as an individual—are valid for investing in Colombia, each offering significant advantages as well as some challenges. Therefore, it’s important to consider all factors before making an informed decision.
Questions, comments? Contact me today and I will be happy to discuss any of these issues further with you.
