Colombia, officially the Republic of Colombia, is in northwestern South America. The country’s mountainous interior region is home to the capital city, Bogotá, and most of its population.

Colombia operates as a presidential democratic republic, with the president serving as both head of state and head of government within a multi-party system.

Traditionally, Colombia's economy has been based on agriculture, notably coffee and fruit production, but industries and services are becoming increasingly significant. Currently, Colombia is the most populous Spanish-speaking nation in South America. However, it faces high income inequality and labor market informality, with one-third of the population living below the poverty line.

Labor Code

The primary labor law in Colombia is the Código Sustantivo del Trabajo, known in English as the Substantive Labor Code. This law regulates terms and conditions of employment, including working hours, holidays, rest periods, wages, overtime, and employment relationships.

Payroll is processed biweekly or monthly, with payments made on the last working day of the period. In some industries, biweekly payments are common, with pay dates on the 15th and the last working day of the month. Providing employees with online payslips is acceptable, and payroll records must be retained for 20 years.

13th Month Salary

A 13th month salary, equivalent to one month's pay, is mandatory and must be paid in two installments in June and December.

Minimum Wage

Effective 1 January 2024, the minimum wage in Colombia has been revised. The national minimum wage increased to 1.3 million pesos ($340) per month.

Working Hours/Conditions

All employees are entitled to paid Sundays off. The regular workweek consists of 48 hours. Employers may allow employees to work a five-day week by giving Saturdays off as well. Employees working between 10:00 p.m. and 6:00 a.m. must be paid 35% more than the daytime rate.

Overtime Pay

All employees are limited to two hours of overtime daily or 12 hours weekly. Day employees receive 1.25 times their hourly rate for overtime. If they are temporarily working night shifts, their overtime rate increases to 1.75 times the standard rate.

Employees

In Colombia, there are five types of employment contracts based on the job and nature of the business. They are the following:

1. Fixed-term employment—These include a trial period of no more than two months and can last for up to three years, with the possibility of extension as needed.
2. Indefinite-term employment—These also include a trial period of no more than two months and remain in effect for an unspecified duration.
3. Set task—These are issued for the completion of a specific project.
4. Occasional, accidental, or transitory—These are used for short-term or temporary work.
5. Provision of services agreements—These contracts are for specific services provided.

Employers are required to notify employees of any decision to terminate a contract by its expiration date at least 30 days in advance. Severance pay (Cesantía) amounts to one month's salary for each year of service, calculated based on the last month's salary, provided there have been no changes to it in the last three months.

Taxes

The Colombian tax system comprises taxes at the national, departmental, and municipal levels. Resident individuals and companies are taxed on worldwide income and assets. Nonresident individuals, nonresident companies, and permanent establishments of foreign companies are subject only to their Colombian-source income. There is no local tax on individual income in Colombia.

Income Rates, Thresholds

Colombian residents are subject to progressive tax rates that range from 0% to 39% based on their taxable income (see Table 1).

How Withholding Works

Most employees are paid monthly, and taxes are withheld. Employers withhold taxes from an employee’s paycheck monthly.

Tax Filing

Every employee has a tax identification number (NIT). During tax season (late summer to mid-fall), employees are assigned a tax filing due date. If they owe any taxes at the time of filing, they must pay those taxes by the due date or be charged an interest rate and late fees.

Returns, Tax Credits

Any citizen or resident (individual who lived in Colombia for more than 183 consecutive days, even if it occurred over more than one calendar year), is required to file their tax returns by their NIT. Usually, tax returns are filed somewhere in the time frame of late summer to mid-fall of the following calendar year.

Social Insurance, Contributions

Colombia's social insurance contribution categories include the following and more:

Health Insurance:

• Employers are required to contribute 8.5% of the employee’s monthly salary to the health insurance system
• Employees contribute 4% of their salary for health insurance, which is deducted from their pay
• Coverage includes medical services, hospitalization, preventive care, and pharmaceuticals

Pension Contributions:

• The total pension contribution is 16% of the employee’s monthly salary. Employers contribute 12%; Employees contribute 4%
• Pension contributions go towards retirement benefits and old-age pensions

Labor Risk Insurance (ARL):

• Employers must also contribute to labor risk insurance, which covers workplace accidents and occupational diseases
• The contribution rate ranges from 0.5% to 6.96% of the employee’s salary, depending on the risk classification of the job (higher risk jobs incur higher rates)

Family Compensation Fund:

• Employers contribute 4% of the employee’s salary to a Family Compensation Fund, which provides benefits for childcare, education, and other family-related support.

The total contribution that an employer makes for each employee, including health, pension, labor risk, family compensation, and unemployment insurance, can reach around 30% or more of the employee’s salary, depending on the specific rates applicable to each type of insurance.

Employers are responsible for registering employees with the appropriate social security entities and ensuring that contributions are paid on time.

Corporate Tax

The standard corporate income tax rate for companies in Colombia is 35% of taxable income. This rate applies to resident companies, including domestic corporations and foreign companies with a permanent establishment in Colombia.

Normalization Tax

The normalization tax rate is 17% and is applicable to income taxpayers that did not declare certain assets or claimed non-existent liabilities for tax purposes.

Value Added Tax

The standard value added tax (VAT) rate in Colombia is 19%. This rate applies to most goods and services sold within the country.

Certain goods and services may be subject to the following reduced VAT rates:

• 5% VAT Rate: Applies to specific goods, such as certain food products, agricultural inputs, and public transportation services.
• 0% VAT Rate: Some products and services are exempt from VAT, including exports, certain educational services, and basic foodstuffs.

Branch Tax

The branch tax rate is 35%, plus a 10% rate on profits remitted abroad that have been taxed at branch level.

Capital Gains

The capital gains tax rate is 10%.

Dividends

Dividends that are not subject to tax at the corporate level are taxed at a 35% flat rate.

Time Off

Leave

Colombia’s labor code permits leave from work for its citizens and foreign hires under the following circumstances.

• Annual Leave: Employees are entitled to 15 working days of paid vacation per year after one year of continuous employment. This leave must be taken within the following year and can be divided into two parts if agreed upon.
• Sick Leave: Employees are entitled to sick leave for medical reasons, supported by a medical certificate. The employer pays for the first two days of sick leave, while the health insurance company covers the remaining days up to a maximum of 180 days per year.
• Maternity Leave: Female employees are entitled to 18 weeks (126 days) of paid maternity leave. This leave can be taken before or after childbirth, but at least two weeks must be taken after delivery.
• Paternity Leave: Fathers are entitled to eight days of paid paternity leave, which can be taken within the first month after the child’s birth.
• Bereavement Leave: Employees are entitled to five days of paid leave in the event of the death of a close family member, such as a spouse, child, parent, or sibling.
• Study Leave: Employees may request unpaid leave for educational purposes, which can be negotiated with the employer.
• Public Holidays: Employees are entitled to paid leave on national holidays.

National Holidays

Colombia observes 18 national holidays that include a mix of religious and secular celebrations (see Table 2).

Foreign Hires

Foreign workers typically receive work permits and visas with relative ease, provided they agree to pay taxes like any other Colombian employee. Those on a work visa are also eligible for social security and other government benefits available to employees. All foreign hires must obtain formal acceptance from the Colombian Consulate, the Ministry of Social Protection, and the Administrative Department of Security (DAS). Upon approval, foreign workers are issued a work permit, a Colombian ID, and an NIT.

Visas

In Colombia, foreigners seeking to work legally must obtain a work visa. The main types of work visas include the following:

• Migrant Worker Visa (M Visa)—For foreigners with a job offer in specialized positions, valid for up to three years
• Temporary Resident Visa (V Visa)—For limited-time employment, such as internships, usually valid for up to two years
• Investor Visa (V Visa)—For those investing a specified amount in a Colombian business, valid for up to three years
• Special Work Visa (M Visa)—For skilled workers in prioritized sectors, typically valid for up to three years

Taxes

Nonresidents are taxed on their Colombian-source income only, which includes income derived from employment, business activities, property, and investments within Colombia. The income tax rate for nonresidents is a flat 40% on Colombian-source income.

Culture

Colombia is one of the most geographically, linguistically, and culturally diverse countries in Latin America. The Spanish colonial era has left a lasting influence, reflected in the country's significant Roman Catholic population and widespread colonial heritage.