Why it matters

Due diligence is not a closing formality. It is where a buyer or investor decides whether a Colombian opportunity is worth its risk and, above all, how to move that risk into the contract: into the price, the guarantees, the conditions to close and what the seller must fix before or after signing.

For a foreign investor, the challenge is that several Colombian regimes interact in ways that do not always match home-country expectations. A services agreement that looks like ordinary outsourcing may be an employment liability. A past reorganization treated as tax-neutral may reopen a tax discussion. A foreign investment that was never properly registered limits the investor’s right to remit profits. What matters is not the list of findings, but how they affect one another.

The first decision: shares or assets

• Share deal. The buyer acquires the company with its entire history: open tax periods, employment contingencies, pending proceedings and any sanctions. The review must be broad, and the contract must allocate pre-closing liabilities precisely.

• Asset or business deal. It lets the buyer choose what it acquires, but it does not remove all exposure. If the business keeps its identity, Colombian law treats the transfer as an employer substitution: employment contracts continue, and the old and new employers are jointly liable for obligations due at the date of substitution (Labor Code, articles 67 to 69). Commercial contracts of periodic performance can be assigned without the counterparty’s consent unless the law or the contract prohibits it; contracts entered into in consideration of the person require consent (Commercial Code, article 887).

• Buying a foreign holding company with Colombian assets. An indirect transfer of Colombian shares or assets through the sale of a foreign entity is taxed in Colombia as if the underlying asset had been sold directly, with exceptions for listed shares and for Colombian assets representing less than 20% of the value of the entity sold (Tax Statute, article 90-3). When the buyer is a Colombian resident and withholding agent, the seller’s tax position also becomes the buyer’s problem.

What to review

Corporate and control

Confirm who can sell and what is being bought: the certificate of existence and legal representation issued by the Chamber of Commerce, the current bylaws, the shareholders’ ledger, the minutes approving issuances and transfers, and any pledges or attachments over the shares. In a Simplified Stock Company (S.A.S.), the most common Colombian vehicle, the bylaws may prohibit share transfers for up to ten years or subject every transfer to prior shareholder approval (Law 1258 of 2008, articles 13 and 14). Shareholders’ agreements deposited with the company bind it for terms of up to ten years, renewable (article 24): an agreement the buyer has not seen can change the control it thinks it is acquiring.

Tax

The question is which periods remain open to audit by DIAN, Colombia’s tax and customs authority. As a general rule, a tax return becomes final if no special requirement has been served within three years of the filing deadline; returns reporting tax losses remain open for as long as the losses can be offset (Tax Statute, article 714). Review withholdings, benefits claimed and the support for any past contribution in kind, merger or spin-off treated as tax-neutral: neutrality depends on precise requirements, including shareholder continuity, and if they were not met the transaction is treated as a taxable transfer (articles 319 to 319-7).

Employment and social security

Colombian law presumes that every personal work relationship is governed by an employment contract (Labor Code, article 24), and Law 2466 of 2025 recently restated the subordination test. A business staffed with contractors who in practice follow orders, schedules and targets carries a liability for wages, benefits and social security contributions. Review the real payroll, payments treated as non-salary, social security filings, executive agreements and any arrangements triggered by a change of control.

Foreign exchange and foreign investment

Registration of the foreign investment with Banco de la República (Colombia’s central bank) is not an administrative detail: it underpins the investor’s exchange rights, such as remitting profits and repatriating the investment, and an investment made in breach of the regime lacks them (Decree 1068 of 2015, article 2.17.2.2.4.1). Investments made in foreign currency are registered through the exchange declaration filed when the funds are channeled through the foreign exchange market; investments made by other means, such as contributions in kind or reorganizations, are registered through a registration declaration (Banco de la República, External Regulatory Circular DCIP-83, chapter 7). The foreign investor must appoint an attorney-in-fact in Colombia, and registration does not cleanse the origin of the funds. Since Decree 1044 of 2026, changes of holder, destination or investee and cancellations may be registered at any time; the duty to register remains, only the former six-month deadline is gone. For a buyer, the practical question is whether the registration history matches the real cap table.

Beneficial ownership and compliance

Colombian tax law defines a beneficial owner as, among others, the individual who directly or indirectly holds 5% or more of the capital or voting rights, or benefits from 5% or more of the assets or profits (Tax Statute, article 631-5), and companies must keep that information in DIAN’s Single Registry of Beneficial Owners. On anti-corruption, Law 1778 of 2016 provides that whoever acquires control of a company that engaged in transnational bribery becomes subject to the corresponding sanctions (article 6), and that adequate due diligence before the acquisition is a factor in grading the sanction (article 7, number 9). A serious compliance review is part of the buyer’s defense.

Real estate, competition, regulation and data

For real estate, the starting point is the certificate of title for each property registration number, followed by liens, restrictions on ownership, permitted land uses, planning licenses and property taxes. Companies in the same activity or value chain that exceed the income or asset thresholds set by the SIC (the industry and commerce authority, which also acts as competition authority) must notify the transaction before closing; if together they hold less than 20% of the relevant market, a simple notification suffices (Law 1340 of 2009, article 9). Sector licenses may not survive a change of control, and personal databases are an asset only if they were built and processed in compliance with Law 1581 of 2012.

From findings to the contract

Every material finding should end in one of these decisions: a price adjustment; a specific indemnity with its own term and cap; a holdback or escrow; a seller covenant or a condition to closing; or representations and warranties that give the buyer a clear claim. If a finding changes none of those variables, it was probably not material. If it does and the contract does not reflect it, the review did not do its job.

Before signing

• A transaction map stating what is being acquired and which liabilities travel with it.

• A reconciliation of the cap table, the foreign investment registrations and the beneficial ownership information.

• The list of open tax periods and conditional tax benefits.

• The real payroll compared with formal contracts, including contractors and executives.

• The approvals needed to close: corporate bodies, contractual counterparties and, where applicable, the competition authority.

Conclusion

Good due diligence does not try to prove that the target is perfect. It makes sure the buyer pays for what it actually acquires and that the contract says who bears each risk. In Colombia that requires reading the corporate, tax, employment, foreign exchange, real estate and regulatory fronts together. Our Corporate & M&A and Foreign Exchange & Foreign Investment teams work that reading as one. If the target has recently restructured, read this alongside what to review before reorganizing a business in Colombia.

Sources and legal references

• Labor Code (Código Sustantivo del Trabajo), articles 24 and 67 to 70, as amended by Law 2466 of 2025.

• Commercial Code, article 887.

• Law 1258 of 2008, articles 13, 14 and 24.

• Tax Statute, articles 90-3, 319 to 319-7, 631-5 and 714; DIAN Resolution 000164 of 2021.

• Decree 1068 of 2015 (article 2.17.2.2.4.1), as amended by Decrees 119 of 2017 and 1044 of 2026; Banco de la República, External Regulatory Circular DCIP-83, chapter 7 (current compendium).

• Law 1340 of 2009, article 9; Law 1778 of 2016, articles 6 and 7; Law 1581 of 2012.

This content is for general information and is not legal advice on any specific matter. Rules verified as of 25 September 2026.