Everything about the Employment Formalization and Creation Law

Law 1429 of 2010

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On December 29, 2010, the National Government passed Law 1429 of 2010 or the Employment Formalization and Promotion Law, which provides benefits and incentives for entrepreneurs to lower the cost of formalizing their activities, and support in growing their businesses.

Benefits from the law

For those who register their company into the Commercial Registry.

For companies that process and receive their Merchant's Certificate, that is, those which register with any Chamber of Commerce in the country, in compliance with the following conditions: 

Law 1429 of 2010 or the Employment Formalization and Promotion Law establishes, among other incentives, that new companies will not have to pay a Merchant's Certificate during their first year, and will pay subsidized rates for their renewals during their second and third year.

Only individuals and legal persons who develop small companies, that is, with a staff of less than 50 employees and whose total assets are less than five thousand minimum monthly legal wages (5.000 MMLW) shall be eligible to receive the benefits described in articles 5 and 7 of said law.

What is the benefit?

Registration and Merchant's Certificate.

For small-sized companies (those whose assets are less than 5.000 MMLW and with less than 50 employees) that start their main economic activity after the passing and entry into effect of this law and its regulations.  The concept of "start of their main economic activity" shall be construed as the date on which the company or the individual is registered into the Commercial Registry.

Entrepreneurs covered by this Law shall pay the following rates:

  • Zero percent (0%) of the full rate set forth for the processing of the merchant's certificate during their first year of activities.
  • Fifty percent (50%) of the full rate set forth for the renewal of the merchant's certificate on the second year.
  • Seventy five percent (75%) of the full rate set forth for the renewal of the merchant's certificate on the third year.
  • One hundred percent (50%) of the full rate set forth for the renewal of the merchant's certificate on the fourth year and onwards.

To receive additional information, entrepreneurs can query article 7 of Law 1429 of 2010.

Income tax and labor contributions.
  • They shall not be required to pay labor contributions -that is, payments made to family compensation funds, Sena, Family Well-being institute, the joint health account and the Minimum Pension Guarantee Fund- for their employees during the first two years, and they will pay reduced rates between the third and fifth year.  This benefit shall remain active until December 31, 2014.
  • They shall not be liable for the payment of income taxes during their first two years in operations, and they shall have a reduced rate between the third and fifth year. This benefit shall not expire.

These incentives are not just applicable to new small companies, but also to those already in existence, which choose to become formalized.

NOTE: The benefits of progressive payment of your merchant's registrar and renewal, as well as in the payment of fringe benefits, were in effect until December 31st, 2014

Who is not eligible for the benefits of this law?

Any small company which is created after the entry into effect of this law, in which the corporate purpose, payroll, commercial establishment(s), address, intangibles or assets which comprise their exploitation unit are the same as a company which was dissolved, liquidated, spun-off or made inactive after the entry into effect of this Law, shall not eligible to receive these benefits represented in registrations and renewals, or in fiscal and labor contribution benefits.

Those small companies which have requested coverage under these benefits and remain inactive, shall be reported to the National Tax and Customs Office (DIAN).

Those small companies which incur in any of the reasons for exclusion mentioned in article 6 of Decree 545 of 2011, or those who fail to renew their merchant's certificate prior to March 31 of each year, shall not be eligible to access or keep these benefits, in accordance with the dispositions set forth in Article 8 of the aforementioned law, and in Decree 489 of 2013.

More dispositions about the public registries law

Some of the facilities and other dispositions provided to entrepreneurs by law, in matters related to public registries.

Norms to prevent existing companies from obtaining benefits under the law

Those who provide false or fraudulent information in order to be covered by the benefits established by law, shall be liable to pay the amounts of any discounts they receive, in addition to a penalty equivalent to two hundred percent (200%) of such amounts, notwithstanding any additional criminal penalties applicable.

The Special Administrative Unit for Pension and Labor Contribution Management for Social Protection (UGPP) shall be tasked with tracking and overseeing the mandate set forth in article 48 of the Employment Formalization and Generation Law.

Cleansing of the Merchant's Certificate

Those registered companies which have not renewed their Merchant's Certificate for over ten years shall be awarded a 12 month term to get up to date; after such period, that is, after December 29, 2011, said legal persons shall be considered to have been dissolved, and being liquidated.  In the case of individuals and commercial establishments, branch offices and agencies, they will be canceled and terminated on the same date, notwithstanding any rights by properly registered third parties.

Company reactivation

The law allows for companies being liquidated to be reactivated through an agreement from the general shareholders meeting, the board of partners, the single shareholder or the foreign company that is the owner of foreign branch offices in Colombia, as long as external liabilities do not exceed 70% of the company's total assets, and as long as the distribution of the remaining assets to the associates and partners has not yet been arranged. The decision for such reactivation shall be recorded in a minute that will be registered in the merchant's registrar at the local chamber of commerce.

Electronic Media

Electronic media will be used for the processing of bankruptcy proceedings in accordance with the dispositions set forth in Law 527 of 1999 and for complying with the proceedings involving the Commercial Registry, non-for-profit organizations and for the delegate Unified Offeror Registry with chambers of commerce.

In those cases in which a personal appearance is required for a specific proceeding, such a requirement will be deemed as fulfilled through the use of a digital signature.  These kinds of electronic media shall not be used whenever the law requires that securities be provided in their original version.

Other matters of interest

Furthermore, Law 1429 of 2010 includes other matters of interest for entrepreneurs in Bogotá and the region, which include the following:

  • The National Government is ordered to focus its enterprise development plans.
  • Progressive benefits are established in Income Tax and Labor Contributions for new small companies.
  • Incentives are established for any company, large or small, which has formalized its operation and which increases the size of its payroll by hiring workers who meet some of the following conditions:
    • People younger than 28, women older than 40, who have been working for at least one year without a formal contract, mothers who are the heads of their households in Sisben levels 1 and 2, people who have been reinserted into society after having participated in the armed conflict, people with disabilities, people in a condition of forceful displacement or any other individual who makes less than 1.5 minimum monthly wages and who has not made social security contributions.
    • The benefits considered here include the fact that companies may discount from their income tax payments, during two or three years, as applicable, the amounts of labor contributions they have made for these employees, as well as a percentage of their health and pensions contributions.
  • Norms are designed aimed at simplifying labor and commercial proceedings, in order to ensure that becoming formalized is less cumbersome and to generate a greater competitiveness. Thus, companies will not require authorization from the Ministry of Social Protection to agree on loans, advance payments, salary deductions or compensations with their employees, nor to pay up to half of the amounts accrued for vacations in cash, or for them to use their severance pay to buy a house, or to do renovations on it. They will also not require for their work regulations to be approved or to create the Occupational Health Committee.
  • Creation of the information system regarding employment demand with governance over its operation.
  • With regards to the formalization of workers, the Law dictates that the benefits received through the Sisben system will continue to be provided to colombians for up to one year after they are hired for a job. The purpose of this is to avoid workers themselves from resisting formalization. 

In order to gain access to, or to preserve the benefits awarded to them through this law, entrepreneurs must meet the following requirements:

1. Total staff must not exceed 50 employees.

2. Total assets must not exceed 5.000 Minimum Monthly Legal Wages (MMLW).

3. The Merchant's Certificate must be renewed on March 31, of each year, at the latest.

4. Not be covered by any of the conditions described in article 48 of Law 1429 of 2010, nor in those listed in article 6 of Decree 545 of 2011.

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