Report Topics:
1:- General Information
2:- Cooling-off Period
3:- Pyramid Schemes
4:- Multi-Level Marketing
5:- Prohibition on Products
6:- Credit Restrictions Country
7:- Money Collections
8:- Licenses
9:- Status of Direct Sellers
10:- Earnings Claims
11:- Taxes and Fees
12:- Social Security
13:- Others
General Information
Colombia has a LAW unique in the World, is the Network Marketing/Multilevel LAW 1700/2013. After the Law there are a several regulations very helpful for the direct selling industry – https://acovedi.org.co/comercializacion-en-red-o-mercadeo-multinivel/
Act #24 2016
Basic Circular 2017 https://acovedi.org.co/wp-content/uploads/2018/02/Circular-Basica-Juridica-03_21_2017.pdf
Cooling-off Period
The Consumer Protection Act 1480 de 2011 (“CPA”), grants to any consumer the right to unilaterally terminate an agreement within a 5-days term as from the reception of the relevant products or the hiring of the relevant service (and before the rendering of such service), in the following cases:
In accordance with the set of article 47 of the statute, the cooling of period may be requested when: i) the sale was made through financing systems granted directly by the entrepreneur ii) is facing the sale of timeshares iii) in sales that use non-traditional methods such as sales that are made in your home or office and, iv) remote sales where there is no prior direct contact with the product, such as when a product or service is purchased through mail, telephone, catalog or e-commerce. (SIC, rad 17-254429).
However, keep in mind that this right cannot be exercised on all occasions: when it is in the presence of products made according to the specifications given by the consumer as, for example, in the manufacture of tailor-made garments, in contracts for the acquisition of goods for personal use such as toothbrushes, deodorants or cosmetics (SIC, rad 12-27958) and perishable goods -those goods that are not very durable, that have to perish or end- such as groceries, fruits and vegetables.
Pyramid Schemes
Pyramid schemes are those in which the potential earnings of a participant mainly come from the recruitment of other participants to certain plan or operation, instead of from the sale of products or services. Usually, in such schemes, the participants have to pay a very high starting fee in order to become an Independent Sellers of the relevant company, the products do not have considerable value and/or are of low quality, and the relevant company does to repurchase stocks from its Independent Sellers.
Although there is not a specific legislation prohibiting the abovementioned pyramid schemes, in certain cases, such practice might be construed as a fraud under Colombian Criminal Code.
Multi-Level Marketing
Multi-Level marketing companies have a Law 1700/2013.
Prohibition on Products
According the Law 1700/2013 certain products are prohibiting to market through MLM system: pharmaceutics products, high perishable goods and financial services and products.
Credit Restrictions Country
According Colombian Financial System if a provider of products grants directly a credit or quota to the relevant consumer for the purchase or hire of such products or services, such provider shall clearly inform to the consumer the following aspects in connection with the relevant credit: the applicable interest rate; the amount of other included payments, such as applicable taxes, notary office expenses, insurances, etc.; the penalty interest rate to be paid in the event of default in the payment of one or more installments of the relevant credits, as well as the system of calculation of expenses arising from judicial collection of unpaid credits, including legal and other fees.
In Colombia chiefly single level companies grant to independent sellers a period of time to pay the products for the same, they shall provider clear and complete information about “credits” systems.
Money Collections
There is not a specific regulation
Licenses
There are no registration/licensing requirements for direct sellers. Although, there are certain general registration requirements they must comply as professional merchants (when it is the case) and tax declarer.
After the Law 1700/2013 all companies in Colombia have to obtain first the permission from de Supersociedades to operate in Colombia. Through the next link, it is possible to confirm with the NIT (Taxpayer Identification Number of the company) if the company has the Supersociedades validation.
http://superwas.supersociedades.gov.co/ConsultaGeneralSociedadesWeb/
Status of Direct Sellers
According the Law 1700/2013
Independent Vendor / seller. An independent seller shall be considered as the natural retailer person or legal person that exercises commercial activities and that only has commercial relations with the companies described in the second article of this law.
Independent Sellers Rights. In addition to the rights conferred on them by their contracts and the law, independent sellers are entitled to:
Ask questions, make inquiries and requests for clarification to multi-level companies, which must answer accurately, before, during and after their association with the respective independent seller. These shall be about the products or services sold, or about the content, scope and meaning of any clause of the binding contracts, including all relevant information concerning compensation or other benefits or rewards of any kind under the contracts, and about the achievement of the objectives that shall entitle them to the payments. Also, about the deadlines and dates of payment or delivery, in the case of compensation in kind.
The answers to the questions, inquiries, or requests for clarification in the preceding paragraph of this Section, shall be forwarded to the address, email or other means provided by independent sellers that raise them, within the periods specified in the current norms for responding to requests for information.
Receive timely and unambiguously compensation or benefits from the multi-level companies to which the independent sellers are entitled by reason of their activity, including any that remain unpaid after the contract between the parties ends.
Know before its affiliation the terms of the contract which shall govern the relationship with the respective multi-level company, regardless of the name that it has.
To be accurately informed by the multi-level company of the characteristics of the goods and services promoted, and the scope of the warranties that apply to such goods or services.
Terminate unilaterally and at any time the contractual relationship through writing addressed to the multi-level company.
Subscribe as an independent seller of one or more multi-level companies.
Receive a clear and precise explanation of the benefits they are entitled to for joining a multi- level company in order to avoid misunderstandings.
Receive from the respective multi-level company sufficient and satisfactory information on the conditions and the legal nature of the business to which the company binds to with them as independent sellers, and the obligations that the independent seller undertakes by joining the business, as well as information on how the business operates, offices and support offices to which the independent seller can have access to in the business development, in similar terms to those in the first Section of this article.
Receive in quantity and quality the goods and services offered by the multi-level company in a timely and comprehensive manner.
Paragraph 1. Any clause in the contract between an independent seller with a multi-level company, in which the waiving of any of these or other rights established in this law is expected or that prevents its exercise, will be deemed non-existent.
Paragraph 2. Within the initial cost of participation, multi-level companies must include training materials, as well as references and information guides regarding how to do business on a nonprofit basis.
Earnings Claims
Compensation plans. For purposes of this Law, the provisions relating to payment, and generally rewards that are offered to independent sellers by multi-level companies, shall be referred to as compensation plans. Likewise, it shall be understood that the provisions governing the ranges or any other change of status of the independent sellers within the respective commercial network, will be part of these compensation plans.
The percentage of reward or payment offered in compensation plans; the events or accomplishments that will lead to economic rewards or bonuses that are offered to independent sellers, and the names, icons or physical objects and privileges to win by the independent sellers within the promotions scheme under the plan shall be expressed clearly; as well as the requirements for volume, product or money, the recruitment of new independent sellers and downline achievements, considering the chain through which a new distributor links another one, the latter another one and so on, to have access to the ranks, awards and recognitions.
Paragraph 1. No compensation plan may consist in the enjoyment of credit points, or reconsumption rights of the products or services promoted in more than fifty percent (50%) of its scope or coverage, and when the compensations provided in the respective plan consist in whole or in part in these, the independent seller is free to reject them.
Taxes and Fees
Since 2016 VAT is 19%, before was 16% and territorial taxes only shall collect in the territory (Colombia has 1264 taxes territories) when the product was dispatched or when the bill was issue.
Social Security
In October of 2016, ACOVEDI achieved a great doctrine about the direct sellers with the DIAN (national Tax and Customs Office – similar IRS).
DIAN and another Government’s institution believed that independent workers [self-employed] is the same of independent vendor [direct sellers]. Since our MLM Law of December 2013, Acovedi has been working to teaching about the Law, its own amendment and the reality of the direct selling industry. In Colombia all nationals have to pay the contributions to social security system. Furthermore from 2010, the government established that:
“The celebration and fulfillment of the obligations arising from contracts for the provision of services shall be subject to verification by the contracting party of membership and payment of contributions to the social protection system, in accordance with the regulations issued by the Government for that purpose.”
The matter was that for this kind of contracts the subject is denominated: independent workers [self-employed] and for DIAN and another institutions the subject target was independent vendor [direct sellers] as well.
After 9 months of lobbying the DIAN concluded that:
Independent vendors correspond to a new category created in Law 1700 of 2013, a special, independent and autonomous category different from the independent worker category.
The provisions of Paragraph 2 of Article 108 of the Tax Code, in the case of discounts, awards and other compensation regulated by Law 1700 of 2013 (MLM), received as recognition as compensation for independent vendors or direct sellers (natural and legal persons), for developing solely its business relationship with Multi-level companies, as to the requirement of the social security contributions prior to payment and as a requirement for its deduction, does not apply.
https://acovedi.org.co/wp-content/uploads/2018/02/ConceptoDIAN100208221_MLM_OCT_2016__3_.pdf
Others
Data Protection –Habeas Data-. Processing of individual’s personal data in Colombia (whether the processing is conducted by an individual, a private or a public entity) must be performed in compliance with two Laws: Nº 1266/2008 and Nº 1581/2012 on the Protection of Private Life, Data Protection Law (“DPA”).
Price per unit of measure [PUM]: Compliance with Circular 007 of December 2017, the government began to demand that all retail stores and e-commerce expose the price per unit of measure side by side with the sale price so the consumer would compare under the same unity the price between similar products. Now the standard extends to the catalogs and magazines used by direct selling companies. Some product because them own property as clothing, homecare, households goods, didn’t have problem with implementation of the regulatory standard. For wellness and other product the challenge was deeply difficult besides put all the information with the government specification messed up the catalogs and confused more than helping the consumer. The cosmetic and personal care were excluded by the legal regulation. But the government now included direct selling tools and cosmetic and personal care.
In September 2019, the government sent a draft of regulation in which cosmetic and perfumery have to implement the price per unit of measure. Through one official document from ACOVEDI, we insisted that this kind of information doesn’t help to consumer to take a purchase decision instead could be confused. Until January 2020, the government doesn’t give a official respond.