Case Study: When a Colombian SaaS Startup’s Royalties Shrunk Overnight in Colombia
The Dream Deal
It was a rainy Tuesday in Bogotá when the founders of a prominent tech startup, let’s call it DataWave, got the call they had been waiting for months: their SaaS analytics platform had caught the attention of a big Mexican distributor.
The pitch? “We’ll sell your software across the region. You just license us the brand and platform. In return, you get 10% of every sale. Pure royalties. Passive income. Easy money.”
The founders high-fived in their coworking HQ and toasted cheerfully. “We’re finally making money while we sleep.”
Little Did They Know
Three months later, the first royalty check arrived. Instead of USD $50,000, the bank transfer showed just under $30,000.
Their Mexican partner responded coldly: “We have to withhold taxes here. Didn’t your lawyers tell you?”
Worse still, their Colombian accountant warned: under Article 408 of the Colombian Tax Code (Estatuto Tributario), royalties paid to foreign entities are subject to withholding tax at the source (retención en la fuente) — up to 33% if not structured correctly.
And because the license agreement hadn’t been registered, they were also out of line with Decision 291 of the Andean Community and Decree 1074 of 2015, which require licensing agreements for intangibles to be filed before the Superintendence of Industry and Commerce (SIC) to be enforceable.
Suddenly, their “easy money” looked more like a compliance time bomb.
The Fallout
The board meeting was brutal.
- Their financial model collapsed, as royalty income dropped well over 40%.
- Investors got nervous, citing risk under Colombia’s transfer pricing regime
- And the worst fear: without registering the foreign investment with Banco de la República, the company risked losing the right to repatriate profits.
The “growth rocket” was grounded by tax law fine print.
The Fix
With proper legal counsel, DataWave finally put its house in order:
- Redrafted the license agreement, clearly allocating withholding obligations and aligning with Andean Community rules.
- Registered the contract with the SIC, as required for IP licensing.
- Conducted a transfer pricing study, ensuring compliance with international and Colombian tax rules.
- Filed the foreign exchange declaration (Declaración de Cambio) with Banco de la República, securing the right to repatriate capital and profits.
The Moral of the Story
In Colombia, royalties aren’t “free money.” They sit at the crossroads of tax law, foreign exchange regulation, and IP protection.
Ignore one piece, and suddenly your “passive income” is being passively eaten alive by taxes, penalties, and investor distrust.
At Colombia Legal Edge, we love stories, so we work hard to make happy endings happen. We structure contracts that comply with the Estatuto Tributario, Banco de la República rules, and SIC requirements — while keeping your business model intact at a fair price.
So your next deal feels less like Monopoly money, and more like real growth.