Agent or distributor in Latin America

For most European exporters the right first structure in Latin America is a distributor, because one appointment solves importing, stock, customer credit and after-sales at once. An agent wins in a narrower set of cases: few and identifiable buyers, project or specification selling, and a product you can ship against each order. That is the commercial answer, and it is the same in every market.

What is not the same is the law that applies when the relationship ends or when the tax authority looks at it. Mexico, Colombia and Guatemala give three different answers to the same termination question, and one of them can turn your agent into a taxable presence. The choice is therefore one commercial decision plus a legal decision per country.

What each one is, commercially

A distributor buys your product for its own account. It takes title, imports, holds stock, sets its own resale price, invoices its customers and carries their credit risk. It earns a margin. The customers, in practice, are its customers.

An agent promotes and negotiates on your behalf, for commission. You keep title, you invoice the end customer directly, you carry the credit risk on every buyer, and you handle whatever the sale needs after the invoice: delivery, documentation, warranty.

The first structural consequence sits at the border. With a distributor, the importer question answers itself, because the distributor imports. With an agent, someone else must be the importer of record, and in Mexico that someone is generally not you, because a foreign company without local registration cannot enter the Padron de Importadores, as set out in why a European company cannot be its own importer. The agent model there means each end customer runs its own customs file, which restricts it to buyers large enough to want to.

Who holds the customer, and who holds the risk

The distributor model concentrates your risk in one counterparty you can verify, and everything downstream is their problem. The price of that simplicity is that the customer relationships, the market data and often the product registrations accumulate in the distributor's name, which is the leverage that makes a bad appointment expensive to unwind.

The agent model does the reverse. On paper you own every customer, because every contract is with you. In practice the relationship sits with whoever does the visits, and your credit exposure is spread across end customers whose creditworthiness you cannot yet judge. Neither allocation is wrong. What is wrong is choosing one and running it like the other, which the next two sections punish.

The tax question: an agent can create a permanent establishment

A genuinely independent distributor, buying and reselling for its own account, does not create a taxable presence for you. An agent can. Mexican law treats a person who is not an independent agent and who habitually concludes contracts on a foreign company's behalf as creating a permanent establishment, and for many of Mexico's treaties the OECD Multilateral Instrument extends that to a person who habitually plays the principal role leading to the conclusion of contracts, even without signing them. The mechanics, including why an employer of record changes nothing, are in does hiring a salesperson in Mexico create a taxable presence.

The protection is genuine independence: an agent acting for several principals in the ordinary course of its own business does not create a permanent establishment for any of them. One who works effectively only for you, on your instructions, with the economic risk sitting with you, is not independent in substance whatever the contract says. Exclusivity plus economic dependence is the pattern that gets examined.

Guatemala sharpens the point: it has no double taxation treaty with any country, so there is no narrower treaty definition to argue and no mutual agreement procedure if the tax authority disagrees with you. The domestic definition is the whole test.

Termination is where the countries separate

European managers arrive trained by their own law. EU Directive 86/653 gives a commercial agent an indemnity or compensation on termination, so the European instinct is that agents are expensive to leave and distributors are safe. In Latin America that mapping fails country by country.

Mexico has no statutory indemnity comparable to the EU regime for either relationship. The contract governs, and the damages risk that exists, terminating an open ended agreement without reasonable notice, is managed by writing a notice period in at the start. The exposure that actually bites is practical: certificates, the import registration and sometimes the trademark sitting in the counterparty's name, as set out in ending a distributor agreement in Mexico.

Colombia is the opposite. For a commercial agency, article 1324 of the Codigo de Comercio entitles the agent on termination to one twelfth of the average commission, royalty or profit of the last three years, for each year the contract ran, plus an equitable indemnity where you terminated without just cause. Article 1328 makes Colombian law mandatory for agency performed in Colombia, so a Danish law and Stockholm arbitration clause does not remove it. A genuine distributor sits outside that regime, but the courts look at substance rather than labels. The full analysis is in what it costs to end a Colombian distribution agreement.

Guatemala puts both relationships inside the Codigo de Comercio, Decreto 2-70. Terminating without one of the causes the code recognises exposes the principal to damages, and article 291 requires judicial proceedings to be resolved in Guatemala under Guatemalan law, which makes a foreign governing law clause effective only when paired with arbitration seated abroad, a route the Corte de Constitucionalidad has upheld. The detail, including the sourcing caveats, is in terminating a Guatemalan distributor.

In Colombia, then, the agent is the expensive one to leave, and the article 1324 arithmetic belongs in the business case before anyone is appointed. In Mexico neither is statutorily expensive, and the discipline goes into the practical holds instead.

Choosing, and then staying consistent

The decision logic that survives contact:

• Choose a distributor when the product needs local stock, in country certification, installation or service, or has many small buyers. Select it properly: the method in finding the right distributor in Mexico transfers to the other markets.
• Choose an agent when the buyers are few, large and able to import for themselves, the sale is a project or a specification, and you can carry the credit risk and the paperwork from Europe.
• In Colombia, decide which regime you want and price it. Agency level control means the article 1324 exit cost. Wanting that control while calling the contract distribution is the version that costs the most, because controlling resale prices, remuneration that functions as commission, bearing the risk on unsold stock and having the counterparty act in your name are the factors that turn a distributor into an agent.
• Everywhere, keep the chosen form clean. If it is distribution, let the distributor take title, set its own prices and carry its own stock risk. If it is agency, keep the agent genuinely independent or accept the permanent establishment consequences.

The honest next step costs nothing: read the termination article for your country, run the exit arithmetic at your expected volumes, and only then negotiate. The structure you can settle yourself from the published rules. Where paid local advice earns its keep is the contract, at signature rather than at termination.

Common questions

What is the difference between an agent and a distributor?

A distributor buys your product for its own account, takes title, resells at its own price and carries the inventory and customer credit risk, earning a margin. An agent negotiates or concludes sales on your behalf for commission, while you keep title, invoice the end customer and carry the credit risk yourself.

Is it easier to terminate an agent or a distributor in Latin America?

It depends on the country, not the region. In Colombia a terminated agent has a statutory claim under article 1324 of the Codigo de Comercio while a genuine distributor does not. In Mexico neither has a statutory indemnity and the contract governs. In Guatemala terminating either without a cause the Codigo de Comercio recognises exposes the principal to damages.

Does appointing an agent create a taxable presence?

It can. A dependent agent who habitually concludes contracts, or habitually plays the principal role leading to their conclusion, can create a permanent establishment under Mexican law and Mexico's treaties. A genuinely independent agent acting for several principals generally does not, and selling to an independent distributor who buys and resells for its own account does not.

Can one contract template cover agents or distributors across Latin America?

No. Colombia voids foreign governing law for agency performed there, Guatemala keeps court proceedings under Guatemalan law unless disputes go to arbitration abroad, and Mexico leaves almost everything to the contract. One template used across all three is how exposure gets created without being priced.