It is perfectly reasonable for a visitor to question both the legality and reality of Mars Colony. Both are, indeed, quite questionable.

Mars Colony possesses a dubious claim to legality. The land for the colony was purchased legally from the Lunar Embassy but, since the Embassy's claims to initial ownership are questionable, the Empire's claim is doubly so. Even if the Embassy's claims are legal, it is theoretically illegal for the Empire to then declare this purchased land independent, since all Lunar Embassy land is under their government. The Empire chooses to accept the Embassy's claim as legal because it is amusing, harmless, and is fairly convincing to the average legal layman. The Empire seems no conflict in declaring the territory independent of the Lunar Embassy government for the same reasons the Empire sees no conflict in declaring parts of Earth independent of macrostates.

No citizen of the Empire has set foot upon Mars, let alone lived on the actual Imperial land. The Empire possesses no ability to build on or defend the land owned. Some might argue, therefore, that the Empire does not, in fact, rule the land, or at the very least, cannot call it a Colony. The Empire's response to this is that the land is claimed by right of purchase rather than presence, and as long as no one else is in a position to trespass on Mars Colony, the need to defend it is irrelevant.