Colombia

6 Chapter Tax Laws

    • Law related to tax

       1.1.1.     Direct tax

      These taxes are levied on income such as rent incomeand possession of property or wealth. They are applied directly to individuals with  income or assets.


      1.1.2.     Indirect tax

      Taxes that are being imposed on production, sale of goods, provision of services, imports and consumption. Examples of this kind of tax are: Value Added Tax, Capital tax, Real estate tax, transfer tax, stamp duty, customs and excise duties, environmental taxes, financial transactions tax, consumption tax, municipal industry and trade tax.

    • Corporate Income Tax

      1.1.1.     Who is subject to Corporate Income Tax?

      A Colombian company which is established under Colombian Law and with a main address or head´s office administration in Colombia is called a resident corporation. They  are taxed based on their worldwide income whether generated inside or out of Colombia. While foreign companies and branches are taxed only on their income generated inside the country. 

       

      1.1.2.     Non-taxable Income

      The new aw regulations eliminated income tax exemptions for several kinds of economic activities. There are only specific investments or business activities who can be granted tax exemption. These exemptions are sometimes tied to contracts or administrative resolutions.

       

      1.1.3.     Non-deductible Expenses

      Some expenses related to tax-exempt income and payments to companies under tax haven jurisdictions are not deductible.

       

      1.2. Deductible Expenses

      1.2.1.     Organizational expenses

      Sales or purchase of merchandise abroad are deductible up to a 5% of the value of the transaction and up to 10% if it will be exported with payment through the central bank.

       

      1.2.2.     Bad Debt Loss

      For tax purposes in general, bad debt is deductible if the debt is originated as a result of the development of a production activity (according to regulations).

      Exemptions:

      -If the amount exceeds the limits by law.

      -If bad debt was created willingly.

      Firms can avoid bad debts by deducting either 25% of receivables overdue for more than a year; or 5%,10% or 15% of all accounts receivable depending on the average period 3 months, 6 months or a year.

       

      1.2.3.     Travel Expenses

      The deduction of expenses incurred abroad when it is not subject to withholding tax is 15%.

       

      1.3. Real Estate

      Real estate is subject to municipal taxes. Rates will depend on the value of the property and the tax is usually deductible for corporate income tax purposes.

       

      1.3.1.      Depreciation of Tangible Assets

      Depreciation of the costs of tangible fixed assets are deductible for income tax purposes. The basis for depreciation is the acquisition price plus directly attributable cost until the asset is available for use. The useful life is determined by the IFRS whilethe rates to be used are determined by the National Government. It could vary from 2.22% to 20% depending on the acquired asset.

       

      1.3.2.     Amortization of Intangible Assets

      The cost of acquiring intangible assets can be amortize over a period of at least 5 years (This can vary if taxpayer gives proof of a shorter period amortization).

       

      1.4. Calculation

      Corporate income tax rate as of 2018 is 37%. The rate is composed of income tax of 33% and a4% income surtax. Companies under the free zone regime will be subject to a 20% rate of CIT.

       

      1.5. Filing of Return, Payment and Refund

      In Colombia there is an electronic system in which companies can fill up a tax return and calculate its own tax liability. Income tax return must be filed generally around April and May, it depends on the type of taxpayer and the last digit of the taxpayer's ID number.

      Each company must submit a separate tax return. Consolidated returns are not usually allowed. Late filing penalties are charged at 5% per month of delay, the penalty can increase up to 10 % per month, with a 200% ceiling. There is also interest charged on late payment. 

    • Personal Income Tax

       1.1. Definition of resident and non-resident

      A resident includes a Colombian national or an individual who remains in the country, for a period of more than 183 days during a 365 days period. He/she is taxed on his/her worldwide income or income earned inside and out of Colombia.

      A non-resident is an inidividual who doesn't meet the criteria of fiscal matters to be considered a resident. Non- residents are liable for tax on income derived directly or indirectly from a source in Colombia.

       

       

       

      1.2. Taxable Income

      In general almost all income such as employment income, business income, investment income and capital gains are subject to tax.

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      Conditions for payment of tax liability in a taxable year:

       

      ➢    Individuals whose income is higher than 46.418.400 COP , or whose gross equity is higher than 143.365.500  COP.

       

      ➢    Credit card purchases or whole purchases that exceed 46.418.400 COP.

       

      ➢    The accumulated balance on banking accounts, savings, deposits or financial investments higher than 44.602.600 COP.

       

       

       

      1.3. Non-taxable Income

       

      Non-taxable Income

      -25% of total compensation income is exempted from tax

       

      -Benefits for employers who own a vehicle for business purposes

       

      -Exemptions on voluntary contributions to funds or AFC savings account which are limited to 30% of taxable income or an annual cap of 40,300 USD. With new reforms made in 2016,  there is a limitation on exempt income and deductions that cannot exceed 40% of gross income less health and pension contributions.

       

       

       

       

       

      1.4. Deductible Expenses

      Health expenses and costof purchasing a residential building may be allowed as deductions and allowances. There are some other deductions but have certain requirements such as donations and mortgages. 

       

      1.5. Calculation

      Tax is calculated annually based on the taxpayers’ net worth in a year. Individuals have to calculate their income under ordinary rules and under a IMAN (National Minimum Alternative tax) that provide alternative rates from 0% to 27%. Taxpayers can use IMAS (Simple Minimum Alternative Tax) to fill up their tax returns electronically. The maximum rate for income tax is 33% for compensation income and 35% for non-labor income.

       

      1.6. Filing of Return, Payment and Refund

      Employers withhold taxes on wages every month.If the employee is a non-resident individual, the rate that shall be used is 15% and if he/she is  a resident one, the tax rate can be from 0% to 33% depending on tax rates by law.  There is a penalty for late filing of 5% per month of delay. The deadline for payment will depend on the last digit of taxpayer's ID.

    • Value Added Tax

       1.1. Who is subject to VAT?

      -Sales and import of tangible goods

      -Sale or transfer of rights over intangible assets from industrial property (i.e. intellectual property and real estate)

      -Services (the beneficiary has to be located in Colombia, it doesn't matter if the services are rendered in Colombia or not)

      The rate for VAT is 19% with a preferential rate of 0% for exports and certain domestic supplies and 5% to certain goods and services.

       

      1.2. Goods and services that not subject to VAT

      Based on reform on exemptions of Law 1891, some goods and services are now taxed at a 5% rate.

       

      1.3. Filing of Return, Payment and Refund

      Filing of VAT can be made  bi-monthly or quarterly (depends on the net profits on the previous taxable year). The method to be used is the subtraction method where input VAT from purchase of goods and services are deducted from output VAT from sales.

    • Other Tax

       Wealth Tax

      Tax applied for both residents and non-residents individuals. Resident individuals will be taxed on their net assets inside and out of Colombia while non-residents will be taxed only on their net assets inside the country. This tax applies for individuals with  net assets higher than 1,000 COP MM. The taxable amount   is calculated by subtracting the liabilities and debts from the total assets owned in 1 year. 

       

      Social Security Tax Chart

      All employees and employers must make contributions on social security tax based on the table below.

       

      Pension.

      Total of 16.0%

      Employer 12.0%,

      Employee 4.0%)

      Medical Plan.

      Total of 12.5%

      Employer 8.5%,

      Employee 4.0%,

      Family Welfare.

      Total of 9.0% (paid only by the employer.)

      9.0%

      -

       

      The amount will depend on the amount of salary earned by the employees. If the employee earns 4 to 20 times of the minimum legal monthly salary, the employee must pay more to the pension solidarity fund. The percentage is as follows:

      -4-15 1 %

      -16-20 (and over) 0.2 %

       

      Capital Gains (Gift, wealth, real estate, and/or inheritance tax)

      Tax rate for capital gains is 10%

    • Custom Tax

      1.1. Overview of custom tax

      In Colombia there is a special system for custom duties on import and export known as "Plan Vallejo" which states partial or total exceptions. As well, there are free trade zones where you can avail special taxes for customs tax and foreign trade regime. On the Free Trade zone there is a unified income tax rate of 20%.

       

      1.2. Export tax

      There is a discount for taxes paid abroad to avoid double taxation as long as the discount does not exceed the amount of the income tax paid in Colombia. Export transaction is exempt from output VAT and any municipal or departmental tax upon complying some conditions. Exports to other countries done in the Free Trade Zone and national market are subject to the benefits of the free trade agreements.

       

      1.3. Import tax

      This is regulated by the DIAN (Dirección de Impuestos y Aduanas Nacionales). Tax on the importation of goods is impose based on percentage on the value of the goods.

       

       

       

       

       

       

       

       

       

      There are 3 tariff levels:

       

      0% to 5%

      on capital goods, industrial goods, and raw material (not produced in Colombia)

      10%

      on manufactured goods

      15% to 20%

      on consumer goods

    • Tax Related to PE

       1.1. Overview of tax related to PE

      The permanent establishment is only relevant for tax effects and it is not allowed on creating of a branch or subsidiary. Profits derived from operation inside Colombia by a PE will be subject to Income tax. 

    • Withholding Tax

       1.1. Overview of Withholding Tax

       

      Dividends

      1- 35%, plus a special rate of 5% if dividends were  received by a foreign company, entity or a non-resident individual from profits that were not previously taxed. But if the dividends were paid from profits that were previously taxed, taxes will be at a 5% rate.

      2- If dividends were received by a resident individual from profits that are not yet taxed the rate will be 35% plus a special rate of 0% to 10% (depends on the amount). If dividends were paid from previously taxed profits the rate will be from 0% to 10%.

      Dividends prior to 2016 have different rules.

       

      Interests

       

      -Interest paid to a non-resident individual has 15% withholding tax.

      -Interest paid to a foreign entity on loans for infrastructure (with certain requirements) have a tax rate of 5%.

       

      Royalties

      Royalties paid to a non-resident company have a withholding tax rate of 15%.

       

       

       

      Technical Services fees

       

      15% tax rate

       

      Branch Remittance tax

      Profits from a branch that have not been taxed have a withholding tax of 35% plus a special rate. If profits are previously taxed then the rate is 5%.

      (Different rules for profits prior to 2016)

       

      Management fees for services rendered in Colombia

      15% withholding tax

       

      Withholding Tax for individuals

       

      There is a special self-withholding tax for taxpayers considered as self-withholding agents that earn less than 10 minimum monthly wages and are exempt from  tax on compensation. The rates are 1.60%, 0.80% or 0.40% depending on the agent´s economic activity.

       

    • Transfer Pricing Tax

       1.1. Overview of transfer pricing tax
      In Colombia transfer pricing is based on OCDE guidelines, looking to set base prices and profit margins on transaction with foreign parties. Taxpayers under this regime are required to file a country by country tax report since January 1st, 2016 and a transfer pricing analysis. 

    • Babiliography

       Colombia Taxation and investment, Deloitte, 2016.

      Colombia Highlights 2018, Deloitte.

      Estatuto Tributario Nacional.

      Law No. 1819.

    • Websites

       https://encolombia.com/economia/economiacolombiana/impuestoencolombia/

      https://home.kpmg.com/xx/en/home/insights/2011/12/colombia-income-tax.html

       

      https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-colombiaguide-2016.pdf

       

      https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-colombiahighlights-2018.pdf?nc=1

       

      https://home.kpmg.com/xx/en/home/insights/2017/01/tnf-colombia-tax-reform-enacted-corporate-income-tax-and-vat-changes.html

       

      http://www.gydconsulting.com/userfiles/Ley-1819-29-dic-16-Reforma-Tributaria-Diario-Oficial-50101.pdf

       

      http://estatuto.co/

       

      https://oxfordbusinessgroup.com/overview/pay-back-reform-tax-code-means-new-guidelines-investors

       

      http://taxsummaries.pwc.com/ID/Colombia-Corporate-Deductions

       

      http://www.colombiaexportaservicios.co/informacion-de-interes/que-beneficios-tributarios-puede-recibir-como-exportador-0

      https://www.dian.gov.co/impuestos/reformatributaria/cree/Paginas/tarifa.aspx