On October 16, 2019, the Colombian Constitutional Court ruled that the Tax Reform Act of 2019 (Law 1943 of 2018) was unconstitutional, mainly due to procedural defects.
However, certain parts of the Act have not been repealed, including the withholding tax arrangements for registered business groups, the Free Trade Area Review Group and the Sustainable Taxation Measures.
From old to new
In response to this decision, the Colombian government has submitted a new bill. The aim of the new draft “Law Project No. 278 of 2019” is to introduce the same measures as the originally rejected law. Specifically, these are measures to promote economic growth, investment, the strengthening of public finances and general economic progressivity.
What is the content of the law?
The new bill includes the same provisions of the previous law with minimal adjustments. These adjustments are intended to eliminate or amend provisions that:
- have already achieved their goal in 2019
- Transitional provisions or set deadlines in the context of the Finance Act
- had to be updated in 2020
- were amended by Act 1955 of 2019 (National Development Plan 2018-2020)
Therefore, as part of the economic growth measures, the draft law provides:
- the gradual reduction of the corporate income tax rate
- the possibility to use the VAT paid on the purchase of capital goods as a tax credit
- the ability to use the industrial and business tax paid during the year as a tax credit
- Use of the presumptive income phase out
- Use of the regime of the Colombian holding companies (CHC)
- Changes to the regime of “Civil Works for Taxes” and the mega-investment regime
- The income tax exemption for the Orange Economy and the Agricultural Economy
It also includes other provisions to combat tax evasion and abuse. This includes:
- criminal law provisions for failure to report assets and tax fraud
- the change of the CFC regime
- the changes to the regulations for permanent establishments and the indirect transfer of Colombian assets
How will the new law be implemented in practice?
In order to simplify the new law for taxpayers, the bill includes the “SIMPLE regime” and electronic invoicing. In addition, provisions will be reintroduced in 2020 for the settlement of litigation, preferential treatment during the collection phase, and the timing benefits for the collection of territorial taxes.
Finally, it should be noted that the draft law provides for a corporate tax surcharge on financial companies and excise duty on the sale of real estate.
What will happen to the bill next?
If Congress does not endorse and publish the new bill by 31 December 2019, the rules repealed or amended by the 1943 Act of 2018 will re-enter into force from 1 January 2020.
These regulatory changes could affect your business with view to customizing or support of your ERP/SAP system. Please contact us to learn about possible necessary reactions to the changes – we are happy to assist you!