Colombia: New Tax Law in Effect

Since 1 January 2019, a new tax law has been in place in Colombia. It includes the reduction of corporation tax, incentives for investments and international tax changes.

 

Corporate Income Tax

Initially, the law provides for a reduction of the corporation tax rate from 33% to 30% by 2022.

 

VAT Measures

The law also changes the VAT that applies to non-resident taxpayers by appointing financial institutions as VAT collection agents for electronic, digital and fee-based payments. In addition, VAT paid on capital goods can now be credited against income tax.

 

Further Tax Measures

The new tax law introduces a new withholding tax of 7.5% on dividend payments between Colombian companies.

The income tax on “supposed net assets” will be repealed by 2021. This is an important change to enable more transparent profit taxation.

 

Tax Incentives

The tax legislation provides the following tax incentives:

  • Tax deduction for expenses incurred on income generating activities
  • Tax credits for 50% of municipal sales tax (ICA) and financial transaction tax (GMF)
  • Definition of new requirement for market valuation in domestic sales of goods and services
  • lower income tax rates, accelerated depreciation and withholding tax exemptions for “mega-investments” (approximately $ 320 million)
  • Tax credits for private investors involved in public works projects in “conflict areas”
  • a five-year “tax holiday” for high-tech investments and a ten-year tax holiday for agricultural enterprises
  • a 9% tax rate, valid for 20 years, for new or “significantly remodeled” hotels

 

International Tax Proposals

Changes to Colombia’s international tax code include:

 

Dividends

  • Increase of withholding tax on previously taxed income to 7.5%.
  • Withholding tax of 33% on dividends from undiscounted income (which is thus linked to the corporate income tax rate)

 

Management fees, royalties and service payments

  • Withholding tax increase on the payment of royalties and services from 15% to 20%
  • Increase of withholding tax on administrative fees to 33%

 

Sector Taxation

  • Revision of the territorial system into a worldwide system
  • Measures to deny the deductibility of financial expenses attributable to branches

 

Indirect Asset Transfer

  • new measures to tax indirect transfers of assets (including shares)
  • Exceptions exist if the units are traded on a recognized and regulated exchange or
  • if the transferred Colombian assets do not exceed 20% of the total value of the assets of the foreign enterprise

 

Controlled foreign corporations (CFC)

  • All income from CFC is considered “active” if more than 80% of the income is considered “active”

 

Holding company regime

  • Exemption from foreign income and capital gains

 

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!