Colombia: Tax (4th edition)

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This country-specific Q&A provides an overview to tax laws and regulations that may occur in the Colombia.

It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.

This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax-4th-edition/

  1. How often is tax law amended and what are the processes for such amendments?

    The Colombian Tax Code has been amended, in average, every two years since its formal enactment in 1989.

    Ordinary tax laws are enacted, amended and repealed by Congress, based on tax bills which are discussed in at least four debates that are conducted first in the House of Representatives, and then in the Senate.

    Extraordinary tax laws are enacted directly by the President of the Republic under states of emergency and, as a general rule, have a limited duration.

  2. What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?

    Maintenance of records: For tax purposes, the accounting records and supporting documents must be kept for a period equal to the statute of limitations of the Income Tax return of the tax year to which they correspond. Please note that the statute of limitations of Income Tax returns varies depending on whether the given return reflects a tax loss or a tax loss off-set, or a favor balance, or if the taxpayer is subject to the compliance of Colombian transfer pricing rules.

    National tax compliance (most relevant returns):

    (a) Income Tax: every year.

    (b) Value Added Tax (VAT): either every bimester, o every quarter, depending of the level of income of the taxpayer as of December 31st of the preceding year.

    (c) Tax withholdings: every month.

    Sub-national tax compliance (most relevant returns):

    (a) Industry and commerce tax: every bimester, or every year, depending on the municipal jurisdiction in which the tax accrues.

    (b) Real Estate Tax: every year.

    (c) Vehicles Tax: every year.

  3. Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?

    In regard to national taxes, the key authority is the National Tax and Customs Office (Dirección de Impuestos y Aduanas Nacionales).

    In regard to sub-national taxes, the key authorities are usually the local secretaries of the treasury.

    In general terms, it is not difficult to deal with national and sub-national tax authorities, and the time to resolve standard issues depends on the type of issue. Additionally, there are several proceedings that may be undertaken and concluded online.

  4. Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?

    Tax disputes that are not resolved at a tax authority level, may be resolved by the courts, either at a single or double instance level depending on the amounts subject to dispute. Regular tax dispute proceedings may take between four and seven years, including those at a tax authority level and double instance court level.

  5. Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?

    There are set dates for the compliance with tax payments and related tax obligations. Certain taxes may be paid in arrears as determined either by the law or by the competent governmental authority.

    The payment of added taxes in disputes with the regulatory authority shall only be mandatory with a definitive adverse decision either at a tax authority level (if the taxpayer does not challenge the tax authority’s official acts before the courts), or at a court level.

    Should the dispute refer to amounts paid in excess by the taxpayer, its refund shall depend of a definitive favorable decision either at a tax authority level or at a court level.

  6. Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government? Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public register of beneficial ownership?

    As a general rule, the taxpayer data is confidential, and may only be disclosed by the tax authorities to other governmental or judicial authorities upon formal request, and in the course of proceedings against the relevant taxpayer.

    Colombia is a signatory to the Multilateral Competent Authority Agreement and committed to undertake first exchanges of information on September 2017.

    Colombia has no public register of beneficial ownership.

  7. What are the tests for residence of the main business structures (including transparent entities)?

    An entity is deemed to be Colombian for tax purposes if: (a) it is incorporated in Colombia; (b) it is domiciled in Colombia; or if (c) its place of effective management is located in Colombia.

    Double taxation treaties to which Colombia is bound have typically adopted OECD residence rules.

    As a rule, entities that are deemed Colombian for tax purposes are subject to Income Tax on their worldwide income, while entities that are deemed foreign for Income Tax purposes are subject to Income Tax on their Colombian-source income.

    Trusts are transparent for tax purposes and thus, only its beneficiaries are subject to Income Tax (should a given trust not have beneficiaries, the trustor shall be subject to taxation).

    Colombia has adopted permanent establishment rules, which are based on OECD guidelines.

  8. Have you found the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?

    N/A

  9. Is there a CFC or Thin Cap regime? Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?

    The Colombian transfer pricing regime is in force since 2003, and it allows the obtainment of advance pricing agreements. Thin capitalization rules are in force since 2013, and CFC rules since 2017.

  10. Is there a general anti-avoidance rule (GAAR) and, if so, in your experience, how would you describe its application by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only etc?

    Colombia enacted anti-avoidance rules according to which the tax authorities are entitled to conduct investigations, recharacterize transactions, add taxes, and pierce the corporate veil if necessary.

  11. Have any of the OECD BEPS recommendations been implemented or are any planned to be implemented and if so, which ones?

    The following BEPS actions have been implemented in Colombia: digital economy (Colombia has enacted certain VAT rules); CFC rules; interest deductions (by the way of thin capitalization rules); permanent establishment rules; transfer pricing (including transfer pricing documentation). Colombia is signatory to the Multilateral Instrument Convention to Implement Tax Treaty Related Measures to Prevent BEPS.

  12. In your view, how has BEPS impacted on the government’s tax policies?

    BEPS have impacted government’s tax policies and the role of tax authorities. As part of the commitment of Colombia with OECD, the country has gradually adopted BEPS actions.

  13. Does the tax system broadly follow the recognised OECD Model? Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties? If so, what are the current rates and are they flat or graduated?

    Colombia has been gradually adopting OECD standards for tax purposes, and its membership in the OECD implies a stronger convergence to its model.

    Colombia taxes income, consumption and capital, either with national and/or subnational taxes.

    Income Tax is levied, as a general rule, on general income, income from immovable property, business profits, services (including income from private and government employment), dividends, interest, royalties, capital gains, and pensions. As a rule, tax withholdings apply. The general corporate Income Tax rate is 33% for FV 2019, 32% for FY 2020. 31% for FY 2021, and 30% for FY 2022 and onwards. A 20% Income Tax rate applies in free-trade zones. A special Income Surtax shall for financial entities during FY 2019, 2020 and 2021.

    VAT is levied on sales, provision of services, imports, transfer of intangibles related to industrial property, and gambling. The general VAT rate is 19%.

    Stamp Tax is levied on written documents, securities included, executed in Colombia or abroad, but producing their effects inside Colombia, whereby obligations are created, modified, assigned, extended or terminated, whenever their value exceeds certain threshold. Please not that the current Stamp Tax rate is 0%.

    Industry and commerce tax (sub-national tax) is levied on the performance of industrial, commercial or service activities within a municipal jurisdiction, at rates that usually range from 0,3% to 1%. Specific rules may vary depending on the municipal jurisdiction.

    Real estate tax (sub-national tax) is levied at rates that vary from 0,5% to 1% of the cadastral value of the given property. Specific rules may vary depending on the municipal jurisdiction.

  14. Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?

    The Colombian Tax Code provides that Income Tax shall be determined on the basis of International Financial Reporting Standards (IFRS), unless specific tax rules provide otherwise. In practice, Colombia has adopted since 2017 a partial tax convergence to IFRS, and thus Income Tax in determined on the basis of a combination of local tax rules and IFRS.

  15. Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?

    Companies, either in the form of corporations or limited liability entities are subject to Income Tax. Trusts are transparent for tax purposes and thus, only its beneficiaries are subject to Income Tax (should a given trust not have beneficiaries, the trustor shall be subject to taxation).

  16. Is liability to business taxation based upon a concept of fiscal residence or registration? If so what are the tests?

    An entity is deemed to be Colombian for tax purposes if: (a) it is incorporated in Colombia; (b) it is domiciled in Colombia; or if (c) its place of effective management is located in Colombia.

    Double taxation treaties to which Colombia is bound have typically adopted OECD residence rules.

    As a rule, entities that are deemed Colombian for tax purposes are subject to Income Tax on their worldwide income, while entities that are deemed foreign for Income Tax purposes are subject to Income Tax on their Colombian-source income.

    Colombia has adopted permanent establishment rules, which are based on OECD guidelines.

  17. Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?

    There are special tax regimes for non-profit entities and free-trade zones.

  18. Are there any particular tax regimes applicable to intellectual property, such as patent box?

    There are no particular tax regimes applicable to intellectual property, such as patent boxes. However, there are special Income Tax rules applicable to intangibles, which follow IFRS standards.

  19. Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?

    N/A

  20. Are there any withholding taxes?

    At a national level, there are Income Tax, Value Added Tax, Stamp Tax and Debit Tax withholdings. At a subnational level, there are Industry and Commerce Tax withholdings.

  21. Are there any recognised environmental taxes payable by businesses?

    The following environmental taxes are in force: Carbon Tax; tax on plastic bags; toll surtax applicable to vehicles that transit in protected areas; duties for the use of renewable resources; duties payable by power generation companies; duties for the use of water; and duties for forestry exploitation.

  22. Is dividend income received from resident and/or non-resident companies exempt from tax? If not, how is it taxed?

    Dividends are subject to Income Tax as follows:

    Colombia-tax-table

    Special withholding credit rules apply to dividends paid to resident entities.

  23. If you were advising an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered?

    Besides the privileged location of Colombia for import/export purposes, these are some of several tax advantages of performing business activities in Colombia:

    • Gradual reduction of the corporate Income Tax from 33% in FY 2019 to 30% as from FY 2022.
    • Income Tax credit of the VAT paid in the acquisition of productive fixed assets.
    • Double taxation treaties with more than
    • Income Tax exemptions for several activities, including the orange economy, agricultural and livestock projects, alternative power generation, forestry, priority housing construction, and hotel developments.
    • The Colombian Holding Company regime, that provides certain Income Tax exemptions on dividends paid by foreign entities.
    • Investments greater than USD $ 342,000,000 in enterprises that generate at least 250 direct jobs trigger a 27% corporate Income Tax rate and a dividend tax exemption.