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Colombia Tax Reform Legislation Includes Increased Dividend Tax, a New Wealth Tax, Rules for Taxing a Significant Economic Presence, and Other Changes — Orbitax Tax News & Alerts

Colombia's Ministry of Finance has announced the submission of tax reform legislation in the House of Representatives on 8 August 2022. Some of the main proposed reform measures are summarized as follows:

  • The 35% corporate income tax rate is maintained indefinitely, along with the additional 3% surtax on financial institutions;
  • The withholding tax rate on dividends paid to non-resident legal entities and natural persons is increased from 10% to 20%;
  • The tax rate on occasional gains/earnings (other than income from normal operations) is increased from 10% to 30% for resident legal entities and non-resident legal entities and natural persons, with resident natural persons subject to standard progressive income tax rates;
  • A new permanent wealth tax is introduced on resident and non-resident natural persons, illiquid successions, and non-resident companies or entities that are not filers of income tax in Colombia that own assets located in Colombia other than shares, accounts receivable, and /or portfolio investments, with the following rates on net assets (wealth):
    • up to 72,000 UVT - 0%
    • over 72,000 UVT up to 122,000 UVT - 0.5%
    • over 122,000 UVT - 1.0%
  • A new limit on tax benefits is introduced, providing that the total value of specified excluded income, special deductions, exempt income, and tax deductions (specified tax benefits) may not exceed 3% of the ordinary income before applying the tax benefits, with a prescribed formula provided to determine the additional tax chargeable considering the 3% limit - specified tax benefits include the incentive for rural capitalization, the deduction for contributions to employee education, deductions for certain donations, and others;
  • The creditable amount of municipal industry and trade tax (ICT) for corporate tax purposes is removed, meaning 100% of the ICT is allowed as a deduction as opposed to 50% of the ICT currently allowed as a credit;
  • The SIMPLE taxation regime for small businesses is amended with a reduction in the applicable tax rates for certain business categories;
  • New taxes are introduced for processed and sugary drinks and foods, with rates of 0, 18, or 35 pesos (COP) per 100ml for in-scope drinks and a flat 10% rate on in-scope foods;
  • A new tax on exports of coal, crude oil, and gold is introduced, which applies if the observed international price exceeds prescribed threshold prices at a rate of 10% according to the following formula: the total FOB value x ((threshold price - international value) / international value) x 10%, with the threshold prices set to:
    • USD 87 per ton for coal;
    • USD 48 per barrel for crude oil; and
    • USD 400 per ounce for gold;
  • Changes are made to the free zone regime, including:
    • the general 20% rate for companies in free zones is maintained, but with the condition that a company has an Internationalization Plan approved and in force as of 1 January of the taxable year and meets a minimum export threshold, otherwise, the standard 35% rate applies
    • the 15% rate for new free zones created in the municipality of Cúcuta between January 2017 and December 2019 is maintained, but with the added Internationalization Plan requirement; and
    • from 1 January 2023, the tax rate for single-company free zones will be the standard 35% rate;
  • New rules are provided regarding taxable presence in Colombia, including
    • the revision of the rules for treating a company as a domestic resident company for tax purposes based on its place of effective management; and
    • the revision of the rules for taxing a permanent establishment or branch in Colombia of a non-resident, including new rules for the taxation of a significant economic presence, which is deemed to exist when a non-resident maintains a deliberate and systematic interaction with users or clients in Colombia including, in particular, cases where a non-resident, together with related parties (and subject to the terms of a tax treaty):
      • obtains gross income of 31,300 UVT or more during the taxable year for transactions involving goods or services with persons in Colombia;
      • uses a Colombian website with a Colombian domain (.co); or
      • maintains an interaction or marketing display with 300,000 or more Colombian users during the taxable year, including the possibility of displaying prices in pesos (COP) or allowing payment in pesos (COP).

In addition to the above, several individual income tax measures are proposed that would reduce current maximum exemptions, including in relation to pension income, employment income, and others. The removal of the flat 10% tax rate on individual dividend income is also proposed, with such income subject to standard progressive rates.