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9.1. Unilateral Relief

Colombian persons and entities are taxed over their worldwide income and they are entitled to claim, under domestic legislation, a direct and an indirect tax credit when they receive foreign source income.

Article 254 of the Tax Code, which was modified by Act 1739 of 2014, establishes that resident taxpayers, including corporations and individuals, are allowed to deduct the income tax paid abroad proportionally from the income tax and from CREE (and its surtax), if applicable. For such purposes, the following conditions shall be met:

  • The same income taxed abroad is subject to tax in Colombia;
  • The income qualifies as foreign-source income according to Colombian law;
  • The tax credit may not exceed the tax that would have been applied in Colombia with respect to the same income;
  • Income tax after credits cannot be less than 75% of the presumptive income tax before credits. This limitation is not applicable to exempt income.

With respect to dividends received from a foreign company, Colombian legislation also allows taxpayers to claim a tax credit for the income tax paid abroad, under the following rules:

  • The tax credit is equal to the result of multiplying (i) the amount of the dividends distributed, by (ii) the income tax rate that was applied to the profits at the level of the distributing company. To be entitled to claim this credit, the resident taxpayer (i) must have a direct participation in the capital of the paying entity, (ii) its participation must qualify as a fixed asset, and (iii) the participation must be held for at least two years.
  • When the distributing entity has also derived dividends from other companies located in the same or in other jurisdictions, the tax credit will be equivalent to the result of multiplying (i) the amount of the dividends received, by (ii) the income tax rate that was applied to the profits from which the dividends were paid. To be entitled to claim this credit, the resident taxpayer (i) must have a direct participation in the capital of the paying entity, (ii) its participation must qualify as a fixed asset, and (iii) the participation must be held for at least two years.
  • The tax credit will include the tax applied to dividends in the country of origin, if applicable.
  • The taxpayer must prove the payment of the corresponding tax through a certification issued by the competent tax authority.
  • The tax credit cannot exceed the basic income tax, along with CREE when applicable. In the same way, income tax after the foreign tax credit added to other credits cannot be less than 75% of the presumptive income tax before credits.

The income tax paid abroad may be claimed in the year in which the tax is paid or in the following 4 fiscal years (carry forward). The following restrictions apply for carrying forward unused tax credits:

  • The tax credit cannot exceed the result of adding the amount of the ordinary income tax and the CREE- when applicable- that were assessed over the income subject to tax abroad.
  • Income tax after credits cannot be less than 75% of the presumptive income tax before credits.
  • The tax credit cannot be accrued with unused credits originated from other income subject to tax in Colombia in different periods.

Finally, there is no carry-back provision under Colombian legislation.