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5.4. Tax Base for Non-Resident Entities

According to Article 12 of the Colombian Tax Code, companies and foreign entities are taxed only on their income and capital gains from national source.

The law states that resident taxpayers involved in transactions with non-residents from which domestic source income is derived, must act as withholding agents and apply the corresponding income tax withholding.

The general rule is that withholding rates must be applied over the total amount paid, unless the law expressly provides a different base, i.e. the tax base is limited to 80% of the payment when it is derived from the exploitation of software programs and to 60% of the payment if related to the exploitation of films.

If non-residents are subject to the withholding tax provided in articles 407 through 411 of the Tax Code they are not obliged to file an income tax return and said withholding will be final and in satisfaction of the income tax liability. Those articles refer to certain services, dividends, interest, royalties, rentals, cinematographic films, software, and payments to foreign teachers.

If non-residents derived other type of domestic income, they will be compelled to file an income tax return and to assess their income tax liability on net basis, applying the general rules provided for residents