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5.1. Tax Base for Resident Entities

Resident entities are taxed on their worldwide income, determined under the ordinary or the presumptive taxable income methods.

According to articles 26 and 178 of the Colombian Tax Code, in order to determine the income tax base for resident entities, the following steps, known as ordinary system, must be followed:  

  • All ordinary and extraordinary receipt derived in the taxable year that is capable to produce a net increase in the taxpayer’s net wealth must be added. This amount will not include exempt income.
  • From the above sum, refunds and discounts must be subtracted, resulting in net receipts.
  • Total costs attributable to such income must be subtracted to obtain the gross income.
  • Net income is computed as the difference between gross income and deductions.

Except for special adjustments, the net income is generally the "taxable income" subject to tax.

Furthermore, taxpayers are required to apply the "presumptive taxable income" system, according to article 188 of the Tax Code. This presumptive taxable income is 3% of the taxable net worth of the taxpayer at the end of the previous taxable year (31 December).

In general, taxpayers must assess their income tax liability by applying the tax rate to the highest of the net income determined under the ordinary system and the presumptive taxable income.

In addition, capital gains are derived from the occasional or sporadic sale of assets that is not part of the ordinary course of business, or the occurrence of an extraordinary economic event, like winning the lottery or raffle. Specifically, the tax is levied on:

  • Disposal of fixed assets owned for more than 2 years;
  • Donations, gifts, inheritance;
  • Profit derived upon liquidation of companies or corporations; and
  • Prizes of lotteries, raffles and gambling.

Specific capital gains are expressly exempt from tax, such as inheritance gains up to certain amount.

Only capital losses may be subtracted from capital gains to determine the taxpayer’s liability, if they are not expressly prohibited by the law, i.e. losses derived from transactions entered into between a company and its partners who are individuals.

Corporate income taxpayers, obliged to file an income tax return, are also subject to the income tax for equality ( impuestosobre la renta para la equidad, CREE) as from 1 January 2013. To determine the tax base, all gross earnings that may increase the net worth must be added and specific costs and deductions expressly provided by the law may be subtracted, i.e. not all costs and deductions that are allowed to determine the income tax base are allowed to determine the CREE.