Colombian law makes a distinction between depreciable and amortizable assets. The first are those that qualify as i) tangible, ii) fixed assets and iii) not amortizable. The latter include i) any disbursement that should be capitalized or deferred and be amortized in accordance with the accounting principles, and ii) intangible assets that include rights.
Except for special rules, depreciable and amortizable assets are valued at their cost of acquisition plus any corresponding adjustments, if applicable.
Machinery, plant and equipment are depreciable, whilst land, securities and participations are not. In general terms, the value of non-depreciable assets is their acquisition cost plus corresponding adjustments, if applicable.
Depreciation allowance needs to be claimed in the corresponding taxable year and in principle it may not be carried forward.
For depreciation to be allowed, the corresponding fixed assets must be used in the income producing business or activities of the taxpayer. In addition, depreciation can be deducted even when the taxpayer’s financial results are negative. When an asset is owned for part of the year only or is also used for an activity other than taxpayer’s income producing activity, depreciation is applied proportionally.
Depreciation must be assessed for each asset, using the following methods:
- straight-line (only under this method accelerated depreciation is accepted at 25% of the straight-line quota per each additional 8-hour shift);
- declining balance; and
- any other technical method previously authorized by the tax authority.
The base for computing the depreciation is the result of adding i) the acquisition cost of the respective asset, ii) VAT (not creditable), iii) custom duties and stamp tax, and iv) additional expenses necessary to put the asset into use,
In Colombia, the depreciation method used for tax purposes may be different from the accounting method. If the tax depreciation allowance exceeds the allowance obtained under the accounting method, the taxpayer is required to create a non-distributable reserve equal to 70% of the excess amount. If such reserve is not created, the depreciation allowance will not be deductible. When the depreciation allowance obtained for tax purposes is lower than the depreciation allowance for accounting purposes, the reserve can be released up to 70% of the difference between the tax and the accounting allowances. Profits distributed against this reserve are considered as receipts not considered income for tax purposes.