For determining the taxable income ( renta líquida gravable)the taxpayer must follow the steps described below.
- From the ordinary and extraordinary gross receipts, that may increase the net worth when accrued and that are not expressly exempted, the taxpayer must subtract i) the receipts not considered as income for tax purposes, the refunds, rebates and discounts, resulting in the net receipts ( ingresos netos),
- Then, costs related to the above mentioned receipts must be subtracted obtaining the gross income ( renta bruta).
- Finally, allowed deductions must be subtracted from the gross income resulting in the net income which, unless special adjustments apply, is generally the "taxable income" to which the rate is applied.
In addition, taxpayers are required to apply the presumptive income system ( renta presuntiva). Under this system the taxable income is deemed to be 3% of the net worth ( patrimonio líquido) as of December 31st of the preceding taxable year.
The income tax liability will then be determined by applying the statutory tax rate to the higher of the above tax bases, either the ordinary or the presumptive base.
Colombian Tax Code includes special rules to determine the taxable income in specific cases such as i) insurance companies, ii) oil and gas companies, iii) leasing agreements, iv) companies with organized and permanent systems of sales by installments, and v) transportation companies.
Gross income for life insurance companies is determined according with the following rules.
The net revenues and the mathematic reserve of the previous fiscal year must be added. Then, the following items must be subtracted from the result so obtained:
- payments or credits into account for claims, expired endowment insurance policies and annuities;
- the value of notified incidents up to the amount not covered by the reinsurance, which must be certified by the statutory auditor;
- payments for special benefits over expired policies;
- payments for rescues (rescates);
- reinsurance premiums; and
- the value of the mathematic reserve at the end of the year.
The determination of gross income for general insurance companies must be made according with the following rules.
The net revenues and the technical reserve of the previous tax year must be added. Then, the following items must be subtracted from the result so obtained:
- the amount of the claims paid or accounted for;
- the amount paid regarding notified incidents, up to the amount not covered by the reinsurance, which must be certified by the statutory auditor;
- payments for salvage values or for adjustments in the values of previous claims;
- reinsurance premiums; and
- the value of the technical reserve at the end of the year.
It is important to notice that in both cases, the "net income" is equal to all revenues derived during the fiscal year, less refunds, cancellations and bargains.
The costs and expenses incurred during the exploration stage can be capitalized and amortized. For such purpose the amortization method may be the units of production method, or a straight-line method, in a period not lower than 5 years. The taxpayer may elect the method.
In case the exploration endeavors are unsuccessful, the total amount invested may be amortized in the taxable year when such situation is determined, and at most during the following two taxable years.
Leasing agreements in Colombia must be accounted by recording an asset and a liability in the amount of the leased asset at the beginning of the contract. Such amount is determined by the actual value of the rental payments and the purchase option price, calculated at the start of the contract.
The instalments must be treated under two perspectives: i) capital payments, and ii) financial expenses or interest. The first must be charged as a debit against the liability registered by the lessor, while the latter must be considered as a deductible expense for the lessee.
At the time of exercising the purchase option, the purchase option price must be accounted against the balance of the corresponding liability, which must finalize in zero. Any difference must be adjusted against the profit or loss of the corresponding year.
When the lessee does not exercise the purchase option, i) the income statement and equity must be adjusted, and ii) the non-depreciated balance of the asset should be deducted in the income tax return of the year in which the contract is terminated.
The booked asset can be depreciated by the lessee or amortized in accordance with the general depreciation or amortization rules.
The booked value must include the VAT charged, except when such VAT has already been credited by the lessee for VAT purposes.
From the lessor standpoint, income derived from the contract must be included in the income statement as taxable income.
The taxable income of foreign transportation companies and non-resident individuals, deriving income from international transportation services rendered between places in Colombia and abroad is determined by applying to their total income from within Colombia and abroad, the proportion of the income that is attributable to its receipts within the country.
In the case of ground transportation services rendered through vehicles not owned by the transportation company, the owner and the transportation company shall account the revenue equivalent to the participation of each of them in the joint operation.