Colombia

Value-added tax (VAT)

VAT is applicable in the following cases:

• Sale of movable or immovable assets, except those expressly excluded.
• Sale or assignment of rights upon intangible assets, related exclusively with industrial property.
• Provision of services in Colombia or from abroad (if the beneficiary is located in Colombia), unless there is an exception available.
• Import of assets or goods that have not been expressly excluded.
• Operation, circulation, or sale of games of chance or gambling, except the lotteries or chance games operated online.

This tax is not applicable to the sale of vehicles and other fixed assets to be sold on a regular basis on behalf of third parties, as well as aeroplanes.

Services provided from abroad will be taxed through a reverse-charge mechanism, hence the beneficiary of the service will be liable to file the corresponding return and pay the tax before the Colombian Tax Authority, only if the beneficiary is registered for VAT.

Law 1819 of 2016 established that non-resident service providers rendering services from abroad must register for VAT purposes in Colombia when they sell vatable services to customers who are not registered for VAT purposes in Colombia. Registration for VAT purposes does not necessarily mean the triggering of a PE. Such obligation has been complied with by several foreign taxpayers, which requested a Colombian Tax ID, collected VAT, and remitted VAT during the bimonthly periods starting from 1 July 2018.

Nowadays, the registration process requires the foreign provider to obtain a Tax ID for the enterprise and for the legal representative, as well as a digital signature for the former. Additionally, a physical address in Colombian and an economic activity code needs to be provided.

Complementing the before mentioned, the foreign taxpayer can opt for allowing the financial entity, in cases where the payment is performed by using a debit/credit card, to act as withholding agent (WHT system is in force; however, the Tax Office has not released the list of non-resident service providers subject to WHT, so the system is currently not applicable), provided that the following requirements are fulfilled:

On the realm of digital services provided from abroad, Law 2010 of 2018 identifies distant maintenance of equipment and programs as a VATable operation.

Additionally, there are some acts that are considered as a sale, which are the following:

• All acts implying the transference of domain, freely or onerously, of movable or immovable assets and intangible assets related with industrial property.
• Withdrawing movable or immovable assets from the inventory in order to use them or to use them to improve fixed assets recognised by the taxpayer within its equity.
• Incorporation of movable or immovable goods, incorporation of non-taxed services, or transformation of taxed and untaxed goods, when those have been created, built, elaborated, or processed by the same entity or individual performing the incorporation or transformation.

The Colombian VAT is based on a credit-debit system throughout the entire chain of a business. However, certain products are only taxed at the manufacturer level (one-phase VAT). For purposes of VAT calculation, the VAT payer may credit the VAT (input) paid to vendors (certain limitations apply) against any VAT (output) collected from customers.

VAT rates

The general VAT rate is 19%. However, certain services and goods are taxed at 5% and 0%.

The following are the most significant goods and services taxed at 5%:

• Corn for industrial use and other grains (look for the list of Section 468-1 of the Colombian Tax Code [CTC])
• Raw oil from palm trees, sunflowers, palm trees almond, soy, corn, among others.
• Vegetal material, waste or residues, sub-products, and pellets used for nurturing animals.
• Agricultural equipment pertaining to the sub tariff 82.01.
• Electric or hybrid vehicles destined for diverse uses (further consideration must be given towards the list of Section 468-1 of the CTC).

The following are the most significant goods and services taxed at 0%:

• Meat, fresh eggs, and dairy products.
• Vegetal or animal biofuel destined to be used in diesel engines nationally produced to be mixed with Aceite Combustible para Motor (ACPM or motor oil).
• Services to be exported (some requirements are needed).
• Internet services for low to mid-income residential customers.
• Manufactured goods to be exported.

VAT exemptions

Under current law, there are VAT exemptions available for the following items, among others:

• Equipment and materials for the construction, installation, assembly, and operation of environmental monitoring and control systems.
• Importation of machinery and equipment, which is not produced in the country, for recycling and processing of waste and refuse.
• Regular imports by major exporters of industrial equipment, which is not produced in the country, for the transformation of raw material.
• Freight transportation.
• Public transportation of passengers in the national territory by water or land.
• Transportation of gas and hydrocarbons.
• Interest and other financial income from credit operations.
• Public utilities.

Withholding VAT

VAT withholding on the purchase of goods and services for most domestic transactions is 15% of the tax due (effective rate 2.85%).

VAT compliance

Filing frequency depends on taxpayer’s annual gross revenue as of 31 December of the previous taxable year. For businesses with annual revenue equal to or higher than 92,000 tax value units (TVU) (approximately USD 897,000), the frequency is bimonthly. If annual revenue is not in excess of TVU 92,000, the filing frequency is every four months.

No VAT filings are required for periods where no inputs or outputs exist.

Additionally, the tax reform of 2016 allows enterprises, branches, or businesses where the main activity is the exploration of hydrocarbons to file a VAT return from the moment in which the enterprise initiates its exploration activity in order to recognise the input VAT paid in acquisition or import of goods and services to be invested in the exploration phase and to be taken as part of the cost of development of their amortisable assets or investments in offshore projects. The balances in favour generated via VAT return during the exploration phases can be claimed during the next year of its generation (exploitation phase).

The regime is divided into two, identified as VAT responsible agents and non-responsible agents.

VAT credit

VAT paid to vendors is creditable even if paid at rates higher than those at which taxable sales are made. Where a receivable arises above that credit, a refund will be available upon request, subject to certain circumstances (e.g. zero-rate sales or taxed sales).

VAT paid on capital assets can be credited against income tax

VAT paid while building or buying a fixed asset, and all services needed to use such asset, can be credited against income tax of the year in which the VAT is being effectively paid.

Consumption tax

A national consumption tax is levied on the following select services and goods:

• Mobile phone services at 4%.
• Certain vehicles, aircraft, and other goods at 8% or at 16%.
• Restaurant and cafeteria services at 8%, alongside catering services, which is included in this category while excluded for VAT.

Consumption tax cannot be credited against VAT. Consequently, the tax will be treated as a higher cost of the acquired asset or product and will be treated as a deductible cost for income tax purposes.

Customs duties

Imports, according to customs rules, consist of the entry of goods to the ’national customs territory’ from the rest of the world, or from an FTZ, with the purpose of remaining permanently or temporarily in it for the achievement of a specific purpose.

As a general rule, the importation processes before the Colombian Internal Revenue and Customs Service (DIAN) can be carried out only by users registered in the Customs Information System.

According to the Harmonized System of Designation and Coding of Goods approved by the World Trade Organisation (WTO), imported goods are classified into subentries composed of six digits. Also, two digits are added, which are for exclusive use of the Andean Community (CAN), and two final digits, which correspond to the digits for use of Colombia. The customs subentry or harmonized tariff schedule (HTS) code, which is the ten-digit result, is exposed in the Colombian Customs Tariff, which is governed by Decree 2153 of 2016 and its amendments, which also reflects the applicable tariff of each duty. VAT, which is also part of the customs duties, is regulated in the Colombian Tax Code.

The general VAT rate for the importation of goods is 19%, and the customs duties range between 0% and 20%. However, in some cases, they may be higher, depending on HTS Code.

Excise taxes

There are some excise taxes for the consumption of beer and its derivatives, wine, liquor and its derivatives, and cigarettes and similar products.

Tax rates are defined by law, although the tax is collected by regional authorities:

• Liquor: Between 20% and 40%.
• Beer and similar: Between 20% and 48%.
• Cigarettes and tobacco: 55%.

Corrective taxes

Carbon tax

The scope of the existing carbon tax is broadened to include the sale, self-consumption, and importation of coal (certain exemptions apply, including coal for export). Rates will rise while continuing to be specific values per ton, gallon, or cubic square. A phased approach is introduced for rates for coal from 2023 thru 2027. Carbon tax will be deductible for income tax purposes.

Tax on single-use plastics used for packing and wrapping

An excise tax will be imposed on the sale, withdrawal, or import for self-consumption of single-use plastic products for packing and wrapping goods (certain exemptions apply). The manufacturer or importer is to be the taxpayer of record. A rate for specific value per gram is to be applied. This tax will not be deductible for income tax purposes.

Tax on sugar-rich ultra-processed drinks

A newly introduced excise tax will apply beginning November 2023 on the sale by producers and import of self-consumption of select sugar-rich beverages (certain exemptions apply, including sales for exports), subject to rate based on specific value of millilitres, and will be deductible for income tax purposes.

Tax on sugar and sodium-rich ultra-processed food

A 10% excise tax (15% in 2024 and 20% from 2025) will be imposed beginning November 2023 on the production, import, and self-consumption of sugar and sodium-rich ultra-processed food products. In scope items will include, among other, those under tariff classification 04.04.90.00.00, 16.01, 16.02, 17.04. Individuals that are small-sized producers (revenue not in excess of USD 87,000) will be out of scope, as well as in scope items for export.

Property tax

The property tax is a municipal tax that is imposed annually on real estate property located in urban, suburban, or rural areas. It is levied on both improved and unimproved real estate; consequently, the taxpayers of this tax are the owners or holders of the real estate property.

The taxable base of this tax is the current cadastral value of the property, as adjusted for inflation. In some cities, such as Bogotá, the taxable base is the value of the property as appraised by the taxpayer directly.

Property tax rates depend upon the nature and usage of the property, and generally range between 0.5% and 1.2%.

This tax is fully deductible for CIT purposes, provided the same has a causal nexus with the income-producing activity of the taxpayer (e.g. where the tax is paid on rental property).

Stamp tax

The stamp tax rate is between 1.5% and 3% applicable upon the alienation of real estate over USD 180,000.

Capital gains tax

The capital gains tax rate is 15%.

Financial transactions tax

The financial transactions tax is a permanent tax on financial transactions, the collection of which is the responsibility of regulated financial institutions and the Central Bank (Banco de la República).

The tax rate is 0.4%, and the taxable event is the carrying out of financial transactions that involve the disposal of resources deposited in checking or savings accounts as well as in deposit accounts with Banco de la República and the issuance of cashier’s checks.

50% of the total tax paid is deductible for CIT purposes, regardless of whether or not the transactions have a causal nexus with the income-producing activity of the taxpayer.

The law establishes a series of operations and transactions that are exempted from this tax.

Payroll taxes and social security contributions

There are three major payroll taxes and contributions.

• General pensions system.
• Health social security system.
• General system of professional risks.

The basis for contributions is determined by the monthly salary (excluding non-salary items) earned by the employee, which may not be, for ordinary salaried employees, less than the minimum legal monthly salary (approximately USD 257 in FY 2022) and may not exceed 25 minimum legal monthly salaries (approximately USD 6,425 in FY 2022).

For employees who earn an integral salary, the basis for pension contributions will be the lower of 25 minimum legal monthly salaries or 70% of such integral salary.

Amounts of contributions

In the two regimes (public and private), the amounts of contributions are currently 28.5% of the monthly salary.

Out of this percentage, 75% (approximately 20.5% of the monthly salary) must be borne by the employer and 25% (approximately 8% of the monthly salary) must be borne by the employee.

However, employees who earn more than four minimum legal monthly salaries must contribute an additional 1%, which will be destined to the pension solidarity fund, created by law to cover the risks of workers with scarce resources. Also, employees who earn more than 16 minimum monthly salaries must contribute an additional percentage (between 0.2% and 1%), depending on the amount of salary received.

For professional risks (Aportes de Riesgos Profesionales), the employer must pay a contribution ranging from 0.522% to 6.96% of the monthly salary, which is an insurance that covers risks of labour-related illnesses or accidents, permanent disability, death, and incapacity also derived from the employee's activity.

In addition, for employees with salaries higher than ten minimum monthly wages, employers must pay a payroll tax of 9% on salary items only, the basis of which is 100% for ordinary salaried employees and 70% for integral salaried employees.

Plastic bags tax

The triggering event for the plastic bags tax is the use of plastic bags, and the collections must be made by the commercial products to be carried in the bags. Since 2020 onwards, each plastic bag will cost COP 50.

This tax cannot be treated as a cost, deduction, or credit for any other tax.

Medicinal cannabis tax

Medicinal cannabis tax is applicable to the sale, freely or onerously, of transformed products based on psychoactive or non-psychoactive cannabis. The rate to be applied is 16%, and this tax cannot be credited against VAT.

Industry and trade tax

The industry and trade tax is a municipal tax that is imposed on revenue obtained from the exercise of industrial, commercial, or service activities in any Colombian municipal jurisdiction. It can be viewed as a special form of a turnover tax.

The industry and trade tax rates are determined by each municipality, and, as a rule, they range between 0.2% and 1%. 100% of this tax can be deductible as an expense.