Colombia

Corporate - Income determination

Last reviewed - 05 February 2020

Inventory valuation

The value of inventories, which includes all expenses and direct and indirect charges necessary to put an item in a position to use or sell, must be determined using one of the methods allowed under IFRS rules. For goods of a similar nature, the allowed methods are first in first out (FIFO) or weighted average. For inventories of diverse natures or usages, a different methodology can be used, as long as such has a recognised technical value.

Capital gains

Capital gains are taxed separately from income. See Capital gains tax in the Other taxes section for more information.

Dividend income

From FY 2017 onwards, dividend distribution is taxed; this means that only dividends paid out of profits obtained since FY 2017 onwards should be subject to the dividend tax.

This tax is applied regardless of the profits being taxed or not at the distributing company level, and the rates differ depending on the residence of the beneficiary, as follows:

  • Dividends to be distributed to resident individuals out of fully taxed profits are to be taxed at 10% if the gross dividend amount exceeds approximately USD 3,100. If profits were not taxed in the head of the distributing entity, the general income tax rate applies.
  • Dividends to be paid to resident companies are to be subject to a 7.5% WHT, even if paid out of fully taxed profits. The 7.5% is not to cascade upon multiple domestic distributions and can be imputed against the ultimate non-resident shareholder.
  • Dividends to be distributed to non-residents out of fully taxed profits are to be taxed 10% (up from 7.5%).
  • Dividends to be paid to non-residents out of untaxed profits are to be subject to equalisation tax at the rate in force upon distribution, plus a 10% dividend tax on top of it (DTT relief may be available on a case-by-case basis).

Interest income

Interest income derived from activities in Colombia is considered part of the CIT base for Colombian entities; however, if interest is paid or accrued to a non-resident that is not compelled to file a CIT return in Colombia, a WHT is accrued over the payment or deposit at a rate of 20%, which can be reduced to 15% if the maturity term is equal to or exceeds one year. Note that there are some special conditions derived from double tax treaties (DTTs) that may decrease the WHT rate.

An exemption is in place for principal, interest, and commissions related to lending, insurance, re-insurance, and other finance trade by governmental financial entities for countries with which cooperation agreements have been executed over these areas.

A reduced 5% WHT rate is available for interest income earned by non-residents on loans or bond-like instruments with terms of eight years or longer, the proceeds of which are used for certain government/private-run infrastructure projects.

Interest on short-term imports is to be out of scope for WHT purposes only if debt maturity is not to exceed 6 months (24 months prior to 2019).

Royalty income

Royalties paid in favour of a Colombian entity are subject to taxes in Colombia; consequently, such royalty payments are part of the CIT base. If royalties are paid in favour of a non-resident (i.e. in favour of an entity that is not compelled to file CIT in Colombia), WHT is generally accrued over the payment or deposit at a rate of 20%.

Certain DTTs offer limited relief for the WHT on royalties (e.g. 10%).

Foreign income

The following cases, among others, qualify as foreign-source income:

  • Income from certain loans, such as short-term loans emerging from import of goods or those disbursed to Colombian financial entities. Additionally, the expense derived from this concept will be 100% deductible.
  • Income from the sale of goods stored in certain logistic spots aimed exclusively for international distribution.
  • Income derived from technical services of repair and maintenance of equipment carried out abroad.
  • Income arising from air and sea international transport rendered by Colombian-resident companies.

It should be noted that income triggered by other technical services, as well as consulting services, technical assistance, and administrative services rendered by a related party in the last case, will be regarded as Colombian-source income, regardless if rendered in Colombia or abroad, and subject to a 20% WHT (33% for administrative services).