Colombia

Tax Reform (Law 2277 of December 2022) passed and enacted

Corporate taxation

• General corporate income tax (CIT) rate remains unchanged (35%).
• Drawing from the Organisation for Economic Co-operation and Development (OECD)-propelled Pillar II, but certainly broader in scope and goals, a minimum effective tax rate (METR) of 15% is introduced beginning in 2023 for resident corporations (a few industries are exempted).
• A permanent surcharge is introduced for crude oil and coal extraction and production industry players with taxable income equal to or greater than over 471,000 United States dollars (USD) of up to 15%.
• A temporary surcharge of 3% is introduced for hydro-electric power companies with taxable income equal to or greater than USD 282,000 for years 2023 to 2026.
• The preferential 20% rate for other qualified Free Trade Zone (FTZ) companies will only survive subject to an export-oriented plan to be submitted for approval by the government in 2023 or 2024. Grandfathering provisions apply to qualified FTZ companies demonstrating revenue growth of 60% in 2022 compared to that of 2019.
• Capital gains tax raises from 10% to 15% for residents and non-residents.
• Industry and Trade Tax will remain as 100% CIT deductible. However, it will no longer be allowed as 50% tax credit against CIT.
• The Mega Investments Regime is repealed.
• Deductibility of royalties in the oil, gas, and mining industries is not permitted.
• Certain non-taxable income items, special deductions, exempt income, and tax credits are to be capped at 3% of the taxpayer's net income before their subtraction.
• Profits from the sale of stock listed on the Colombian Stock Exchange, if owned by the same owner, and provided it is not more than 3% (down from 10%) of the total outstanding shares of the listed company in the taxable year, will continue to be treated as non-taxable income.
• Effective place of management (EPOM) rules are broadened and will operate around less subjective tests to include scrutiny over the place where day-to-day activities are carried out, as well as the place where management usually exercises authority and responsibility over the entity’s affairs.
• A significant economic presence (SEP) rule is unilaterally introduced whereby the sale of goods or provision of digital services into Colombia will attract withholding tax (WHT) at 10% or, at the election of the provider, a 3% tax (over gross revenues) will apply subject to registration and an annual income tax filing. Exceeding a revenue cap of USD 275,000 per year, as well as a 300,000 customer/user threshold, opens the door to eligibility for SEP. These rules will apply beginning in 2024.
• Dividend tax will rise to 20% (up from 10%). Dividends paid out of untaxed profits will be taxed at 35%, and 20% will be imposed on the net (effective tax rate of 48%).

Value-added tax (VAT)

• As of 1 January 2023, VAT-free days will be repealed.
• Security transportation services exemption to be removed.
• The importation of goods subject to postal traffic, express shipments, or express delivery shipments not in excess of over USD 200 will be exempted in accordance with Free Trade Agreements expressly untaxing these.

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), 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.