Tax Reform Passed & Enacted
Law 2155 of Sept. 2021
- CIT rate to increase to 35% beginning 2022 on a going forward basis (up from 30% from 2022)
- For financial institutions, the CIT rate is to rise to 38% (3% surcharge through 2025) beginning 2022 where taxable income exceeds over USD 110.000 (approximately) . Surcharge to be paid in advance.
- Normalization (amnesty) tax for 2022 (a 50% prepayment is to be remitted in 2021) at a 17% rate is introduced for undisclosed assets or non-existent liabilities as of January 1, 2022, in scope and to be reported in the income tax return. Taxable base to be the asset’s tax basis or fair market value as set by the taxpayer (to reduce to 50% for taxpayers that repatriate for at least 2 years under-reported assets held overseas.
- Job recovery incentives: An “incentive for the creation of new jobs” is introduced to provide financing for labor costs such as social security and payroll taxes to employers that create new jobs under certain circumstances through the end of August 2023.
- Tax amnesty up to 80% of interest and penalties available depending on the stage of the audit process and the reasons of the breach.
Indirect disposals of assets held in Colombia through the sale of shares, rights, and similar in non-resident entities are to be exposed to direct taxation, except for:
- shares indirectly transferred that are listed on a government-recognised stock exchange with an active secondary market, provided that no more than 20% of such shares belongs to a single beneficiary, or
- the value of assets indirectly transferred that represents less than 20% of the book and fair market value of all assets owned by the non-resident entity being disposed of.
For mergers and spin offs outside Colombia as a result of which shares located in the country are transferred, an exception may also be available, subject to a certain materiality threshold. An indirect seller is taxed under the same circumstances a direct seller would be. However, the two-year holding requirement (to determine whether a capital gain or regular income arises) is to be measured as the holding period of the shareholder over the entity that is the direct owner of the Colombia shares (assets). Ownership period is not relevant if the assets to be disposed of are considered as inventory.
Failure to expose to taxation indirect sales will cause the subordinated entity to be jointly liable with the seller for all taxes, penalties, and interest due. The purchaser will also be jointly liable only to the extent it is aware of the transaction being tax abusive.
Minimum sale price
The acceptable price for sales of goods and rendering of services cannot be less than 15% (down from 25% in the case of goods, and absent before for services) of fair market value on the date of the transaction. When it comes to shares in unlisted resident companies, the sale price is presumed to be the intrinsic value plus 30% (up from 15%). However, tax authorities may use different valuation methods, such as discounted cash flow or multiplies of earnings before interest, taxes, depreciation, and amortisation (EBITDA).
This rule does not apply to transactions subject to transfer pricing, for which specific valuations are needed.
For the sale of real estate property, the appraisal constitutes the minimum sale price, with the possibility of the sale price to be also determined according to price lists, offers, or other methods. It is now necessary to include a sworn statement of the sale price in the public deed at the time of the sale.
Dividend tax rates for foreign entities, individuals without residence in Colombia, and PEs was increased by the Law 2010 of 2019 from 7.5% up to 10%, absent of a double tax treaty (DTT) relief.
New exempted and zero-rated goods and services
Exempted services and goods
- Beauty treatments.
- Books, magazines, brochures, or serialised publications, scientific or cultural, in commercial establishments legally authorised and of free access to the consumer public (booksellers).
Three-day exemption for the following:
- Clothing and accessories: Sale price per unit must be equal to or less than approximately USD 186.
- Household appliances: Sale price per unit must be equal to or less than approximately USD 745.
- Sports equipment: Sale price per unit must be equal to or less than approximately USD 745.
- Toys and games: Sale price per unit must be equal to or less than approximately USD 93.
- School supplies: Sale price per unit must be equal to or less than approximately USD 46.
Preferential regime for creative industries (Orange Economy)
A five-year income tax exemption was created for orange economy start-ups registered and operating prior to June 30th, 2022 (available for select business purposes related to tech and cultural industries). Such exemption is applicable when a minimum number of jobs are created (at least three, but to be determined by the government according to each industry), a minimum investment is made (at least approximately USD 50,000 for a three-year period), and approval of the project is secured (by the Ministry of Culture).
Holding entities regime (HER)
An HER is introduced for resident companies whose main business purpose is the holding of shares and investments and/or its administration in resident and non-resident entities. The applicability is subject to certain requirements, namely: (i) a minimum 10% share, directly or indirectly, for a period no lower than 12 months in at least two companies, (ii) at least three employees, (iii) a registered address in Colombia, and (iv) the ability to demonstrate that Colombia is where the strategic decisions over the investments are made. Notice to the Tax Office will be required for enrolment to the HER.
Under the HER:
- Dividends distributed by non-resident entities are exempted for the resident holding entity (if distributed by resident entities, they are taxable if applicable).
- Re-distributions to resident individuals or companies are taxed at the general income tax rate with a credit for the foreign income tax paid by the distributing entity outside Colombia.
- Re-distributions to non-resident individuals or companies are not subject to any income tax.
- Gains on disposals of shares held in non-resident companies are exempted.
- Gains on disposals of shares in a holding entity are also exempted as they relate to activity outside Colombia. For non-resident shareholders, gains on the shares in a holding entity are also exempted to the extent they relate to activity or assets held outside Colombia (the HER does not exempt gains on the sale of shares in a holding entity if they relate to domestic sources).
The absence of taxation for non-resident shareholders is contingent on them not residing in a blacklisted jurisdiction for Colombia.
A holding entity under HER is to be treated as a resident for tax treaty purposes.
A simplified tax regime (known as 'SIMPLE') was introduced to encourage compliance and minimise the burden of taxes and reporting for resident small and middle size businesses, be they companies or individuals (gross revenue per year not to exceed approximately USD 974,000).
The regime captures income tax, industry and trade tax, and others (except value-added tax [VAT]) into a bundled tax with less compliance obligations at reduced rates and for select business activity.
A business enrolled into the simplified regime is not to be subject to withholding and self-withholding tax, which creates a cash tax privilege. Employer’s pension contributions can be credited against the bundled tax under certain limitations.