Colombia

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

Corporate Taxation

• General Corporate Income Tax rate remains unchanged (35%)

• Drawing from OCDE- propelled Pillar II, but certainly broader in scope and goals, a Minimum Effective Tax Rate (“METR”) of 15% is introduced beginning 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 USD471k up to 15%.

• A temporary surcharge is introduced  for hydro-electric power companies with taxable income equal to or greater than over USD282K approx, for years 2023 to 2026 (3%)

• The preferential 20% rate for other qualified 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 to apply to qualified FTZ companies demonstrating revenue growth of 60% in 2022 vs that of 2019.

• Capital Gains Tax raises from 10% to 15% for residents & non-residents.

• Industry and Trade Tax (ICA) 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• The Mega Investments Regime is repealed.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 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 at 10% or, at the election of the provider, a 3% (over gross revenues) will apply subject to registration and an annual income tax filing. Exceeding a revenue cap of over USD275k per year as well as a 300,000 customer/user threshold opens the door to eligibility for SEP. These rules will apply beginning 2024.

• Dividend tax to rise to 20% (up from 10%). Dividends paid out of untaxed profits to be taxed at 35% and 20% to be imposed on the net (ETR of 48%)

Individual taxation

• Wealth tax to be re-introduced permanently for net wealth above 5000K approx on January 1st, of every year beginning 2023. 

• Income Tax baskets must be added together in order to determine the individual's tax rate, which can go from 0% to 39% (top marginal tax remain unchanged). Capital Gains are not added to this calculation.

• The threshold of 25% of exempt labor income is lowered from over USD2,120 (approx.) per month (USD 25,446 annual) to over USD 7K per year.

• The limit of exempt income and deductions applicable to the general basket is reduced. It may not exceed 40% or over USD11,840 (approx.) per year. However, the taxpayer may additionally deduct over USD636 per dependent up to 4 dependents.

• Itemized deduction of over USD 1,600 for purchases supported by e- invoices (other requirements apply).

• For purposes of labour withholding tax, dependents will be considered, amongst others, the sons of the taxpayer that depend on him on the basis of psychological or fiscal conditions who are 18 years or older (as opposed to 23).

• DIAN may estimate maximum deductible costs and expenses (60% of gross income) for the general tax return. If the taxpayer exceeds this limit, he must inform it in his tax return. (only for informative purposes)|

VAT

• As of January 01, 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 USD200 will be exempted, in accordance with Free Trade Agreements expressly untaxing these.

Corrective taxes

Carbon Tax : The scope of this existing tax is broadened to include the sale, self-consumption and importation of coal (certain exemptions apply including coal for export). Rates wil 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 : This 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 to be the taxpayer of record. A rate for specific value per gram 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, import of self-consumption of select sugar rick 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, Sodium Rich Ultra Processed Food: A 10% (15% in 2024 and 20% from 2025) excise tax 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 over USD87k) will be out of scope, as well as in scope items for export.