Colombia

Corporate - Tax credits and incentives

Last reviewed - 15 February 2021

Foreign tax credit

Foreign income taxes over non-domestic-source income are creditable against CIT, subject to certain limitations. Generally, the amount of the credit cannot exceed the sum of Colombian taxes imposed over the same income. DTTs provide for more comprehensive credit systems as well.

For dividends tax credit, it is expressly established that the effective rate assumed by the company abroad will be that which results from dividing the tax actually paid among commercial profits before taxes.

For the tax credit to be allowed, the shares held by the taxpayer must be deemed as fixed assets.

It is clarified that the indirect tax discount would not be applicable to portfolio investments or destined to speculate in securities markets.

A certificate from the tax auditor of the company that distributes the dividends must be available, in which the value of the commercial profit, the value of the taxable profit, the tax rate, and the tax actually paid by said company can be verified.

CIT exemptions

As items of exempt income, the law has established the following:

  • Income from the sale of electric power generated from wind, biomass, or agricultural waste, for a period of 15 years since 2017, provided the seller issues and negotiates Greenhouse Gas Reduction Certificates in accordance with Kyoto’s Protocol and that 50% of the income obtained in the sale of the certificates is invested in social projects benefiting the region in which the generator operates.
  • Income obtained from ecotourism services, for 20 years. This benefit has been repealed as of 1 January 2018 but is still in effect for those that qualified prior to 1 January 2018. The taxpayer will be subject to CIT at a 9% rate during the benefit period.
  • The incomes obtained from the provision of the fluvial transport service. Such exemption will be in force until the year 2036.
  • Income received by start-ups that carry orange economy activities will be exempt for seven years, provided that they employee at least three employees and make investments of at least approximately USD 50,000 within three years.
  • Companies that carry out investment in the Colombian agricultural sector will have a ten-year exemption, provided they hire at least ten employees and make investments of at least approximately USD 16,000 in six years.
  • Income related to social interest or priority housing is exempt, provided that the taxpayer gets the corresponding permission from the government and the assets are transferred to a trust with a term of a maximum of ten years, which must carry out the project.
  • The incomes of the companies incorporated in the Departments of La Guajira, Norte de Santander, and Arauca until 2022 will have a five-year exemption, as long as they met the requirements set in the law. The exemption will be of 50% the following five years.

Special CIT rate (9%)

A special CIT rate of 9% applies in the following cases:

Old regime

  • Income obtained from hotel services offered in new hotels that are built within 15 years counted from 2017, for a term of 30 years.
  • Income obtained from hotel services offered in refurbished or enlarged hotel facilities, where the related work is started within 15 years counted from 2017, for a term of 30 years.

New regime

  • Applicable for new or reshaped hotels (if reshaped, applicable on the amount of the investment).

 

Kind of project Timeframe to take the special rate benefit Timeframe to apply the special rate
Hotels in cities with less than 200,000 inhabitants 2019 to 2029 For 20 years
Hotels in cities with more than 200,000 inhabitants 2019 to 2023 For 10 years
  • The special rate is also applicable for the construction of new theme parks, ecotourism and agro-tourism parks, and boat docks.

Special CIT rate for free trade zones (FTZs)

FTZ industrial users enjoy a special CIT rate. The FTZ industrial goods users and industrial service users pay CIT at a reduced rate of 20% on income earned from their FTZ operations. No surcharge will apply.

Note that capital gains are taxed at the standard capital gains tax rate of 10%.

Commercial users will apply the general CIT rate, which is 31% for FY 2021, and income tax surcharge will apply.

Reduction to the statutory CIT rate for small companies (grandfathered rules for small/medium-size companies)

Small companies (not exceeding approximately COP 3.4 trillion in total assets or 50 employees for FY 2016) are subject to CIT at the following reduced rates for five years from the moment in which they started their operation or from the moment in which they obtain taxable income:

Years Income tax rate **
1 9% + (GT - 9%) * 0
2 9% + (GT - 9%) * 0
3 9% + (GT - 9%) * 0.25
4 9% + (GT - 9%) * 0.50
5 9% + (GT - 9%) * 0.75
6 and on GT

** GT: General income tax tariff for fiscal year.

Law 1819 of 2016 repealed the above-mentioned small companies regime and established a transitional period of five years for the companies that were considered as small companies before 31 December 2016.

Executive Order 1915 of 2017: Payment of CIT by investments in civil works

The Colombian tax legislation now has a dual regime:

Former regime: Applicable up to 30 June 2019

Taxpayers with gross income in the year equal to or greater than TVU 33,610 (COP 1.220.311.880 for FY 2020) may choose to pay their income tax through civil works.

Two modalities are foreseen: (i) destination in civil works up to 50% of the income tax charged in the taxable year, and (ii) investment as discount in cash payment of the income tax.

Destination in civil works up to 50% of the income tax

Through this modality, the taxpayer will make a direct investment of the tax charged for the execution of viable and prioritised projects of social importance in the different municipalities located in the areas most affected by the armed conflict.

Investment as discount in cash payment of the income tax

This modality consists of investing with the taxpayer's own resources in investment projects of social importance in the different municipalities located in the areas most affected by the armed conflict, whose value exceeds 50% of the income tax charged in the respective period. 

The projects for this modality should aim to provide infrastructure for the supply of drinking water, sewerage, energy, public health, public education, and the construction and/or repair of road infrastructure in the municipalities defined as areas most affected by the armed conflict. 

For purposes of establishing the projects that can be used as payment of CIT by investment in civil works, the National Government will publish through the Territorial Renewal Agency (ART) a bank of projects that may be selected by the taxpayers. Additionally, taxpayers may submit their own projects, which must be approved by the ART.

New regime: Applicable from 1 July 2019

The nature of the facility changes, as it will not be a payment mechanism for the performance of civil works, but an agreement signed by a public entity with the taxpayer for the realisation of civil works in the territories most affected by the Colombian armed conflict.

Such agreement will allow the taxpayer to receive negotiable instruments to pay up to 50% of the income tax of the taxpayer conducting the civil work. 

This regime will be applicable for taxpayers reporting gross income equal to or higher than TVU 33,610 (COP 1.220.311.880 for FY 2020).

Bear in mind that the agreements will not trigger WHT or self-withholding obligations.

The benefits of such regime are incompatible with other tax benefits, such as:

  • Taking the VAT paid in the acquisition of productive fixed assets.
  • In the case of enterprises devoted to production and exploration of mineral and hydrocarbons, as well as large taxpayers devoted to harbor activities, the benefit cannot be applied upon projects in development of their business reason.

Massive investments benefits (MEGAINVERSIONES)

A preferential tax regime is applicable for taxpayers that (i) create at least 250 jobs and (ii) make investments in property, plant, or equipment for no less than over approximately USD 320 million. Eligible taxpayers prerogatives include:

  • Reduced income tax rate of 27%.
  • Ability to depreciate over two years.
  • Absence of presumptive taxable income (albeit this system is to disappear in 2021).
  • No dividend tax (equalisation tax, where applicable, to apply at 27%).
  • No equity tax.
  • If the investment is performed through Colombian-based entities or PEs, the following rules regarding tax on dividends:
    • If the dividends arise from profit on which the entity that plans to distribute them has already paid taxes, they won't be subject to any additional taxation.
    • If the dividends arise from profit on which taxes have not already been paid, they will be subject to income tax at a 27% rate.
  • Ability to enter into a stability agreement to ensure protection of these prerogatives against changes. Regarding this matter, the following rules must be applied
    • The stability will apply only over the tax benefits related to the investment.
    • The process will be held before the Ministry of Commerce and Industry.
    • The taxpayer must pay a fee corresponding to 0.75% of the yearly investment, which cannot be lower than UVT 30 million (COP 1.089.240.000.000 for FY 2021) at any case.

The preferential tax regime is to apply for over 20 years for investments made prior to 2024. Government recognition on the project is required. Out of scope are extractive industries, infrastructure projects, as well as projects for construction and operation of FTZs.