Colombia

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 the Colombian governmental resolutions 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 This benefit has been repealed as of 1 January 2018 but is still in effect for those that qualified prior to 1 January 2018. 
• 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 (ZESE) until 2024 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 for free trade zones (FTZs)

Starting from FY 2023, the following FTZs enjoy a special CIT rate of 20%:

• Offshore (exploration and production) companies.
• Qualified companies operating at onshore FTZs (port services, permanent FTZ dedicated to the refining of fuels derived from petroleum or the refining of industrial biofuels).
• Qualified FTZ companies providing logistic services to FTZ management entities.

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 apply to qualified FTZ companies demonstrating revenue growth of 60% in 2022 compared to that of 2019.

Note that capital gains are taxed at the standard capital gains tax rate of 15%.

Commercial users will apply the general CIT rate, which is 35%.

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 (approximately USD 327,516 in FY 2022) 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 among others authorised by the Colombian government.

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 (approximately USD 327,516 in FY 2022).

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 harbour activities, the benefit cannot be applied upon projects in development of their business reason.