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 This benefit has been repealed as of 1 January 2018 but is still in effect for those that qualified prior to 1 January 2018.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.

Tax credit for certain investments

A 30% tax credit is available for investments made in certain scientific and/or technological projects or in professional training projects of governmental, public, or private institutions.

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 before December 2022 will only survive for the term of the initial qualification. New qualifications will be subject to an export-oriented plan to be submitted for approval by the government.

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

Civil works for taxes is a mechanism introduced in the 2016 Tax Reform through which income taxpayers may fulfil their income tax payment by executing works or public investment projects of social significance.

This mechanism entails direct execution of the works by taxpayers, under the supervision of the public sector. Supervision begins from project formulation to execution and final receipt, with constant oversight from the National Planning Department and the Territory Renewal Agency (ART).

This payment mechanism allows for project execution using tax resources while bypassing the usual flow of money through state entities. Instead, it is administered and executed under the responsibility of a private company to fulfil its tax obligations.

This mechanism enables direct investment of tax into infrastructure projects, tertiary roads, public education, water supply and sanitation, educational infrastructure repair, productive infrastructure (agriculture), digital connectivity, school supplies, climate change mitigation, among others, in the Most Affected Areas by Armed Conflict (ZOMAC) and Territorially Defined Development Areas (PDET).