Corporate income tax (CIT)
National companies (i.e. incorporated in Colombia under Colombian law) are taxed on worldwide income. Foreign non-residents are taxed on their Colombian-source income only. The current general CIT rate is 32% for FY 2020, it will decrease to 30% in 2022 in a progressive way (31% for FY 2021). This rate is applied upon taxable income.
Taxable income is generally defined as the excess of all operating and non-operating revenue over deductible costs and expenses. The customary costs and expenses of a business are generally acceptable as deductible expenditure for CIT purposes, provided they are necessary, reasonable, and have been realised during the relevant tax year under the accrual or cash method of accounting, as the case may be.
The current general capital gains tax rate is 10%.
Qualifying businesses located in Free Trade Zones (FTZs) enjoy a reduced rate of 20% (while subject to capital gains tax at 10%, where applicable).
Worldwide income earned by non-resident entities that is attributable to branches and PEs will be taxed at 32% for FY 2020 or 10%, depending on whether the income is to be treated as ordinary income or capital gain.
Minimum presumptive tax
CIT payers are required to pay a minimum amount of income tax, which is determined based on the presumptive income method. Under this method, presumptive taxable income is measured at 0.5% of net equity as of 31 December of the previous year, in accordance with the information provided by the taxpayer on such year’s CIT return. However, the presumptive tax is phasing out, as the 0.5% rate will be applied in FY 2020, but the rate will be 0% as of FY 2021.
The nominal CIT rate is then applied to the greater of regular taxable income (revenue less allowable costs and expenses) or presumptive taxable income (exempting certain business activities).
In order to determine the taxable base for presumptive income purposes, it is necessary to subtract from the total amount of net assets, which is the base to calculate presumptive income, the following amounts:
- The net asset value of the shares owned in national companies.
- The net asset value of the assets affected by force majeure.
- The net asset value of assets associated with operations in unproductive periods.
- The net asset value of assets destined exclusively to sport activities of social clubs or sport clubs.
Each year, taxpayers must compare the value resulting from the application of the foregoing two systems. The income tax for the taxable year will be calculated on the higher value resulting from this comparison. If presumptive income is higher than the ordinary net income, the difference constitutes an excess of presumptive income, which can be carried forward (adjusted for inflation) to any of the following five taxable years and offset against the net income determined by the taxpayer.
Income tax for equality (CREE)
CREE was repealed with the tax bill of 2016; nevertheless, there are some minimum base excesses (CREE taxable income less CREE minimum base) that can be offset during FY 2017 and following years, respecting a cap of five years from the moment in which the excess was generated. CREE tax losses can also be offset during FY 2017 and following years without a time limitation.
Stability Agreement Regime
As of 1 January 2013, the Legal and Tax Stability Framework was repealed. Applications under consideration will be grandfathered and approved if they meet the applicable requirement. Any already executed Legal Stability Agreements will continue to apply until expiration.
Local income taxes
In addition to CIT, there is a local (municipal) tax, known as industry and trade tax. For more information, see Industry and trade tax in the Other taxes section.