Colombia Capital city: Bogota Aera: 1,138,910 km 2 Population: 46,260,000 Language: Spanish Political system: Presidential republic GDP/capita 2015: USD 6,056 Currency: Colombian Peso (COP) ISO Code: COL Telephone code: +57 National day: 20 July Taxes in America 89
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Colombia 1. Taxes levied on individuals Individuals who are Colombian nationals and are resident in the country and unsettled estates whose testators were resident in the country at the time of death are liable to income and complementary taxes on their income and capital gains, both from national and foreign sources, and on their assets held inside and outside the country. Individuals who are foreigners and resident in Colombia are only liable to tax on income and complementary taxes on their income and capital gains from foreign sources and on their assets held outside the country from the fifth taxable period in which they stay in the country, whether continuously or intermittently. 1.1 Residence For tax purposes, individuals who meet the following conditions are deemed to be residents in Colombia: If they stay in the country continuously or intermittently for more than one hundred eighty-three (183) calendar days, including days of entry into and departure from the country, during any period of consecutive three hundred sixty-five (365) calendar days, on the understanding that, when the continuous or intermittent stay in the country spans more than one taxable year or period, it shall be deemed that the person is resident from the second taxable year or period. If, as a result of their relationship with the foreign service of the Colombian State or with persons who are in the foreign service of the Colombian State, and in virtue of the Vienna Conventions on diplomatic and consular relations, they are exempt from taxation in the country in which they are on mission on all or part of their income and capital gains during the taxable year or period in question. If they are Colombian nationals and, during the taxable year or period in question: their spouse or permanent companion, not legally separated, or de- Taxes in America 91
pendent underage children are resident for tax purposes in the country; or 50% or more of their income is from national sources; or 50% or more of their assets is administered in the country; or 50% or more of their assets is understood to be held in the country; or having been so required by the tax authorities, they have not accredited their status of residents abroad for tax purposes; or are residents for tax purposes in a jurisdiction classified by the Colombian Government as a tax haven. 1.2 Taxes levied on non-residents Individuals, whether Colombians or foreigners, who are not resident in the country are only liable to income tax and complementary taxes on their Colombian-source income and capital gains and on their assets held in the country. 1.3 Categories of income Income is classified as: Income earned by employees Employee is understood to mean any individual resident in the country whose income comes, in a proportion of 80% or more, from the personal provision of services or personally engaging in an economic activity for and at the risk of an employer or contracting party, by means of a labor or legal and regulatory or any other kind of relationship, regardless of the name it is given. Workers who provide personal services by practicing a liberal profession or who provide technical services that do not require the use of specialized materials or inputs or specialized machinery or equipment are deemed to be in the employee category, provided that 80% or more of their income comes from engaging in said activities. Income earned by self-employed workers A self-employed worker is understood to be any individual resident in the country whose income comes, in a proportion of 80% or more, from engaging in one of the following economic activities: sports and other leisure activities; agriculture, livestock rearing, forestry and fishery; wholesale commerce; retail commerce; 92 Taxes in America
sale of motor vehicles, accessories and related products; construction; electricity, gas and steam; manufacturing of mineral and other products; manufacturing of chemical substances; food manufacturing; manufacturing of textiles, clothing and leather; mining; transport, storage and communications services; hotel, restaurant and similar services; financial services. COLOMBIA 1.4 At one s own risk An individual provides personal services at his own risk if he meets all the following conditions: assumes the monetary losses resulting from the provision of the service; assumes the responsibility for errors or failures in the provision of the service before third parties; his income from those services comes from more than one contracting party or payer, whose contracts must be simultaneous during at least one month of the taxable period; and incurs fixed and necessary costs and expenses for the provision of such services not directly related to any specific contract, with said costs and expenses representing at least 25% of total income from services earned by the person in the taxable year in question. An individual engages in economic activities at his own risk, other than the provision of personal services, if he meets all the following conditions: assumes the monetary losses resulting from carrying out the activity; assumes the responsibility for errors or failures in carrying out the activity before third parties; and his income from engaging in those activities comes from more than one contracting party or payer, whose contracts must be simultaneous during at least one month of the taxable period. Other income income from investments such as dividends, percentages from equity interests, financial yields; income from leases; income from royalties; Taxes in America 93
other income not falling within the two previous categories. Tax Rates For residents Compulsory calculation systems: Regular Tax Assessment System Minimum Alternative Tax (IMAN) System The tax to be levied is the higher value obtained from performing the calculation using the two systems. The rate is between 1.6% and 15% based on the progressive tax table. Voluntary calculation system: Simple Minimum Alternative Tax (IMAS) System. The rate is between 1.68% and 16.2% based on the progressive tax table. For nonresidents Single rate of 10% on the assessed taxable base Employees must assess their tax using the regular tax assessment system. However, tax thus assessed may not be less than the result obtained by applying the Minimum Alternative Tax (IMAN) system. Employees whose gross income in the tax year in question is less than 9,200 Tax Value Units (UVT) may assess their tax using the Simple Minimum Alternative Tax (IMAS) system. 1.5 Unearned income Taxed dividends and percentages from equity interests are established in accordance with the procedure laid down by the government. Profits from the sale of moveable assets or real property may constitute: - - Unearned income, if the fixed asset has been owned for less than two years, in which case the gain is added to ordinary unearned income; 94 Taxes in America
A capital gain if the asset has been owned for more than two years, in which case it is calculated separately. Financial yields generated on investments may have an untaxed portion, depending on the requirements established by the government. Gains from the sale of stocks quoted on the stock exchange are not liable to income tax. 1.6 Stock options plan Shares of stock handed over to employees as an incentive constitute a payment in kind and are considered as taxable income for the employee in question. 1.7 Tax returns and payment Tax returns are filed via the Internet. The deadline for filing returns and payment of tax is in August, September or October depending on the last digit of the person s identification document. Payment can be made via the Internet or through a bank. 2. Taxes levied on companies For tax purposes, companies are classified as: big taxpayers; other taxpayers. 2.1 Types of company simplified joint stock companies; limited liability companies; general partnerships; limited partnerships; corporations; joint stock companies; cooperatives (empresas asociativas de trabajo); farm partnerships. Taxes in America 95
2.2 Residence in Colombia Companies resident in Colombia are those that are legally incorporated in the country. 2.3 Taxes levied on nonresident companies Foreign companies pay income tax in Colombia on Colombia-source income and capital gains and pay tax at the same rate as Colombian companies, regardless of whether said income or gains are received directly or through branches or permanent establishments. 2.4 Branches in Colombia With respect to the foreign companies doing Business in Colombia, the law establishes that every foreign entity who want to have commercial activities in Colombia, must incorporate a branch in Colombia. However, since the law 1607 from 2012 regarding fiscal activities, it is allowed that such activities may be carried out through the incorporation of a permanent establishment. Foreign branches has to pay taxes in Colombia related to the rents and profits generated in Colombia regardless that such rents and profits are received directly from the permanent establishment. Also, the foreign branches have to file an annual income tax return, act as a withholding agents, and also file State Tax Returns for Corporate entities associated to corporations. 2.5 Calculating profit tax Regular system This system includes all ordinary and extraordinary revenue arising during the taxable year or period that was capable of producing a net increase in equity at the time it was received and that is not expressly exempt. Refunds, rebates and allowances are subtracted from that revenue to obtain net revenue. Costs incurred that can be imputed to net revenue are deducted from it to obtain gross income. Allowances made are deducted from gross income to obtain net income. Except for legal exemptions, net income is the taxable income on which the rate established by law shall be applied. The law allows certain revenues to be considered as neither income nor capital gains and other revenues are considered exempt income. 96 Taxes in America
Presumed income system COLOMBIA This is an alternative method for assessing income tax so that the taxable base is not less than 3% of net worth as at December 31 of the year immediately prior to the taxable year. In other words, presumed income is a taxpayer s minimum estimated level of profitability on which the law expects to quantify and levy income tax. Presumed income is not real income generated by the taxpayer s activity, but operates by virtue of the law (legal presumption) and in accordance with the parameters established by the law. 2.6 Income tax rates The tax rate on the taxable income of corporations, limited liability companies and other entities absorbed by either, in accordance with the pertinent rules, that are classified as domestic companies, including companies and other foreign entities of any kind that obtain their revenue through branches or permanent establishments, is 25%. Income obtained by foreign companies and entities that are not attributable to a branch or permanent establishment shall be subject to a tax rate of 33%. 2.7 Dividends Taxed dividends and percentages from equity interests are established in accordance with the procedure laid down by the government. The company s net revenue is taken and taxes generated are deducted and dividends obtained and other allowances are added. The entity certifies taxed and untaxed amounts for the shareholder. 2.8 Unearned Income Taxed dividends and percentages from equity interests are established in accordance with the procedure laid down by the government. Profits obtained from the sale of moveable assets or real properties may constitute: unearned income, if the fixed asset has been owned for less than two years, in which case the gain is added to ordinary unearned income; a capital gain if the asset has been owned for more than two years, in which case it is calculated separately. Gains from the sale of stocks quoted on the stock exchange are not liable to income tax. Taxes in America 97
2.9 Tax Returns and Payment Tax returns are filed via the Internet. The deadline for filing returns and payment of tax is in February for big taxpayers and April for other taxpayers depending on the last digit of the company s tax identification number. Payment can be made via the Internet or through a bank. Big taxpayers can pay in three installments (February, April and June) and other taxpayers in two installments (April and June). 2.10 System for Withholding Tax at Source Types of Taxes Withheld at Source Withholding tax on income at source: this is applied nationwide to the suppliers of goods or services depending on the activity engaged in. Withholding VAT (value added tax) at source: 2.4% of VAT is withheld by big taxpayers from other taxpayers who invoice VAT. Withholding theoretical VAT at source: this is applied to taxpayers filing under the simplified system, which does not charge VAT. Withholding Industry and Commerce Tax (ICA) at source: this is applied to the suppliers of goods and services, depending on the activity engaged in, in municipalities whose tax law so provides. 3. Value added tax 3.1 Principles This tax is levied on: The sale of tangible moveable goods that have not been expressly excluded The provision of services throughout Colombian territory The importing of tangible moveable goods that have not been expressly excluded The circulation, sale or operation of games of chance, except lotteries Goods and services are classified as taxed, excluded or exempt. The exporting of goods does not give rise to value added tax. 3.2 VAT Rates The general rate is 16%. 98 Taxes in America
There are several differential rates from 1.6% to 35%. COLOMBIA 3.3 VAT returns and payment of VAT Taxpayers file VAT based on the level of revenue obtained in the immediately preceding year either six-monthly, quarterly or yearly. 4 Asset transfer tax Inheritances, legacies, donations of moveable assets and real properties constitute capital gains for the beneficiary. The rate is 10% on the taxable capital gain. Taxes in America 99
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