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Colombia

General Information

Country Name: Republic of Colombia
Currency: Colombian Peso (COP)
Primary Tax Authority: National Tax and Customs Directorate (DIAN)

Key Legislation

  • Constitution of 1991: Establishes the basic principles of taxation, including the powers and responsibilities of various levels of government.
  • Tax Statute (Estatuto Tributario): Governs the national tax system, including income tax, VAT, and other taxes.
  • Law 1943 of 2018: Introduced significant tax reforms, including adjustments to income tax rates and VAT.
  • Law 2010 of 2019: Includes provisions for tax administration and incentives for investment.
  • Law 2155 of 2021: Contains provisions related to fiscal reforms and tax administration improvements.

Fiscal Authority Allocation

Colombia has a centralized tax system with the National Tax and Customs Directorate (DIAN) handling most tax collection, while local governments have certain taxing powers.

Taxes Collected by Central Authorities:

  • Personal income tax (PIT)
  • Corporate income tax (CIT)
  • Value-added tax (VAT)
  • Wealth tax
  • Customs duties

Taxes Collected by Local Authorities:

  • Property tax
  • Industry and commerce tax
  • Vehicle tax
  • Local fees and charges

Revenue Sharing Mechanisms:

Local governments receive a share of national tax revenues through various transfers and subsidies, including from the national government’s general revenue.

Corporate Income Tax (CIT)

  • Standard CIT Rate: 30% on corporate profits.
  • Reduced CIT Rate: 20% for companies in the Free Trade Zones.
  • Tax Incentives: Various incentives are available under the Free Trade Zone regime, including reduced CIT rates and exemption from VAT on certain inputs.
  • Loss Carryforwards: Losses can be carried forward for up to 12 years. Carrybacks are not allowed.

Value-Added Tax (VAT)

  • Standard VAT Rate: 19% on most goods and services.
  • Reduced Rate: 5% on certain goods and services, such as basic food items.
  • Exemptions: Certain goods and services, including exports and education, are exempt from VAT.
  • Refunds: VAT refunds are available for certain eligible businesses and for exports.

Personal Income Tax (PIT)

  • Progressive Tax Rates: Rates range from 0% to 39%. The top rate applies to income exceeding COP 5,000,000,000 annually.
  • Tax-Free Threshold: Income up to COP 1,092,000,000 annually is tax-free.
  • Allowances: Various personal allowances are available, including for dependents and specific expenses.
  • Dividends: 10% withholding tax on dividends.
  • Capital Gains: Capital gains are taxed at 10%.

Additional Mandatory Contributions

Social Security Contributions:

  • Total Contribution Rate: Approximately 30% of gross salary, shared between employer and employee.
  • Employer Contribution: 16.5% for health, pension, and other insurance.
  • Employee Contribution: 13.5% for health, pension, and other insurance.

Contribution Thresholds:

Contributions are calculated up to a ceiling adjusted annually.

Tax Deductibility:

Social security contributions are deductible for income tax purposes.

Withholding Taxes

  • Dividends: 10% withholding tax on dividends paid to residents and non-residents.
  • Interest: 15% withholding tax on interest payments.
  • Royalties: 20% withholding tax on royalties paid to non-residents.
  • Service Fees: Payments for services provided by non-residents are subject to a 20% withholding tax.

Transfer Pricing Rules

Colombia follows the OECD guidelines for transfer pricing. Companies must maintain documentation for related-party transactions and adhere to the arm’s length principle.

Special Tax Regimes

  • Free Trade Zones: Companies operating in Free Trade Zones benefit from reduced CIT rates and VAT exemptions.
  • Investment Incentives: Tax incentives are provided for investments in certain priority sectors and regions.

Other Taxes

  • Wealth Tax: Imposed on individuals and entities with net wealth exceeding certain thresholds, with rates ranging from 1% to 2%.
  • Property Tax: Levied on property owners based on property value.
  • Customs Duties: Applied to imported goods, with rates varying based on the product.

Double Taxation Agreements (DTAs)

Colombia has signed 16 DTAs to avoid double taxation and provide reduced withholding tax rates on dividends, interest, and royalties.

Compliance and Reporting

  • Corporate Tax Filing Deadline: Corporate tax returns must be filed annually, with specific deadlines based on the company’s tax identification number.
  • VAT Filing: VAT returns are filed monthly.
  • Personal Income Tax Filing: PIT returns are due annually.
  • Penalties for Non-Compliance: Penalties for late filing or underpayment of taxes include fines and interest on unpaid amounts.

Recent Developments

  • Tax Reform Initiatives: Colombia continues to implement reforms under the Tax Reform Law 2155 of 2021 to improve tax administration and compliance.
  • Digital Taxation: Efforts to enhance digital tax collection and administration are ongoing, particularly in e-commerce and digital services.
  • Fiscal Consolidation: The government is working on fiscal consolidation measures to address budget deficits and improve tax revenue collection.

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