In Colombia, there are both national and regional taxes. National taxes (income, VAT, excise) apply to all individuals or legal entities with fiscal residency in the country. Regional taxes (industry and commerce, property) are determined by each department or municipality within the parameters established by law.
In order to determine income tax on the value of assets, liabilities, equity, income, costs and expenses, taxpayers are required to maintain accounting records. Taxpayers shall apply recognition and measurement systems, in accordance with the normative technical accounting frameworks in force in Colombia. The assets, liabilities, equity, income, costs and expenses must take into account the accrual accounting basis.
In practice, tax revenues are made of the receipt of resources (cash or assets) capable of increasing the taxpayer’s net equity. The Colombian peso is defined as the functional currency for tax purposes. Generally, income, costs, and expenses are realized when deemed accrued, with certain exceptions. Domestic companies and individuals resident in Colombia are taxed on their revenues, assets and capital gains obtained in the country or abroad. Companies deemed domestic are (i) incorporated in Colombia; (ii) have its main place of business in Colombia; or (iii) have its effective place of management in Colombia.
The income tax is liquidated on an annual basis for the period between January 1st and December 31st of the relevant year. The tax may be liquidated for a fraction of a year, in particular cases, such as a company liquidation. The tax may also be liquidated for transactional periods as in the case of disposal of shares owned in Colombia by foreign investors.
Below is a brief description of the main attributes of the Colombian tax system:
1. Income and Occasional Gains tax
National tax levied on profits derived from a company’s ordinary operations. Occasional gains tax is complementary to the income tax and is levied on profits derived from activities not included in ordinary operations. The income tax is 32% for 2020 and occasional gains is 10%. Free trade zones users (with the exception of commercial users) is 20%.
2. Value Added Tax (IVA)
VAT generating events are: Sales of movable and immovable tangible goods that have not been expressly excluded. Sale or transfer of rights in intangible assets, solely associated with industrial property. Render of services in Colombia or from abroad when the beneficiary is located within national territory, unless expressly excluded. The import of movable tangible goods that have not been expressly excluded. The circulation, sale or operation of games of chance, with the exception of lotteries and games of chance operated exclusively through internet. Three rates based on types of goods or services: 0%, 5%, and 19%.
3. Consumption tax
Levies new or used, provision of mobile telephone services, internet and mobile navigation, and data service, the sale and importation of vehicles, and the service of selling food and drinks prepared in restaurants, cafeterias, self-services, ice cream parlors, fruit shops, bakeries for consumption on the same spot, to be carried by the buyer or delivered at home, food services under contract, and service of selling food and alcoholic beverages for consumption in bars, taverns and nightclubs. Rates are 2%, 4%, 8% and 16%.
4. Industry and Commerce Tax
Tax on industrial and commercial activities, or services rendered in municipal or district jurisdictions by a taxpayer with or without a commercial establishment. This tax is determined and collected by the corresponding local authorities. From 0.2% to 1.4% of company income
5. Dividend taxation
Profits are taxed at the level of the company or permanent establishment. This tax will only apply for distributions of dividends obtained as of 2017 and not decreed as of December 31, 2018. Dividends that are paid to domestic entities will be taxed at a rate of 7.5%. This withholding tax will be credited by the resident individual or foreign entity (beneficial owner) of the dividends. Dividends paid to foreign legal entities arising from profits that were not subject to taxes at the level of the company distributing them, would be first subject to a 32% income tax for 2020, and then subject to a 10% income tax, namely an effective rate of 38.80%.
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