Expert Analysis: Colombia’s Tax Reform 2.0 – What’s In It?

Yesterday, Colombia’s Minister of Finance, José Manuel Restrepo (above) presented the full text of the new tax reform bill that will begin to be debated in Colombia’s congress along with a message of urgency due to the fiscal deficit of the country. The bill is expected to be passed quickly since there are articles that would enter into force as soon as November first of this year.

One of the aspects that the reform as presented would modify is the corporate tax sector since the general income tax rate will be increased to 35% from taxable year 2022, without specifying whether or not it will have a limit of application or its permanence. For financial institutions that generate a taxable income higher than 120,000 UVT, the rate will be increased by three points, raising the rate to 38%.

The UVT, or Tax Value Unit is a measure used in Colombia to calculate tax obligations. It is readjusted annually based on the consumer price index. For 2021 the UVT is $36,308 Pesos.

Another aspect is the normalization tax complementary to income tax. This 17% tax would be reincorporated with the purpose of normalizing omitted assets or nonexistent liabilities, and would be in force for the year 2022. During 2021 an advance payment of 50% must be made.

An incentive for the generation of new jobs is created, which will allow financing labor costs such as social security and parafiscal payments (mandatory employee benefits), and which will be aimed at employers that generate new jobs by hiring additional workers. In addition, in order to reactivate the economy and support companies affected by the national strike, the government will grant employers, legal entities, individuals, consortiums, temporary unions and autonomous patrimonies a state contribution to contribute to the payment of labor obligations for the months of May and June 2021.

Regarding the sales tax, the rules of the three days without VAT would be modified, but the ministry proposes to allow purchases with cash, taking into account that in the most recent days the benefit only applied to electronic purchases.

The novelty is that, in order to establish the commercial value of real estate, notaries will have at their disposal a system created by the DIAN (Colombia’s tax authority) where they will be able to geo-reference the property to establish its value.  The National Administrative Department of Statistics (DANE) has a new task. It will have five months to complete a study, together with the land registry (IGAC) Instituto Geográfico Agustín Codazzi starting November 1, 2021, to develop and publish the mentioned study required for the valuation of real estate for its commercialization.

Humberto Rodríguez G. is an accountant, lawyer, partner, and general manager of Rodríguez Asociados Abogados y Contadores SAS. The proven Medellín-based firm has experience providing advisory services on a broad range of matters, including general business, corporations, contracts, investments, employment, finance, and taxation. For more information, connect with Rodríguez through the firm’s website, Facebook, or email at mailto:[email protected].

Photo courtesy Minhacienda