Through the enactment of Law 1739 of December 23rd, 2014, the Colombian Tax Code was modified and certain mechanisms were created in order to avoid tax evasion.
Below are the most relevant issues of the new Tax Reform:
Taxpayers: Individuals and companies that are income tax taxpayers, as well as individuals that do not have a residence within Colombia and companies in relation to their wealth that is possessed directly or indirectly within the country are subject to the payment of this tax.
Furthermore, entities currently being liquidated, or that have signed restructuring agreements and individuals that are undergoing a bankruptcy process are exempt from the payment of this tax.
Taxable event: The possession of wealth (gross equity less debts) equal or greater than COP $1.000 million pesos as of January 1st, 2015, 2016 and 2017.
Tax base: Gross equity, determined as of January 1st 2015, 2016 and 2017, less the current debts held as of that moment.
If the tax base determined in years 2016 and 2017 is higher than the one determined in 2015, the tax base will be the 2015 wealth (gross equity less debts) increased by 25% of the inflation of the previous year to the one in which the tax is being paid. If the tax base determined in years 2016 and 2017 is lower than the one determined in 2015, the tax base will be the 2015 wealth (gross equity less debts) diminished by 25% of the inflation of the previous year to the one in which the tax is being paid.
Courtesy of Oscar Jiménez, whose contact information is provided below.
The taxable base can only be reduced with the exclusions expressly established by law. i.e. The net tax value of the investment (shares) in national entities as of, January 1 2015, 2016 and 2017.
Rate: The rate will vary, depending upon the nature of the taxpayer and its taxable base, as follows:
For entities – 2015:
For year 2015: Taxable base range in pesos: 0 – 2,000,000,000 Tax rate 0.20%. 2,000,000,000 – 3,000,000,000 Tax Rate 0.35%. 3,000,000,000 – 5,000,000,000 Tax rate 0.75%. Over 5,000,000,000 Tax Rate 1.15%.
For year 2016: Taxable base range in pesos: 0 – 2,000,000,000 Tax rate 0.15%. 2,000,000,000 – 3,000,000,000 Tax Rate 0.25%. 3,000,000,000 – 5,000,000,000 Tax rate 0.50%. Over 5,000,000,000 Tax Rate 1.00%.
For year 2017: Taxable base range in pesos: 0 – 2,000,000,000 Tax rate 0.05%. 2,000,000,000 – 3,000,000,000 Tax Rate 0.10%. 3,000,000,000 – 5,000,000,000 Tax rate 0.20%. Over 5,000,000,000 Tax Rate 0.40%.
For individuals – 2015:
For years 2015, 2016, 2017 and 2018:
For year 2017: Taxable base range in pesos: 0 – 2,000,000,000 Tax rate 0.125%. 2,000,000,000 – 3,000,000,000 Tax Rate 0.35%. 3,000,000,000 – 5,000,000,000 Tax rate 0.75%. Over 5,000,000,000 Tax Rate 1.50%.
The legal obligation to pay this tax arises, on January 1st, of each year.
Finally, the tax paid for wealth tax or for its complementary of fiscal normalization tax may not be deducted for income tax nor income tax for equality – CREE purposes, nor may these taxes be offset with any other taxes.
MODIFICATIONS MADE TO THE INCOME TAX FOR EQUALITY – CREE
- From 2016 on, the rate will be 9%
- Tax losses determined as of 2015 and on can be offset with the CREE tax due, as well as the minimum base excesses when the CREE tax due is determined upon this method.
- It is clarified that the tax credit for taxes paid abroad may also be used for CREE purposes.
- Neither the CREE tax due nor its surcharge, may be offset with balances in favor determined by taxpayers on their tax returns corresponding to different taxes.
A surcharge to the CREE tax is created for years 2015, 2016, 2017 and 2018 for the CREE tax taxpayers. The taxable event of this surtax consists upon the possession of a net income greater than COP 800.000.000.
The tax rate of the CREE Surcharge will vary from year to year, as follows:
For 2015: Taxable base range in pesos 0 – 800,000,000 Tax rate 0%. Over 800,000,000 Tax rate 5.0%
For 2016: Taxable base range in pesos 0 – 800,000,000 Tax rate 0%. Over 800,000,000 Tax rate 6.0%
For 2017: Taxable base range in pesos 0 – 800,000,000 Tax rate 0%. Over 800,000,000 Tax rate 8.0%
For 2018: Taxable base range in pesos 0 – 800,000,000 Tax rate 0%. Over 800,000,000 Tax rate 9.0%
This surcharge will be subject to an advance payment of 100% of the value of the same, calculated on the tax base of the taxpayer whom assessed said tax on the immediately previous taxable year. This payment in advance must be paid in two yearly installments within the deadlines set forth by the National Government.
MODIFICATIONS MADE TO THE INCOME TAX
Residence for tax purposes: The nationals that meets the following requirements will not be deemed as Colombian Tax Residents:
- More than 50% of their annual income is foreign source income, and
- More than 50% of their assets are located abroad, in the jurisdiction on which they are domiciled in.
Tax rate for foreign entities: The income obtained by legal entities which cannot be attributed to a branch or permanent establishment in years 2015 – 2018, will be subject to the payment of the income tax at the following rates:
FY 2015 39%, FY 2016 40%, FY 2017 42% and FY 2018 43%.
Tax credit: Both the wording and the formula contained within the Colombian Tax Code was modified in regards to the manner by which the tax credit can be applied for income tax and CREE purposes on taxes paid abroad.
Minimum Simple Alternative Tax (IMAS) on employees: The threshold for the application of the IMAS was reduced. As a consequence, this tax will be applicable on individuals that are Colombian residents and that have obtained gross income lower than 2,800 UVT and a net equity lower than 12,000 UVT.
MECHANISMS TO FIGHT AGAINST TAX EVASION:
Complementary tax on the wealth tax for Fiscal Normalization
A complementary tax to the wealth tax is created for taxable years 2015, 2016 and 2017 for assets or non-existing liabilities located abroad which have not been informed by the taxpayer. In this sense, the following should be taken into account:
-By non-declared asset is understood as those assets which have not been included within the national tax returns of the taxpayers, even though they were obliged to do so.
-By non-existing liability is understood the amount declared on the national tax returns whose sole purpose consisted upon diminishing the tax burden of the taxpayer.
The tax base will be the equity value of the non-declared assets; if the assets are classified as goods, the tax base shall be determined by the acquisition value of said goods for the purpose of determining the fiscal cost of the same. The tax rate will be as follows:
FY 2015 10%, FY 2016 11,5% and FY 2017 13%
Annual return on foreign assets
As of taxable year 2015, taxpayers of income and complementary tax that own assets of any nature located abroad are liable to file an annual return on said assets.
TAX ON FINANCIAL TRANSACTIONS
The Tax Code was modified, establishing that the rate of this tax shall be of 4 x 1000 (0.04%), and will be diminished form year 2019 and on, as follows:
FY 2019 0.03%, FY 2020 0.02% and FY 2021 0.01%.
As of January 1st, 2022, this tax will be officially abolished. Furthermore, certain exemptions were established on this tax, as follows:
– Companies specializing in electronic deposits.
– Withdrawals made on savings accounts, electronic deposits or prepaid cards which do not exceed a monthly amount of 350 UVT. This exemption is only applicable to one account per holder.
-The disposition of resources for factoring operations made by investment funds, trusts or entities whose sole purpose consists of carrying out this type of operation.
In regards to the penalties imposed by the UGPP:
The term for the taxpayer obliged to pay payroll taxes to answer a special requirement is extended to three months. During this term, the taxpayer may pay or answer the special requirement. If this is not carried out within the six following months, an Official Liquidation or Penalty Resolution will be issued.
Tax, customs and exchange conciliation procedures:
The National and Customs Authority will now be able to make conciliations on processes on which there is a lawsuit for the annulment and reestablishment of the right, in which case they will be capable of conciliating the amount of penalties and interests.
Termination of administrative tax processes:
Those taxpayers which have been notified of a special requirement, official liquidation penalty, among others, can negotiate with the Tax Authority the total amount of the penalties, interests and updates, as long as the taxpayers amends its tax return and pays the 100% of the tax.
In regards to the payment of taxes, contributions, custom rates and penalties:
The taxpayers that have been subject to the imposition of penalties managed by entities qualified to raise these type of funds, and that are in default to pay the obligations corresponding to 2012 or previous taxable periods will have the right to apply for a special payment term, consisting upon the payment of the tax and the 20% of the penalties and default interests (if applied prior to May 31st, 2015) or the 40% of the penalties and interests (if applied after May 31st, 2015).
This benefit may also be applied to withholding agents that up to October 30, 2015 file their withholding tax returns in regards to taxable periods that are prior to January 1st, 2015, on which the inefficiency clause stated by the Colombian Tax Code was generated; these withholding agents will not be obliged to pay any out of date penalties nor default interests.
Tax credit on the VAT paid for the acquisition and importation of heavy machinery
The amount of the VAT paid on the acquisition and importation of heavy machinery for basic industries can be used as a tax credit on the income tax.
Tax credit on the VAT paid for the acquisition and importation of capital goods
Two points of the amount paid on the acquisition or importation of capital goods subject to the payment of the VAT at the general rate can be used as a tax credit on the income tax return of the taxpayer.
Special withholding tax on interests payments for the development of APP projects
Payments made on interests to entities located abroad, originated on credits granted for the development of infrastructure programs that have a period of time equal or longer than 9 years, and that are developed under the Law 1508 of 2012, will be subject to a withholding tax of 5%.
Thin capitalization rules on factoring operations
Thin capitalization rules will not be applicable to the taxpayers that carry out factoring operations.
This publication contains general information only and it is not professional advice. Before making any decision or taking any action that may affect your business, or you personally, you should consult a qualified professional advisor. The author is not responsible for any loss whatsoever sustained by any person who relies on this publication.