The Colombian authorities has just lately submitted a brand new tax reform to the Congress of Colombia that’s supposed to assist it elevate funds in assist of financial reactivation following the disruptions of the worldwide pandemic. The new Colombia tax reform seeks to boost roughly $15.2 billion (all figures in USD), each by rising taxation and by clamping down on tax evasion.
A earlier iteration of the reform sparked widespread public protests, forcing the federal government to revamp the laws into its present type, which sees much less of the monetary burden fall upon particular person taxpayers and extra affecting firms.
While the tax reform remains to be topic to modifications, having to go by means of each homes of Congress earlier than being enacted into regulation, the ruling Democratic Centre social gathering leads coalitions with majorities in each the Chamber of Representatives and the Senate, which means it’s unlikely that profound modifications might be sought earlier than the laws is handed.
The reform introduces a spread of measures to stimulate job creation, in addition to encouraging consumption by establishing three “VAT free days” every year for a variety of client items. However, for traders essentially the most vital modifications might be these associated to taxes and coping with international belongings.
Below, 4 points of the Colombia tax reform which are most related to traders are highlighted. Though, when you already know you want assist from an accounting firm in Colombia, or another back-office service, go forward and contact us now.
Colombia tax reform: 4 key modifications to think about
Among the measures established within the new Colombia tax reform are an increase in company tax, a so-called normalization tax supposed to beat underreporting of international belongings, a change within the definition of a useful proprietor for tax functions, and measures to forestall tax evasion. Below every is taken into account:
- Corporate earnings tax rises, stays decrease than 2017 stage
From 2022, company earnings tax (CIT) will rise to 35%, the place it at the moment sits at 32%, with bigger monetary establishments topic to an extra 3% surcharge between 2022 and 2025, taking their CIT burden as much as 38% throughout these 4 years.
However, that’s nonetheless decrease than it has been in recent times, with CIT set at 40% as just lately as 2017.
Under the brand new Colombia tax reform, the chance to cut back CIT by discounting 100% of trade and commerce tax (ICA) funds is watered down, with solely 50% of ICA paid now discountable from CIT burden.
Meanwhile, withholding tax might be slashed to 0% in 2022, from its present charge of 5%, for international portfolio investments in public or personal fastened earnings securities or monetary derivatives over fastened earnings securities.
- Normalization tax seeks to reveal undervalued belongings
From 2022, a normalization tax is launched to permit extra correct reporting amongst taxpayers who’ve beforehand under-reported international belongings or over-reported liabilities to extend reduction.
From January 1, 2022, this measure will see the elimination of constructions employed to cut back taxes through switch to entities or autos with decrease price foundation, with the relevant tax base calculated based mostly on underlying belongings.
Meanwhile, the tax foundation for non-existent liabilities might be its tax worth or the values reported in the newest earnings tax return. The relevant charge for this normalization tax might be 17%.
Taxpayers who’ve beforehand under-reported belongings or over-reported liabilities, might be given the chance to replace their belongings and liabilities, with the extra taxable base topic to the abovementioned charge.
In the occasion that belongings are repatriated and invested in Colombia, that tax base might be minimize to 50% of the omitted quantities.
- Beneficial proprietor definition tightens
The new Colombia tax reform establishes a brand new definition of useful proprietor that’s relevant for all tax functions, setting forth necessities for people to be deemed because the useful proprietor of each authorized entities and particular autos (comparable to trusts).
Under the brand new definition, based mostly on suggestions issued by the Financial Action Task Force (FATF), the useful proprietor should be the ultimate or actual beneficiary of a given entity. If no particular person is recognized as taking part within the share capital or having management of the entity, a legal representative should be named.
A technique of Registration of Beneficial Owner (RUB) might be established and overseen by the Colombian tax authority, DIAN.
Failure to adjust to this registration course of, or failure to take action appropriately, will lead to doubtlessly hefty penalties established underneath Article 658-3 of Colombia’s Tax Code.
- New mechanisms introducted to fight tax evasion
In an effort to fight tax evasion, a lot of measures are being launched as a part of the brand new Colombia tax reform. Those embody the obligatory use of a DIAN-managed georeferencing system by Public Notaries to be able to precisely decide the industrial worth of actual property.
The reform additionally gives the DIAN with the chance to register people who’re — based mostly on obtainable data acquired from specified authorities registries — topic to tax obligations.
It additionally establishes an enforceable billing system that stipulates sure paperwork that taxpayers are obliged to submit, whereas requiring the validation of the DIAN for the popularity of e-invoices.
The Colombia tax reform additionally establishes a course of by which the DIAN can pursue excellent taxes, in addition to a course of by which taxpayers can dispute perceived errors within the DIAN’s calculations, in addition to a penalty system for non-compliance.
Biz Latin Hub may help you doing enterprise in Colombia
At Biz Latin Hub, we’ve got the individuals and experience wanted to ensure your market entry and ongoing operations run easily in Colombia, or any of the opposite 17 markets round Latin America and the Caribbean the place we’ve got groups in place. With our complete portfolio of back-office options, together with accounting & taxation, firm formation, authorized companies, and tax advisory, we will be your single level of contact for doing enterprise within the Americas and past.
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