Colombia Introduces Major Tax Reforms

The Colombian Government has recently introduced various measures which include new individual income tax, corporate tax, VAT and consumption tax provisions, and has redefined the permanent establishment rules for corporate.

Sunnyvale, CA (prHWY.com) March 8, 2013 - The most significant new regulations are summarized under the following headings:

Individual Income Tax

* A new simplified minimum tax introduced: The IMAS (impuesto mínimo alternativo simple) is applicable for resident employees having annual gross income lesser than 4,700 Tax Units (UVT). This provision is a substitute to the IMAN, as a separate tax rate slab is used to impose IMAN.
* A new minimum tax introduced: The IMAN (impuesto minimo alternativo nacional) is a progressive flat tax based on the amount of income derived. The presumptive minimum income currently calculated at 3% on a taxpayer's net tax worth has been abolished.
* Exemptions on contributions to voluntary pension funds: With up to 30% of the employment income or general income per annum exempted in case the following conditions are satisfied:
i. The collected amount is not withdrawn within a 20-year period (increased from the current time limit of 5-years), or
ii. The amount is used for the buying a permanent home.

Corporate Income Tax

* Corporate income tax rate reduced: For companies and non-resident companies generating income through a permanent establishment, the rate of corporate income tax is reduced to 25% from 33%.
* A new domestic definition introduced: for resident companies and dividends.
* In addition, a new provision of CREE (impuesto sobre la renta para la equidad), fair tax, introduced: CREE is allocated on income generated by permanent establishments in Colombia of non-resident companies and resident business entities. The tax rate is 9% on taxable income for taxable years 2013, 2014 and 2015; and the same reduced to 8% from 2016. It should be noted that the CREE tax payer would be exempted from the payroll fees accrued on wages and labor payments.
* Changes to business reorganization provisions which are applicable in the case of mergers, spin-offs and capital contributions remain unaltered for income tax purposes, provided certain conditions are satisfied.

VAT

* The applicable VAT rates number reduced from seven to three i.e. instead of the rates of 0%, 1.6%, 10%, 16%, 20%, 25% and 35% only the following rates would apply 0%, 5% and 16%.
* The items subject to VAT at the rates of 20%, 25% or 35% have been consolidated to the 16% VAT rate and plus an excise tax would also apply.
* It should be noted that changes to the business reorganization provisions that are effective in case of mergers, spin-offs and capital contributions remain neutral for VAT purposes, provided certain conditions are satisfied.

Consumption Tax

New consumption tax has been introduced; the tax rates are as follows:
* Mobile phone services - 4%
* Restaurant services - 8%
* Sale of certain goods like yachts, boats and motorcycles - 8%

Other Important Provisions:
* Anti-avoidance: New general anti-avoidance rules introduced to reduce offensive forms and agreements, cases which fall short of economic substance or business rationale. Thin-capitalization rules have also been prescribed.
* Capital gains: For both residents and non-residents the tax rate reduced from 33% to 10%.
* Income tax credit: If certain requirements are met, the foreign tax paid on dividends that are received by residents may be entitled to a full tax credit.
* Permanent Establishments: Introduction of a new domestic definition of PE.

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Categories: Business

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