GPG DB T Columbia

Columbia
Copyright Lex Mundi Ltd. 2010
Tax Desk Book

COLOMBIA
Brigard & Urrutia
CONTACT INFORMATION
Jose Andres Romero
Brigard & Urrutia
Calle 70 No. 4 - 60
(571) 540 54 33
jromero@bu.com.co
www.brigardurrutia.com.co
Introduction
1. Please give a brief overview of the types of taxes imposed in your jurisdiction
(i.e., direct and indirect taxes and their components.)
The Colombian Tax Regime establishes national and local taxes. The main national
taxes are: (a) income and capital gains tax; (b) value added tax (VAT); (c) equity tax,
(d) stamp tax; and (e) bank debit tax. On the other hand, the main local taxes are: (a) the
tax on industrial and commercial activities; (b) billboard tax; (c) real estate tax and; (d)
registry tax.
On the following lines, we will provide a brief outline of each one of said Colombian
taxes.
National Levied Taxes
a) Income tax
Income tax is a national tax levied on the basis of ordinary and extraordinary income
obtained during a taxable year.
2100 West Loop South, Ste. 1000 Houston, Texas 77027 USA Tel: 1.713.626.9393 www.lexmundi.com
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Although considered a single tax, income tax has two components: i) income tax and
ii) capital gains tax. While income tax is levied on the basis of ordinary income,
capital gains tax is levied on occasional income obtained by taxpayers. They are both
included in an annual income tax return and subject to the same 33% rate, but each is
determined separately, so that ordinary costs, deductions and net operating losses are
applied exclusively to ordinary income, and occasional costs, deductions and losses
are applied to occasional income.
Additionally, please note that Colombian Tax Law provides a Minimum Presumptive
Income System. Said system is an alternative method to calculate income tax, under
which the tax base shall not be less than the 3% of the taxpayers net worth as of
December 31st of the immediately prior fiscal year. This system supposes a
minimum profitability likely to be taxed. As a consequence, this system is not based
on actual income earned by the taxpayer. On the contrary, it is a legal presumption
whose result is given by the statutory parameters.
b) Sales tax (VAT)
VAT is a national tax levied on the sale of tangible movable goods and the provision
of services within Colombian territory, as well as on the import of tangible movable
goods, unless expressly excluded from said tax.
Being a tax over added value, it allows taxpayers to credit input VAT against output
VAT, provided that the former was levied on goods and services used in the
production or manufacture of taxable goods and services.
c) Equity tax
For fiscal year 2011, corporate and individual income taxpayers who are compelled
to file income tax return and whose net assets (assets minus liabilities) as of January
1st, 2011 add up to COP $3,000,000,000 (approximately US$ 1,578,947 1) are
required to also pay the equity tax.
Additionally, the Government through a Legislative Decree issued during a State of
Economic, Social and Ecological Emergency, imposed a surtax of 25% for such
taxpayers.
Likewise, the Government created a special equity tax for taxpayers with net assets
below the amounts established in the current law. Like the current equity tax, the
special equity tax was triggered once and only once as of January 1st, 2011 and to the
taxpayers who as of January 1st met the requirements set in the law.
Please bear in mind that the exchange rate use hereunder was USD 1/COP 1,900.
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The following table summarizes the thresholds and the applicable rates:
Tax base (Net assets)
Rate
Net assets above USD 2,770,082
4.8% (+25% surtax)
Net assets between USD 1,662,049 and USD

2,770,081
Net assets between USD 1,108,033 and USD
1,662,048
Net assets between USD 554,015 and USD
1,108,032
2.4% (+25% surtax)

1.4%
1%
The tax base of this tax is constituted by the value of the taxpayers net assets
possessed as of January 1st, 2011, excluding the net value of shares held in
Colombian companies, as well as the first COP $319,215,000 (approximately USD
168,008) of the value of the taxpayers house of residence (in the case of
individuals). The date of accrual of the tax is January 1st, 2011 (just one time).
Equity tax is neither creditable nor deductible from income tax and it may not be
offset against any other taxes due and payable. Nonetheless, the law authorizes
taxpayers to charge this tax against the asset revaluation account, without affecting
the income statement of the year.
d) Stamp tax
Stamp tax is a documentary and immediate national tax, accrued on public
instruments or public documents that create, modify or extinguish monetary
obligations to be performed in Colombia. Since 2010, the stamp tax rate is 0%. .
e) Debit tax - Tax on financial transactions
The financial transactions tax is a permanent tax, payable instantaneously at the time
of any financial transaction through a saving or checking bank accounts, cashiers
checks or deposit account in the Central Bank (Banco de la Repblica) or through
any accounting entries that involve or imply the payment of obligations. The tax is
payable on the amount of the financial transaction.
The tax rate is 0.4% of the total amount of the financial transaction. From 2014 to
2017 the applicable rate will progressively be reduced. In 2018 this tax will be
permanently repealed.
From 2013 to 2018, 50% of the total tax paid is deductible for income tax purposes,
regardless of whether the transactions have a causal nexus with the income
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producing activity of the taxpayer. For years 2011 and 2012 the 25% of the GMF
paid is deductible for income tax purposes.
This financial transactions tax is collected through a withholding mechanism, and the
withholding agents are either the Central Bank (Banco de la Repblica), any of
other financial entities subject to oversight of the Finance Superintendence
(Superintendencia Financiera) or the Cooperatives Superintendence
(Superintendencia de Economa Solidaria) where the respective checking account,
savings account, deposit account or collective portfolio are held, or where the
accounting transactions that imply the transfer or disposal of resources are booked.
It should be noted that the law establishes a series of financial operations and
transactions that are exempted from this tax.
Local Levied Taxes
a) Industry and commerce tax
The industry and commerce tax is a sub-national (municipal) level or local tax that is
imposed on revenue generated from the exercise of industrial, commercial or service
activities that are carried out directly or indirectly by individuals, legal entities or
unincorporated entities in any of the Colombian municipal jurisdictions.
The tax base of this tax is constituted by the gross income generated by the taxpayer,
minus any permitted deductions, exclusions, and certain other values.
The rate of this tax is defined by each municipality within the limits set forth by law.
Currently, the rates are as follows: from 0.2% to 1% (notwithstanding, in some
municipal areas may be found higher rates).
b) Supplementary Billboard Tax.
The Supplementary billboard tax is sub-national (municipal) or local tax, assessed in
addition to the industry and commerce tax. This specific tax is triggered by the
placement of billboards in public spaces. This tax is imposed on any persons or
companies engaged in industrial, commercial and service activities in the municipal
jurisdictions that use the public space to advertise their business through billboards.
The tax base is the industry and commerce tax liability. The applicable rate changes
depending on the jurisdiction the rate shall not be higher than 15%-.
c) Real Estate Tax
The real estate tax is imposed on real property located in urban, suburban or rural
areas, whether or not constructed land. Therefore, the property tax payers are the
owners or holders of the real property.
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The real estate tax base is the estates official appraisal. Nonetheless in zones such as
the Capital District of Bogota, the tax base is the value of the property as appraised
by the taxpayer directly.
The applicable rate depends on the nature of the property, namely whether it is rural,
urban or suburban, and varies between 0.4% and 3.3%, taking into account the
economic use of each property.
This tax is 100% deductible for income tax purposes, as long as there is a direct
relation with the income producing activity of the taxpayer.
d) Registry Tax
The registry tax is levied on any acts, contracts or business set forth in documents
that require a registration with the Chamber of Commerce and the Public Registry
Office (Oficina de Registro e Instrumentos Pblicos).
The tax base is the value referenced in the document that describes the act,
agreement or judicial contract. In the case of documents that do not have a stated
value, the tax base is given by the nature of such documents.
- Acts, agreements, or judicial contracts with a stated value subject to registration
with the Offices of Public, between 0.5% and 1%.
- Acts, agreements, or judicial contracts with a stated value subject to registration
with the Chambers of Commerce will trigger a tax rate between 0.3% and 0.7%.
- Acts, agreements, or judicial contracts without a stated value that are subject to
registration either with the Office of Public Instruments or Chambers of
Commerce will trigger a tax rate between two and four minimum daily wages.
Some examples of documents without a determined value include: naming acts,
name changes, statutory bylaws addendums (not including increase of capital and
mergers), liquidation of companies, etc.
Examples of acts with determined value include the following: company
incorporation, increase of social capital and increase of the subscribed capital,
transfer of quotas, sale of commercial establishments, liquidation of companies, etc.
When acts, agreements, or judicial contracts must be registered both with the Public
Registry Office and the Chambers of Commerce, the tax must be paid only once at
the Public Registry Office.
When a document is subject to registry tax, stamp tax will not be triggered.
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INCOME TAXES AS APPLIED TO BUSINESS ENTITIES AND INDIVIDUALS

Calculation of Income/ Profit Taxes
2. How is the taxable base determined?
In principle, the regular system includes all ordinary and extraordinary income earned
during the fiscal year. From such income, it is necessary to subtract refunds, discounts
and reductions in order to determine the net revenue. From the net revenue it is
necessary to subtract the items not deemed to be income and the corresponding costs.
The gross income is then reduced by the allowed deductions. This will finally show the
net income which is also the taxable base.
Regular System Calculation
Gross Revenue
Less: refunds, discounts and reductions
Net Revenue
Less: items not considered as income
Net Taxable Revenue
Less: costs
Gross Income
Less: allowed deductions
Net Income
Less: exempt income
Net Taxable Income
Times: applicable rate
Basic Income tax
Less: tax discounts
Net Income Tax
3. What revenues are included?

For tax purposes, income is any kind of resource which increases the taxpayers wealth.
National legal entities and Colombian residents are subject to this tax on their
worldwide source ordinary and extraordinary income. On the contrary, foreign legal
entities and its branches are taxed solely on their Colombian source ordinary and
extraordinary income. As long as foreign individuals are concerned, they are taxed on
their worldwide source income only after starting their fifth (5th) year of residency
(whether continuous or interrupted) in Colombia.
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For said purposes please note the following:
National Sourced Income

-
Revenues derived from the exploitation of tangible and intangible goods within
the Colombian territory.
Revenues derived from the provision of services within the Colombian territory.
Likewise, payments derived from the provision of technical services, technical
assistance services and consulting services from abroad, is also national source
income when the beneficiary is a Colombian resident
Revenues derived from the transfer of goods located in Colombia when the
transfer of title takes place.
Revenues derived from cross-border interest and lease payments when the debtor
is a Colombian resident.
Income that is Not Deemed National Sourced

-
Revenues derived from technical services regarding the repair or maintenance of

goods, rendered outside Colombia
Revenues derived from the sale of securities, bonds and other debt instruments
issued by a Colombian party and traded abroad.
Revenues derived from interest payments done by Financial Cooperatives
(Cooperativas Financieras),
Finance Companies (Compaas de
Financiamiento), and by the Colombian Foreign Trade Bank (Banco de
Comercio Exterior de Colombia BANCOLDEX) and other financial entities
incorporated under Colombian law.
Exempted Income
Applicable tax law establishes some revenues that may constitute tax-exempt
income, among others, the following:
-
Publishing companies whose purpose is to edit books, magazines, brochures or

collectable collections with scientific or cultural contents (tax-exempted until
2030).
The payment of capital, interest payments, commissions and other items related to
foreign public debt and other transactions of a similar nature are exempted from
all national taxes as long as they are paid to foreign non-resident parties.
The sale of energy generated from (i) wind-sourced, (ii) bio-mass, or (iii)
agricultural residues by generating companies are tax-exempted for a term of 15
years, as long as the company sells the energy by itself, and issues and trades
certificates of reduction of greenhouse effect gases.
Income derived from the cultivation of slow-growth plantations such as cacao,
rubber, palm oil, citric and other fruits as determined by the Ministry of
Agriculture and Rural Development (Ministerio de Agricultura y Desarrollo
Rural). In order to take advantage of this tax exemption, the plantation owner
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must sow the relevant seeds between 2003 and 2014. This tax benefit can be
applied for a term of 10 years, beginning upon starting of the sowing or
producing.
The provision of waterway transportation services with vessels and floating
platforms of low depth are also income tax-exempted for a period of 15 years as
of 2003 2. Low depth vessels and floating platforms shall have a draft of less than
4.5 feet.
Hotel services rendered in new hotels built between January 1st, 2003 and
December 31st, 2017 are eligible for tax exemptions for a term of 30 years from
the date of initiation of services at such newly constructed hotel facility.
Hotel services rendered in remodeled or expanded hotels between January 1st,
2003 and December 31st, 2017 are also tax exempted for a term of 30 years and
exclusively in proportion to the value of such remodeling or expansion.
Ecotourism services are exempted for a period of 20 years as of 2003.
Investments in new forest plantations, sawmill and wood trees.
New pharmaceutical and software created in Colombia and protected by
Colombian intellectual property legislation, with an important content of national
scientific and technological investigation, for a term of 10 years as of January 1st,
2003 until December 31st, 2012.
4. What deductions are allowed?

Costs consist of charges related to the acquisition or production of goods or the
provision of services. Such costs, if accrued during the corresponding fiscal year, can be
deducted for income tax purposes as long as they are (i) directly related to the income
generating activity, (ii) necessary, and (iii) proportional to the performed activities.
Permitted deductions shall be paid in cash or through payments in kind, except costs
that are incurred in advance. Costs incurred by taxpayers whose account books are
based on the accrual system are deemed to be realized whenever the obligation to pay
arises, even if such payment has not yet been made.
Expenses are any outlays incurred in connection with the administration, sales process,
investigation and financing transactions undertaken by a taxpayer. Tax law allows
deductions of expenses for income tax purposes as long as they are (i) directly related to
the producing activity, (ii) necessary, and (iii) proportional to the performed activities.
As of 2014, incurred expenses and costs paid in cash, and not through the financial
system (i.e. banking transfers, credit cards, and debit cards, among others), will not be
deductible for income tax purposes. However, other methods of extinguishing
contractual obligations such as payments in kind, compensations, and others, will
continue to be deductible for income tax purposes.
2
The provision of waterway transportation with boats and barges that load with a
draft which cannot exceed 4.5 feet, until January 1st, 2018.
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Some examples of permitted deductions include:

Wages and Payroll Taxes
Wages paid to employees can be deducted from income for tax purposes as long as
the employer/taxpayer has duly paid the corresponding payroll taxes (Aportes
Parafiscales) (i.e. ICBF, SENA, family subsidy, and welfare services) and has
performed the corresponding withholding tax. All of these social contributions are
also deductible for income tax purposes.
Paid Taxes
-
The 100% of the industry and trade tax and any real estate taxes paid during the
corresponding fiscal year are deductible for income tax purposes.
From 2013 until 2018, 50% of the debit tax will be deductible for income tax
purposes (please see the section describing Financial transactions Tax GMF).
During fiscal years 2011 and 2012, the 25% of the debit tax will be deductible for
income tax purposes.
Interest Payments
Interest payments on loan agreements entered into with any financial institutions
subject to oversight by the Finance Superintendence (Superintendencia
Financiera) are fully deductible.
On the other hand, interest payments made to individuals or other legal entities are
deductible solely in the fraction that does not exceed the maximum rate authorized
by the corresponding authorities to bank institutions during the corresponding tax
year.
Cross Border Payments
Cross border payments can be deducted for income tax purposes as long as they are
directly related to the producing activity of the taxpayer, and the corresponding
withholding tax (if any) has been withheld.
Nevertheless, the withholding tax is not necessary when the income is derived from
certain types of payments, as follows:
-
Commission payments to foreign commission agents related to the purchase or

sale of merchandise, raw materials and other types of goods, provided that such
commission does not exceed a specified percentage of the transaction, as fixed by
the Ministry of Treasury (Ministerio de Hacienda y Crdito Pblico) for the
corresponding tax year.
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In case of payments stated in Section 25 of the Colombian Tax Code, which not
generate Colombian source income.
For payments for acquisition of any kind of tangible good.
Capitalized costs and expenses aimed to be amortized according to the
Accounting rules.
Those payments incurred by virtue of the compliance with a legal obligation.
Charitable Donations
Charitable donations to certain entities expressly authorized by Colombian law are

deductible for income tax purposes during the fiscal year or period in which the
donation took place, and as long as all the legal requirements related thereto are duly
fulfilled.
Scientific and Technological Investments
Taxpayers that invest directly or indirectly in projects qualified as scientific,

technological or technological innovation are allowed to deduct 175% (before 125%)
of such investment expense for income tax purposes. This deduction shall not exceed
the 40% (before 20%) of the taxpayers net income, determined before subtracting
such investment.
According to Act 1450, 2011, the excess may be carrying forward to subsequent
fiscal years. The deduction can be transferred to partners or shareholders of the entity
which took the benefit.
Likewise, the funds perceived by the recipient of these investments, while meeting
the requirements established by law, shall be deemed as non-taxable income or
capital gain.
Investments in Environmental Control and Improvement
Taxpayers (entities) that invest directly in environmental control and improvement

projects are allowed to deduct such investments during the corresponding tax year.
This deduction shall not exceed the 20% of the legal entitys tax base, determined
before subtracting such investment.
Amortization of Investments
Amortization consists of distributing the cost of intangible assets over their useful
life or any other period of time fixed pursuant to certain valid criteria. Under the
current tax regime, investments which are carried out to achieve the enterprises
goals can be amortized, (however, such enterprise may not amortize costs stemming
from real estate investments or fixed amortizable assets).
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Preliminary expenses of installation, organization and activities development

incurred for purposes of achieving the enterprises aims, and that can be depreciated,
shall be registered as assets for their amortization in a period exceeding at least 1
year or fiscal period and shall be treated as deferred charges.
These investments have to be amortized in a period that shall not be less than 5
years, unless the amortization has to occur in a shorter time period because of the
nature or type of the business.
Depreciation
Reasonable values for the depreciation caused by the assets weakening, normal
deterioration or obsolescence can be deducted for income tax purposes, taking into
consideration the installments or necessary sums to amortize 100% of the assets cost
during its useful life, as follows:
Type of asset
Computers and vehicles
Machinery and equipment
Real estate (i.e. pipeline buildings)
Useful life
5 years
10 years
20 years
Difference in Foreign Exchange Payments
Payments in foreign currencies are estimated for the purchase price in Colombian
pesos. Therefore, when there are liabilities or assets in a foreign currency, their value
shall be adjusted according the applicable exchange rate (Tasa de Cambio
Representativa del Mercado TRM) and any difference in exchange rate shall be
taxed or deducted, depending on the circumstances
5. What are the major expenses that are not deductible?
Taxes (other than industry and commerce tax, property tax and debit tax).
Provisions (other than bad debt provisions).
Estimated expenses.
Expenses that must be subject to withholding taxes but were not.
6. What are the applicable federal rates?

The general income and capital gains tax rate is 33%. Nevertheless, legal entities
qualified as Goods and Services Industrial Users located in free trade zones within
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Colombia enjoy a reduced income tax rate of 15%. In addition, certain companies,
considered as small companies due to the size of their assets and the number of
employees 3, and which start their activities as of 2011, will enjoy special progressive
income tax rates, as follows: 0% for the first two years; 8.25% for the third year;
16.50% for the fourth year; and 24.75% for the fifth year. Subsequent to the
completion of the fifth year, small companies that are beneficiaries of this special
progressive system will become subject to the general income tax rate of 33%.
7. What are the applicable state and/ or other local rates?

In order to answer this question please refer to Point No. 1, Subchapter Local Levied
Taxes
8. What are the applicable capital gains rates and base, if different and
concessional tax treatment in case of business re-organization such as
amalgamation, slump sale, demerger, etc?
As a complement to the income tax, capital gains taxes are imposed on earnings that are
obtained from certain operations expressly defined by law.
Capital gains cannot be affected by ordinary costs and deductions taken by the taxpayer;
in addition, capital losses cannot be taken into account for purposes of computing the
ordinary taxable income of the taxpayer.
Among the most significant operations subject to the capital gains tax are the following:
-
Gains (the excess of the sale price over the tax basis of the asset) derived from the
sale of fixed assets of the taxpayer owned for a period of at least 2 years.
Gains derived from the liquidation of any type of corporation on the excess of the
invested capital, when the gains or earnings do not correspond to income, reserves or
earnings distributable as non-taxable dividends, as long as the company has
completed at the moment of its liquidation two or more years of existence.
Gains derived from inheritances, legacies, donations, as well as those received in the
manner of spousal forced shares.
Gains derived from lotteries, raffles, and others similar activities
For purposes of enjoying the progressive system for Income Tax, Act 1429,
2010 considers as small new companies those which start their activities as of 2011 and
have no more than 50 employees and a sum of assets that does not exceed of
COP$2,600,000,000 (approx. US $1,3Million).
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For entities, whether national or foreign, the capital gains tax rate is 33%.
Additionally, please bear in mind that pursuant to Colombian tax law, mergers and spinoffs are non-recognition events. Therefore, no income is deemed to be obtained by legal
entities involved in reorganization processes through mergers and spin-offs / split-offs.
The foregoing rule only applies to companies directly involved in reorganization
processes (mergers, spin-offs). If any income is derived from the merger for the
shareholders of the companies involved, said income will be taxed.
9. How are operating losses handled?

As of 2007, Colombian law permits the carry-forward of fiscal losses to subsequent tax
periods. There is no time limitation in order to carry forward such fiscal losses,
notwithstanding the Minimum Presumptive Income System (as described above).
Carry-forward losses may not be transferred to a legal entitys equity holders.
In the event of a merger or spin-off transaction, the purchaser or the new company may
carry-forward the fiscal losses of the merged or spun-off company with certain
limitations.
10. How are capital losses handled?

Capital losses can only be applied against capital gains, following the same period and
limitation rules set forth for net operating losses (see answer provided in question 1.a) ).
Territorial Rules
11. What are the residence rules?
Resident status is acquired after six (6) continuous or discontinuous months in
Colombia. Tax resident status shall be verified on a yearly basis.
12. Is worldwide income taxed?

Please refer to answer provided to question Three above
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13. Tax credits - Are there tax credits relating to legal dispositions other than
provisions in Double Taxation Treaties, on the possibility of deducting taxes paid
abroad, or any others?
Colombian law establishes as tax credits certain items that can be deducted from
income as determined by the taxpayer. Among others, it is available for the following
types of tax credits:
-
Credit on income tax paid abroad for national taxpayers and foreign individuals
starting their 5th year of residence in Colombia with regard to foreign sourced
income.
Credit on income received by any companies for the cultivation of trees in
reforestation areas.
Credit on income tax over VAT accrued on the import of heavy machinery for
primary industries.
Tax credits cannot exceed the Colombian income tax due. The income tax after credits
cannot be lower than 75% of the tax determined by the minimum presumptive income
system over the net-worth, before any tax discount.
Withholding Taxes
14. What are the rates on dividends for withholding taxes?
Colombian tax law provides for an imputation system aimed to avoid double taxation
of corporate profits. Pursuant to this system, dividends paid out of profits that have
been taxed at the level of the company are not subject to withholding taxes or further
taxation when distributed to the shareholder. On the other hand, if dividends are paid
out of non-taxed profits, such dividends will be subject to income tax at the
shareholder level via income tax withholdings applicable upon distribution of
dividends to both domestic and foreign investors
15. What are the rates on royalties for withholding taxes?

Royalty payments are subject to withholding tax at 33%.
Royalty payments for software license (use) are subject to withholding tax at 26.4%
Please note that Tax Treaties could provide a more favorable tax treatment for royalty
payments establishing a 10% withholding tax.
16. What are the rates on interest for withholding taxes?
-
Local loans: 7%
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Foreign loans: Until fiscal year 2010, interests payments derived from foreign
indebtedness transactions, granted from abroad, and international leasing agreements
were not subject to income tax in Colombia provided some conditions were met (in
practice, most foreign indebtedness could enjoy this special tax treatment). However,
the 2010 Tax Reform Act introduced new rules in this regard:
a) First of all, foreign loan agreements entered into before or on December 31,
2010 and eligible for the prior tax treatment applicable until 2010 are still
deemed as non-Colombian sourced income, therefore not subject to income tax.
b) On the other hand, the new tax treatment applicable to interests payments
derived from foreign indebtedness are deemed as Colombian sourced income,
subject to income tax in Colombia. As a consequence, interests payments
derived from loan agreements entered into as of January 1, 2011 will be subject
to a 33% or a 14% withholding tax. The withholding rate will depend on the
loan agreements term; a) interest payments derived from foreign indebtedness
agreements with a term equal or superior to one year are subject to withholding
tax at a 14% rate; b) on the contrary, interest payments derived from loan
agreements with a term lower than a year are subject to a 33% rate.
c)
It is important to remark that with regard to interests payments derived from

international leasing agreements entered into as of January 1, 2011, are deemed
as Colombian sourced income subject, in any case (i.e. no matter the
agreements term), to a 14% tax withholding. Notwithstanding, the 2010 Tax
Reform established a reduced 1% withholding tax rate on all the interests
payments derived from any kind of aircraft leasing.
In spite of the new regulation, please note that other interests payments derived from
foreign indebtedness are still not subject to income tax as we mentioned in answer to
question No. 3 (Revenues not deemed as national source income).
In addition, bear in mind that foreign indebtedness with Double Taxation Treatys
jurisdictions (i.e. Spain, Chile, Switzerland and Canada) - may be eligible for treaty
benefits (withholding tax rates may be reduced to 0%, 5% or 10%).
17. What are the rates of withholding tax on profits realized by a foreign
corporation?
As mentioned above, nonresident aliens are subject to income tax in Colombia only
with respect to their Colombian source income. As a general rule, any Colombian
source income derived by a nonresident alien will be subject to withholding tax at the
33% corporate income tax rate. Alternative rates (10% and 14%) may also apply to
specific types of services (payments for technical assistance services, technical
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services and consulting services are subject to 10% withholding tax irrespective that
services are rendered in Colombia or from abroad).
Whenever the law does not provide for a specific withholding tax rate, a 14% default
withholding tax applies. In such cases, the nonresident alien will be obliged to file an
income tax return for the corresponding fiscal year.
Also, please note that currently Colombian tax law provides for an imputation
system on dividend payments according to which withholding taxes only apply on
dividend distributions paid out of non-taxed profits.
18. Please list any other rates on withholding taxes that we should be aware of.
Concept
Payments for royalties for any type
of intangible*
Payments for royalties for software
use*
Technical
assistance
services
rendered in Colombia or abroad*
Technical
services,
except
equipment repair and maintenance
(rendered abroad)*
Technical services (rendered in
Colombia)*
Consulting services rendered in
Colombia or abroad.
Commissions for the purchase or
sale of goods abroad, limited to a
threshold set forth by the Law.
Services rendered in Colombia other
than those mentioned above.
Withholding
tax
Limitations to deductibility
33%
Not limited
26,4%
Not limited
10%
Not limited
10%
Not limited
10%
Not limited
10%
Not limited
0%
Not limited
33%
Not limited
-0-
Limited to 15% of the net taxable

income of the taxpayer before
computing all the costs and
expenses
abroad
without
Colombian income tax withholding
Not deductible
(e.g. back office, interests, fees,

rents, etc.).
Services rendered abroad other than
those mentioned above
(e.g. back office, interests, fees,
rents, etc.).
Costs and expenses incurred abroad,
not related to the taxpayers activity
in Colombia.
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Tax Returns and Compliance

19. What is the taxable reporting period?
Income tax is determined annually. The fiscal year ends at the same time of the
calendar year (December 31st).
20. What are the due dates for the filing of tax returns?
Income tax: Specific dates are determined on a year by year basis. Nonetheless, due
dates are generally between March and May.
21. What are the key compliance requirements?

Tax returns must be signed by the legal representative and the statutory auditor (when
required to have one).
22. Are there any other requirements that we should be aware of regarding tax
returns and compliance?
Also please note that Taxpayer must be registered before the Tax Authority.
INDIRECT TAXES
23. Are there any indirect taxes in your jurisdiction?
VAT (national tax).
Industry and commerce tax (local tax).
Debit tax (national tax).
24. How does it operate? Is it a VAT or a sales tax?

This is a national tax which taxes (i) the sale of tangible goods which are not fixed
assets and have not been expressly excluded by tax law, (ii) the provision of services
within Colombian territory (some exceptions apply), (iii) the import of tangible
personal property that has not been expressly excluded by tax law, and (iv) the sale
and operation of games of chance excluding lotteries.
In Colombia, this tax is structured as a value added tax, therefore the taxpayer is
allowed to credit against the VAT paid on goods and services acquired and used in
Columbia
the production of income against the VAT generated on the sale of goods or the
provision of services from VAT-taxable operations. Certain limitations to this credit
tax may apply.
Entities/individuals which are responsible to the tax authorities for the collection and
payment of the VAT are those who undertake any of the activities subject to the
VAT. However, the economic burden of the VAT is levied upon the final consumer.
In this sense, the following people, among others, are responsible for the collection
and payment of the VAT:
-
With regard to sales of goods, the merchants or businesses, regardless of whether

they are distributors or manufacturers.
The providers of services not excluded from the tax.
Importers.
When the responsible of this tax is a foreign non-domiciled entity then the
Colombian entity should act as a VAT withholding agent obliged to collect and
pay such VAT through filing tax withholding returns.

With respect to the sale of tangible goods (not fixed assets) and in the provision of
services, the tax base is generally determined by the total value of the relevant
transaction. Additionally, there are some special tax bases for certain goods and
services.
26. What are the applicable rates?
The general VAT rate is 16%, and it is applicable to most types of transactions.
However, there are some special VAT rates that vary from 1.6% to 35%.
27. Are there any exemptions?

Zero Rated and Exempt Transactions
VAT-Zero Rated Goods
-
National or imported equipment and materials aimed for the construction,

installation, assembly and operation of environmental monitoring and control
systems.
Imports of raw materials and supplies under the so-called Vallejo Plan (which is
a special import and export program described in further detail in the Chapter on
Foreign Trade), under which these materials and supplies are incorporated into
products for subsequent export.
Columbia
-
Temporary imports of heavy machinery and equipment for basic industries

provided that the types of machinery and equipment are not produced in
Colombia. It is understood that basic industries are mining, hydrocarbons, heavy
chemistry, iron and steel industry, metallurgy, extraction of natural resources,
generation and transmission of electrical energy, and obtaining, purifying and
conducting hydrogen oxide.
Imports of machinery and equipment produced outside the country for recycling
and processing of wastes.
Ordinary imports by highly exporting users, so-called ALTEX (further
described in the Chapter on Foreign Trade), of industrial equipment not
produced in the country and aimed to raw materials transformation, for an
indefinite period of time.
The sale of fixed assets.
The equipment and elements imported by research and development and other
educational institutions officially acknowledged.
Exempt Services
- Public and private, national and international freight transportation.
- Public transportation of passengers in the national territory by water or land.
- National air transportation of passengers where there is no authorized land
transportation.
- Transportation of gas and hydrocarbons.
- Interest payments and other financial income from credit operations and
financial leasing.
- Medical, dental, hospital, clinical and lab services for human health.
- Utilities including energy, water, sewerage, road maintenance and street
cleaning, garbage collection and gas.
- Internet access services for homes in low-income urban zones 1, 2 and 3.
Exempt Imports
VAT exempt imports are expressly listed in the law. The types of imports that do
not trigger the VAT are those where there is no clearance through customs (i.e.
short term importations), importation of heavy machinery for basic industries,
importations to special customs areas, among others.
28. Are there any other taxes such as debit or financial transactions taxes enforced
in you jurisdiction?
Indeed. Please refer to answer No. 1.
Columbia
PARAFISCAL CONTRIBUTIONS
29. Are there any parafiscal contributions (i.e. social security, science and/
or technology)?
Yes. Please refer to point 30. below.
30. How do they operate?

With the approval of Law 100 of 1993, the General Social Security System (the
SGSS, its acronym in Spanish) was created, comprising the General Pensions
System (the SGP, its acronym in Spanish), the General Health Social Security
System (the SGSSS, its acronym in Spanish) and the General Professional Risks
System (the SGRP, its acronym in Spanish). Pursuant to said Law, every employer
must affiliate its employees to the SGP, the SGSSS and the SGRP, discount from the
employees salary the amounts established by law and pay a percentage of the
employees salary in order to complete the contribution, according to the parameters
listed in the charts Contribution vs. Salary and Contribution Employee-Employer
ahead.
1. Contribution vs. Salary
System
SGP
SGSS
SGRP*
Employee % of Salary
4%
4%
-
Employer % of Salary
12%
8.5%
Between 0.348% and 8.7%
* The percentage of the contributions to the SGRP varies in accordance with the
assured risk.
2. Payroll fees
Employers are required by law to make some additional payments, calculated as
percentages of the total value of the companys payroll. Said payments must be made
to a Family Compensation Bureau (Caja de Compensacin Familiar CCF), to the
National Apprenticeship Service (Servicio Nacional de Aprendizaje SENA) and to
the Colombian Institute of Family Welfare (Instituto Colombiano de Bienestar
Familiar CBF), according to the parameters listed in the following chart.
CCF: 4%
SENA: 2%
ICBF: 3%
TOTAL: 9%
Columbia

Please refer to point 30 above.
32. What are the applicable rates?

Please refer to point 30 above.
33. Are there any exemptions?

No answer provided.
INHERITANCE AND GIFT TAXES

34. Are there inheritance taxes, gift taxes or any other taxes like Wealth Tax, etc.?
Yes
35. If you answered yes to the question above, please describe what triggers the
requirement for the tax, what the rate of tax is, and what is included in the
taxable base.
Inheritances and gifts are taxed as capital gains (occasional income), at 33%. They
are reported in the taxpayer's income tax return. For further information, please
refer to points 1 and 8, here above.
OTHER MATTERS
36. Are there any tax incentives granted for various matters such as research and
development, investment in certain industries/ areas, etc.?
Yes. Please refer to point No. 4.
37. If so, please indicate if there are any of the following: anti-deferral regimes;
transfer pricing provisions; tax avoidance measures like legislated General AntiAvoidance Rules, etc.; controlled foreign companies regulations; thin
capitalization rules
Colombian law does not provide for thin capitalization rules or CFC rules. However, it
does provide for transfer pricing rules, tax havens rules (although a tax haven list is
yet to be issued).
Columbia
In general terms, taxpayers who engage in transactions with affiliates or other related
parties residing abroad are subject to the transfer pricing regime. Accordingly,
taxpayers subject to the transfer pricing regime must conduct such related party
transactions on commercial standards (including prices and profit margins), which
should be established in comparable transactions with independent third parties. In
essence, their operations and business transactions with related parties must be
conducted on an arms length basis.
Colombian law on transfer pricing matters is based on the guidelines set forth by the
Organization for Economic Co-operation and Development (OECD) and became
effective in 2004.
Therefore, taxpayers who carry out operations with foreign related parties that exceed
the amounts established by law 4 related to gross assets and gross revenue are required
to file annually an Informative Return about every operation carried out with foreign
related parties. Additionally, they must prepare and submit an annual informative
report to the National Customs and Tax Authority DIAN, and provide supporting
documentation of every operation undertaken 5 in order to prove the correct application
of the transfer pricing regime. Support documentation must be safely kept for a period
of 5 years starting from January 1st of the fiscal year following its preparation.
Given the case in which the operations with related parties abroad, affect the balance
sheet of the taxpayer, who fulfills the criteria in order to be bound to the transfer
pricing legal regime, the preparation and filing of the support documentation of such
operations will not be required, nonetheless, such information must be included in the
annual informative report.
It is important to bear in mind that non-compliance with the transfer pricing regime is
punishable by law. Types of non-compliance giving rise to potential sanctions with
respect to the transfer pricing regime may include the following: (i) Untimely filing of
support documentation, (ii) errors in the support documentation, (iii) filing
information different from that requested by the National Customs and Tax Authority
DIAN, (iv) filing information which does not allow the verification of the transfer
pricing, and (v) not providing information regarding transactions with foreign related
parties.
For a taxpayer to have the obligation of compliance with formal transfer pricing
rules, it must: (i) have or possess gross assets worth at least 100,000 Tax Units -UVT(approximately USD 1,400,000) or have obtained gross income during the previous year
in excess of 61.000 Tax Units UVT (approximately USD 807,000).
5
Only the operations exceeding the equivalent amount of 10.000 Tax Units
UVT (approximately USD 133,000).
Columbia
In addition, the tax authorities may impose sanctions related to non-compliance with
respect to the annual informative return, including: (i) non-timely filing of the annual
informative return, (ii) amendments to the informative return, or (iii) not filing the
informative return within the time period established by the DIAN.
On the other hand, upcoming 2012 Tax Reform should be reviewed, regarding indirect
sales, since it is aiming to establish a substance over form rule.
38. List the countries in which there are tax treaties. This could impact the
withholding taxes on various distributions and to the extent possible, please
itemize them below. Please include the impact upon withholding on
compensation, interest, dividends or other distributions for each country listed.
Jurisdiction
Spain
Chile
Andean Community
Switzerland
Canada
South Korea
Mexico
India
France
Belgium
Check Republic
United States
Japan
Germany
Holland
Panama
Type of
income
Capital
Gains
TT with Colombia
Enforceable
Enforceable
Enforceable
Enforceable
Signed
Signed
Signed
Signed
Negotiated
Negotiated
Signed
Being negotiated
Being negotiated
Being negotiated
Being negotiated
Being negotiated
BIT with Colombia

Enforceable
Enforceable
Enforceable
Enforceable
Enforceable
Signed
Enforceable
Signed
Negotiated
Signed
Being negotiated
Spain
Chile
Canada
Switzerland
Income
derived
from the sale of
shares
in
Colombian
companies should
not be taxed in
Colombia unless
50% of the value
of the Colombian
corporation
is
represented in real
estate located in
Income
derived from
the sale of
shares
in
Colombian
companies
should not be
taxed
in
Colombia
unless 50% of
the value of
the Colombian
Income
derived from
the sale of
shares
in
Colombian
companies
should not be
taxed
in
Colombia
unless 50% of
the value of
the Colombian
Income derived
from the sale of
shares
in
Colombian
companies
should not be
taxed
in
Colombia
unless 50% of
the value of the
Colombian
corporation is
Andean
Community
of Nations
Income
derived from
the sale of
shares
in
Colombian
companies
should
be
taxed
exclusively in
the
State
where
the
shares
were
Columbia
Type of
income
Spain
Colombia
Dividends
In the case of
dividends paid out
from profits which
were not taxed at
the corporate level,
the applicable tax
withholding rate
would be 0% in
Colombia if the
shareholder is a
Spanish resident,
who owns at least
20% of the shares
of the Colombian
corporation
and
such profits are
reinvested
in
Colombia in the
same activity for a
period no longer
than 3 years.
Chile
Canada
corporation is
represented in
real
estate
located
in
Colombia.
corporation is
represented in
real
estate
located
in
Colombia.
They may be
subject
to
taxation if the
seller
possessed,
directly
or
indirectly,
during
the
previous
12
months of the
sale of the
shares, shares
from
the
Colombian
corporation
which
represent 20%
or more of the
capital of the
Colombian
corporation.
They may be
subject
to
taxation if the
seller
possessed,
directly
or
indirectly,
during
the
previous
12
months of the
sale of the
shares, shares
from
the
Colombian
corporation
which
represent 25%
or more of the
capital of the
Colombian
corporation.
In the case of
dividends paid
out
from
profits which
were not taxed
at
the
corporate
level,
the
applicable tax
withholding
rate would be
0%
in
Colombia
if
the
shareholder is
a
Chilean
resident, who
owns at least
25% of the
shares of the
Colombian
corporation
and
such
profits
are
In the case of
dividends paid
out
from
profits which
were not taxed
at
the
corporate
level,
the
applicable tax
withholding
rate would be
5%
in
Colombia
if
the shareholder
is a Canadian
resident, who
owns at least
10% of the
shares of the
Colombian
company.

Switzerland
Andean
Community
of Nations
represented in issued.
real
estate
located
in
Colombia
In the case of
dividends paid
out from profits
which were not
taxed at the
corporate level,
the applicable
tax withholding
rate would be
0% in Colombia
if
the
shareholder is a
Swiss resident,
who owns at
least 20% of the
shares of the
Colombian
corporation.
Pursuant
to
sections
48
and 49 of the
Colombian
Tax
Code
dividends paid
out
from
profits
are
only taxed in
Colombia.
Columbia
Type of
income
Spain
Chile
Canada

Switzerland
Andean
Community
of Nations
reinvested in
Colombia in
the
same
activity for a
period
no
longer than 3
years.
Interests
Royalties
The maximum rate

at which interests
may be taxed in
Colombia is 10%
as long as these are
paid
from
Colombia to a
Spanish resident.
The
rate
abovementioned
may be reduced to
0% if, following
the same rules, the
interests are paid to
banks due to loans
or to a Spanish
corporation due to
a credit sale.
The maximum
rate at which
interests may
be taxed in
Colombia is
5% if the
effective
beneficiary is
a Bank or a
Chilean
insurance
corporation. In
every
other
case,
the
applicable rate
is 14%.
The maximum
rate at which
interests may
be taxed in
Colombia
is
10%.
Royalty payments
made
by
a
Colombian entity
to a Spanish entity
are taxed both in
Colombia
and
Spain.
Royalty
payments
made by a
Colombian
entity to a
Chilean entity
are taxed both
in Colombia
and Chile.
Royalty
payments
made by a
Colombian
entity to a
Canadian
entity are taxed
in
both
Colombia and
Canada.
However,
the
maximum
applicable rate to
these payments in
Colombia is 10%.
However, the
maximum
applicable rate
to
these
payments in
Colombia is
10%
However, the
maximum
applicable rate
to
these
payments
in
Colombia
is
10%
The maximum
rate at which
interests may be
taxed
in
Colombia
is
10% as long as
these are paid
from Colombia
to
a
Swiss
resident.
The
abovementioned
rate may be
reduced to 0%
if, following the
same rules, the
interests
are
paid to banks
due to loans or
to
a
Swiss
corporation due
to a credit sale.
Royalty
payments made
by a Colombian
entity to a Swiss
entity are taxed
both
in
Colombia and
Spain.
However, the
maximum
applicable rate
to
these
payments
in
Colombia
is
10%.
Interests may
only be taxed
in the member
State in whose
territory
is
accounted for
and
its
payment
registered.
Royalty
payments
made by a
Colombian
entity to a
member State
entity,
are
subject
to
taxation only
in Colombia.

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Columbia

Copyright Lex Mundi Ltd. 2010

Tax Desk Book

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Copyright Lex Mundi Ltd. 2010

Net assets above USD 2,770,082

4.8% (+25% surtax)

Net assets between USD 1,662,049 and USD

2.4% (+25% surtax)

Copyright Lex Mundi Ltd. 2010

Copyright Lex Mundi Ltd. 2010

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INCOME TAXES AS APPLIED TO BUSINESS ENTITIES AND INDIVIDUALS

3. What revenues are included?

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For said purposes please note the following:

National Sourced Income

Income that is Not Deemed National Sourced

Revenues derived from technical services regarding the repair or maintenance of

Publishing companies whose purpose is to edit books, magazines, brochures or

Copyright Lex Mundi Ltd. 2010

4. What deductions are allowed?

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Some examples of permitted deductions include:

Commission payments to foreign commission agents related to the purchase or

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Charitable donations to certain entities expressly authorized by Colombian law are

Taxpayers that invest directly or indirectly in projects qualified as scientific,

Investments in Environmental Control and Improvement

Taxpayers (entities) that invest directly in environmental control and improvement

Copyright Lex Mundi Ltd. 2010

Preliminary expenses of installation, organization and activities development

Difference in Foreign Exchange Payments

5. What are the major expenses that are not deductible?

6. What are the applicable federal rates?

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7. What are the applicable state and/ or other local rates?

Gains derived from lotteries, raffles, and others similar activities

Copyright Lex Mundi Ltd. 2010

9. How are operating losses handled?

10. How are capital losses handled?

12. Is worldwide income taxed?

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15. What are the rates on royalties for withholding taxes?

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It is important to remark that with regard to interests payments derived from

Copyright Lex Mundi Ltd. 2010

Limited to 15% of the net taxable

(e.g. back office, interests, fees,

Copyright Lex Mundi Ltd. 2010

Tax Returns and Compliance

21. What are the key compliance requirements?

24. How does it operate? Is it a VAT or a sales tax?

Copyright Lex Mundi Ltd. 2010

With regard to sales of goods, the merchants or businesses, regardless of whether

25. How is the taxable base determined?

27. Are there any exemptions?

National or imported equipment and materials aimed for the construction,

Copyright Lex Mundi Ltd. 2010

Temporary imports of heavy machinery and equipment for basic industries

Copyright Lex Mundi Ltd. 2010

30. How do they operate?

Copyright Lex Mundi Ltd. 2010