26/10/22

SOUTH AMERICA: Colombia’s modified tax reform Bill approved at first stage.

As published on step.org/industry-news, Wednesday 26 October, 2022.

The economic commissions of the Senate and the House of Representatives of Colombia have approved the government’s proposed tax reform Bill.

The Bill proposes changes to the definition of “significant economic presence” for non-resident entities. A non-resident entity would trigger such presence if, during the prior year or within the relevant tax year, it has interacted with or marketed to more than 300,000 users in Colombia, displayed the price or allowed the payment of the goods in Colombian pesos and its gross income from Colombian transactions is higher than 31,000 tax units (USD297,000).

Such entities would be subject to a 10 percent withholding income tax rate, unless they are resident in a jurisdiction with which Colombia has a double taxation agreement. Dividends paid to non-resident entities out of profits subject to corporate taxation would be subject to a 20 percent withholding tax rate.

Non-residents and individuals would also see capital gains tax (CGT) increase from 10 percent to 15 percent. Under the Bill, Colombian residents would also be subject to this increased CGT, although it is an improvement from the originally proposed increase of 30 percent.

The Bill proposes to maintain the current general corporate income tax rate of 35 percent. However, a 5 percent surtax would be added for certain entities including financial institutions, insurance companies and stockbrokers, if their taxable income exceeds 120,000 tax units (USD989,000). Additional restrictions would be imposed on concurrent tax benefits.

The legislation suggests implementing a minimum effective income tax rate of 15 percent, in line with the OECD’s Pillar Two agenda to prevent base erosion and profit shifting (BEPS) by multinational enterprises.

A temporary equity tax of 1.5 percent would apply to taxable equity about 239,000 tax units (USD1.9 million from 2023 to 2026. From 2027, this would be set permanently at 1 percent for net worth valued at over 122,000 tax units (USD1 million). The equity tax would apply to Colombian resident individuals’ worldwide net worth and the Colombian assets of non-resident individuals.

The plenary of the Senate and the House of Representatives will now debate the Bill for a second time before it can be passed into law.