The Colombian government has enacted a comprehensive tax reform, effective from January 1, 2023, aimed at modernizing Colombia’s tax system. This reform introduces a range of tax rates and rules affecting corporate income, personal income, inheritance, gifts, and wealth. Additionally, the reform includes measures to combat tax avoidance and ensure compliance with international tax standards. This overview provides a detailed look at the new tax landscape in Colombia, highlighting key rates and regulations.
Colombia’s Tax System overview
| Corporate Income Tax: | 35% |
| Personal Income Tax: | 39%, progr. |
| Inheritance Tax: | 15%, progr. |
| Gift Tax: | 15%, progr. |
| Wealth Tax: | 1.5% progr. |
Corporate Income Tax
Corporations incorporated, or with a permanent establishment in Colombia, are subject to corporate tax on worldwide income at a rate of 35%. In addition, foreign corporations with their effective place of management in Colombia, will be taxed as Colombian corporations.
Personal Income Taxation
Colombian residents are subject to tax on worldwide income at progressive rates up to 39%. In addition, Colombian residents are subject to gift and inheritance tax at 15%, and wealth tax at progressive rates, up to 1.5%.
Anti-Avoidance Rules
Colombia has General Anti-Avoidance Rules (GAARs) which allow tax authorities to re-characterize transactions. Colombia has Transfer Pricing rules that subject transactions between related parties to the arms-length principles, as well as Thin Capitalization rules. Colombia also has Controlled Foreign Corporation (CFC) rules.
Controlled Foreign Corporation Rules
Foreign corporations, including, entities, trusts, and foundations, whether or not transparent, controlled by Colombian residents, that generate passive income, are deemed to be CFEs. An entity is deemed to be controlled if it is a subsidiary, a related party, or resident in a low-tax jurisdiction. Colombian residents holding 10% or more in CFEs are subject to tax on the CFE’s undistributed profits.
Foreign Trusts
Trusts are generally treated as transparent for tax purposes. However, tax deferral may be available if the trust is irrevocable. Distributions from foreign trusts to Colombian residents are taxable at 15%, the capital gains rate. The application of CFE rules may result in income attribution to the settlors or beneficiaries. Generally, settlors or beneficiaries are required to report foreign trusts for wealth tax purposes.
Double Tax Treaties (DTTs)
Foreign Investment Protection
OECD Multilateral Convention
Common Reporting Standard (CRS)
FATCA
In summary, the recent overhaul of Colombia’s tax system represents a pivotal step towards optimizing its tax structure, aiming to foster a fairer tax environment and improve compliance. By revising tax rates and introducing rigorous anti-avoidance rules, the country seeks to boost public revenues while promoting fairness. Additionally, by engaging in international tax cooperation through agreements and conventions, Colombia underscores its commitment to global fiscal transparency and the fight against tax evasion. This reform is a testament to Colombia’s proactive stance in adapting to the complexities of the modern economic landscape and its dedication to ensuring a stable and equitable fiscal policy for all residents.
