Anyone doing business in Colombia should have a working knowledge of their company’s potential tax obligations. Structuring an optimal tax strategy for your business is crucial to minimizing regulatory requirements and overall tax liability while maximizing your actual profits. The following is a general summary of tax obligations for a typical business operating solely in the Colombian market. We will go further in depth into each of these requirements in future posts.
INCOME AND SUPPLEMENTARY TAX
- •Applicability: Applies to profits and other miscellaneous income earned by taxpayers arising from ordinary operations (ordinary income or “renta líquida ordinaria”) as well as non-ordinary activities outside standard operations.
- •Standard Rate: Approximately 25% following 1607 law in 2012. Note that for some small businesses (“Sociedades por Acciones Simplificadas” or “S.A.S.” being an example) this rate drops down to 0% for the first two taxable years and gradually increases back to 25% through the fifth year of operations (25% of normal tax liability during the third year, 50% during the fourth year, 75% during the fifth year, and 100% during the sixth year)
IMPUESTO SOBRE LAS VENTAS (IVA)
- •Applicability: This is Colombia’s answer to Europe’s VAT regime. It’s essentially a value added tax that increases the selling price for goods and services.
- •Standard Rate: Exempt, 5%, or 16%, depending on the goods and services being sold, as specified by the local tax statute.
CONSUMPTION NATIONAL TAX
- •Applicability: This is essentially a quasi-luxury tax Imposed on the end-consumer/importer. This tax targets things like mobile phone services, restaurant outings and the purchase of certain vehicles.
- •Standard Rates: From 4% (mobile phone service) and 8% (restaurants/bars) to 16% (specific products specified in Article 512-4 of the tax statute).
EQUALITY INCOME TAX (CREE)
- •Applicability: This tax was recently created by the 1607 Act of 2012. Broadly conceived as a tax on income which benefits workers, encourages employment generation and social investment. This tax was created as a way to offset the elimination of “parafiscales” tax obligations (ICBF, SENA, Social Security Health System, etc…).
- •Standard Rates: 9% for the fiscal years 2013-2015 and 8% thereafter.
- •Applicability: These are mandatory contributions that a taxpayer must pay whenever it hires employees under Colombian law. These include (i) payments to the Family Compensation Fund; (ii) contributions to the Colombian Family Welfare Institute (ICBF); and (iii) contributions to the National Learning Service (SENA). Contributions to the general social security system are also included in this category. It’s important to mention that following tax reform legislation passed in 2012 (ley 1607 of 2012) corporate/legal entities may no longer be required to pay these contributions.
- •Standard Rates: Variable but approaching 13.5% for each salaried worker.
INDUSTRY AND TRADE TAX
- •Applicability: This tax applies to all commercial/business activities that occur within a specific municipal jurisdiction. Tax applies whether (i) taxpayer is a legal entity or a natural person; (ii) activity occurs as part of a ordinary operations or not; or (iii) taxpayer has a physical presence or not.
- •Standard Rate: Subject to specific formula. For example, in Medellin, hotels and guesthouses that are registered in the National Register of Tourism incur a tax rate of 10 per 1000.
- •Applicability: Taxable by the municipal authorities
- •Standard Rates: Rates are set by each municipality separately. It’s a progressive tax obligation that generally ranges between 5 per 1000 and 16 per 1000.
We hope this information is helpful to you. If you have additional questions regarding the subject matter in this post please access our Contact Form.
The information and materials on this blog are provided for general informational purposes only and are not intended to be legal advice. The law changes frequently and varies from jurisdiction to jurisdiction. Being general in nature, the information and materials provided may not apply to any specific factual and/or legal set of circumstances. We cannot guarantee that commentary posted by third parties is accurate. No attorney-client relationship is formed nor should any such relationship be implied. Nothing on this blog is intended to substitute for the advice of an attorney, especially an attorney licensed in your jurisdiction. If you require legal advice, please consult with a competent attorney licensed to practice in your jurisdiction.