COLOMBIA: FUNDAMENTAL TAX REFORM FOR COMPANIES WITH INTERESTS IN COLOMBIA INDEX Book-tax conformity for income tax purposes using IFRS as a starting point 3 New corporate income tax rate applies since January 1st 2017 4 Distribution of dividends is taxed in all cases 4 New regime for the tax depreciation and amortization of assets 5 Transitional regime for the depreciation and amortization of assets 6 New income tax rate for free trade zone (FTZ) users 7 Changes in the rules for the carry forward of net operating losses (NOL’s) 7 New nominal income tax rates for individuals 7 The general rate of VAT increases to 19% 8 Sale of intangible assets in connection with intellectual property is subject to VAT 9 Vat withholding on e-commerce services rendered from abroad 9 Sale of new residential real estate is subject to VAT 10 Changes in the taxable period of VAT 10 Changes in withholding tax schedules for outbound payments 11 NEWSLETTER I JANUARY 2017
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COLOMBIA: FUNDAMENTAL TAX REFORM
FOR COMPANIES WITH INTERESTS IN COLOMBIA
INDEX
Book-tax conformity for income tax purposes using IFRS as a starting point 3
New corporate income tax rate applies since January 1st 2017 4
Distribution of dividends is taxed in all cases 4
New regime for the tax depreciation and amortization of assets 5
Transitional regime for the depreciation and amortization of assets 6
New income tax rate for free trade zone (FTZ) users 7
Changes in the rules for the carry forward of net operating losses (NOL’s) 7
New nominal income tax rates for individuals 7
The general rate of VAT increases to 19% 8
Sale of intangible assets in connection with intellectual property is subject to
VAT 9
Vat withholding on e-commerce services rendered from abroad 9
Sale of new residential real estate is subject to VAT 10
Changes in the taxable period of VAT 10
Changes in withholding tax schedules for outbound payments 11
NEWSLETTER I JANUARY 2017
NEWSLETTER I COLOMBIA: REFORMA TRIBUTARIA ESTRUCTURAL 2/23
Passive income obtained through foreign investment vehicles is now subject to taxation in
Colombia in head of the Colombian controller
The approved law includes an anti-deferral regime for the Controlled Foreign Corporations
(“CFC”), which establishes that domestic corporations and Colombian tax residents that
hold, directly or indirectly, a share percentage equal or greater to 10% of the total equity
of the CFC, shall compute in their income tax return the passive income obtained by such
CFC. The passive income assigned to the Colombian taxpayer is the amount resulting from
deducting out of the passive income the total costs and deductions associated with such
income.
CFC’s are those entities that:
1. Are controlled by one or more Colombian tax residents, according to the terms in
the new legislation,
2. Do not have their tax residency in Colombia.
CFC’s include investment vehicles such as corporations, trusts, collective investment
funds, other fiduciary businesses and private interest foundations, incorporated with
operation or domiciled abroad, regardless if they are considered to be legal entities or not,
or if they are disregarded for tax purposes or not.
If the passive income of the CFC represents 80% or more of the total income, it will be
legally presumed that its total income, costs and deductions will generate passive income
subject to taxation for the controllers.
A list of items of income that are considered passive income is included, including
dividends, interests, income derived from intangibles assets, income derived from the sale
of assets that generate passive income, real estate lease income, amongst others.
This new regime is established in article 139 of law 1819 of 2016.
DIAN IS AUTHORIZED TO ISSUE A SPECIAL NOTICE OF DEFICIENCY TO ASSESS AND
SETTLE TAXES AND PENALTIES
Introduction of a new Special Notice of Deficiency
A new procedure to settle tax obligations called the Special Notice of Deficiency, by which
DIAN may determine and settle taxes, levies, surcharges, advance payments and
NEWSLETTER I COLOMBIA: REFORMA TRIBUTARIA ESTRUCTURAL 13/23
withholdings that are delinquent or were filed after their due date, as well as unpaid
penalties, was introduced in the new regulation.
The Special Notice of Deficiency may only be issued by the Administration, over the same
tax return, before the statute of limitation elapses or within five (5) years from the due date
of the a delinquent return.
Such Special Notice of Deficiency would replace the Official Assessment, Statement of
Objections, or the previous notification, as long as the Administration ratifies it.
Regarding the statute of limitations of the tax returns filed as a consequence of accepting
the Special Notice of Deficiency, the term will be six (6) moths after their filing. For these
returns to be valid, they will have to be in compliance with all the forms and conditions
stated in the Tax Code.
At the same time, the new regulation states that Tax Authority will consider that the
taxpayer accepted the Special Notice of Deficiency if they do not file an objection in the term
provided.
CHANGES IN THE STATUTE OF LIMITATIONS FOR ASSESSMENT AND COLLECTION OF
TAX RETURNS
The Tax Administration now has broader terms to exercise its audit powers over taxpayers
The new regulation extended the statute of limitation from two (2) years to three (3) years, computed since:
The due date to file the tax return;
The filing date of the tax return, when it was filed extemporaneously;
The date of the request for a balance in favor; and
The use of the balance in favor in subsequent tax periods.
In the same way, the new tax regulation extended the statute of limitation of the tax returns that report NOL’s from five (5) years to six (6) years since the submission date. For taxpayers obliged to file transfer pricing returns, the statute of limitation will be six (6)
years since the due date, or the submission date, in the cases in which it was submitted extemporaneously.
NEWSLETTER I COLOMBIA: REFORMA TRIBUTARIA ESTRUCTURAL 14/23
A NEW METHOD FOR COMPUTING INTERESTS ON LATE PAYMENTS WAS
INTRODUCED WITH THE NEW REGULATION
The new method to calculate the interest in arrears will depend on the rate certified by the
Financial Superintendence for consumer credit
Previously, the interest rate for late payments was determined according to the
benchmark nominal interest rate defined by the Financial Superintendence of Colombia.
Now the interest rate on late payments will be the interest rate determined by the
Financial Superintendence of Colombia for consumer credit, subtracting 2 points from it.
DIAN IS NOW ABLE TO REACH COURT SETTLEMENTS WITH TAXPAYERS
The preferential treatment will apply until the 30th of September of 2017
Taxpayers, withholding agents, customs users and persons subject to foreign exchange
penalties are now able to make court settlements with the Colombian Tax Authority
according to the following criteria:
Lower Court Instances: If the judicial process is being reviewed by a Lower Court
Instance, the Tax Administration can negotiate a settlement with the taxpayer, by lowering
80% of the penalties, interests on late payments, and price-level restatements. This
settlement will be valid only if the taxpayer pays in full all the taxes, duties or levies being
discussed in Court, and 20% of the penalties, interests on late payments, and price-level
restatements determined by the Tax Authority.
Higher Court Instances: If the judicial process is being reviewed by a Higher Court
Instance, the Tax Administration can settle with the taxpayer, by lowering 70% of the
penalties, interests on late payments, and price-level restatements. This settlement will be
valid only if the taxpayer pays in full all the taxes, duties or levies being discussed in Court,
and 30% of the penalties, interests on late payments, and price-level restatements
determined by the Tax Authority.
No taxes, duties or regional levies: When the trial is determining the validity of a penalty
imposed by the Tax Authority to the taxpayer, but no taxes, duties or levies are being
discussed, the settlement made with the taxpayer can reduce up to 50% the penalties
imposed to the taxpayer. For that, the taxpayer will have to pay 50% of the penalties
determined by the Tax Authority prior to the Court trial.
Tax refunds and tax credits: When tax refunds and tax credits are being discussed in
trial, the Tax Authority will be able to settle for the 50% of the penalties imposed to the
NEWSLETTER I COLOMBIA: REFORMA TRIBUTARIA ESTRUCTURAL 15/23
taxpayer, only if the last one reimburses 100% of the taxes that were refunded or credited
prior to the Court trial.
The settlement request should be submitted to the Tax Authority before the 30 th of
September of 2017 and the Tax Authority will only be able to settle court trials in which
the lawsuit was submitted by the taxpayer before entrance into force of this regulation.
DIAN IS NOW ABLE TO TERMINATE ADMINISTRATIVE PROCEEDINGS AGAINST
TAXPAYERS
The preferential treatment will apply until the 30th of September of 2017
The Tax Authority is able to terminate administrative proceedings that were notified to the
taxpayers, customs users, or persons subject to foreign exchange penalties (“taxpayers”).
The termination will proceed only if the taxpayer complies with the following conditions:
If the taxpayer pays in full all the taxes, duties or levies and 70% of the penalties
and of the interest on late payments that are being assessed in the administrative
procedure, the Tax Authority will have to terminate it.
If the administrative procedure is not assessing taxes, duties or levies, the Tax
Authority will have to terminate the procedure once the taxpayer pays 50% of the
penalty imposed.
If the administrative procedure is assessing a non-filling penalty, the Tax Authority
will have to terminate it once the taxpayer pays 30% of the penalties and of the
interest on late payments and 100% of the assessed taxes, duties or levies.
When tax refunds or tax credits are being discussed in the administrative
proceeding, the tax Authority will have to terminate it once the taxpayer
reimburses 100% of the taxes that were refunded or credited and pays 50% of the
penalties imposed within the proceeding.
The request to terminate the administrative procedure should be submitted to the Tax
Authority by the taxpayer, before the 30th of October of 2017.
NEWSLETTER I COLOMBIA: REFORMA TRIBUTARIA ESTRUCTURAL 16/23
THE EMPLOYMENT AND PAY-ROLL TAX ADMINISTRATION (UGPP) WILL BE ABLE TO
MAKE COURT SETTLEMENTS WITH THE PAYERS OF MANDATORY CONTRIBUTIONS TO
THE SYSTEM
The payroll taxpayers will be able to make court settlements to terminate judicial
processes
The new Law 1819 established the following criteria:
Lower Court Instances: If the judicial process is being reviewed by a Lower Court
Instance, the UGPP can settle with the payer, by lowering 30% of the penalties, interests
on late payments, and price-level restatements. This settlement will be valid only if the
payer pays in full all the mandatory contributions being disputed, 100% of the interests on
late payments and 70% penalties, interests on late payments, and price-level restatements
regarding the rest of the contributions.
Higher Court Instances: If the judicial process is being reviewed by a Higher Court
Instance, the UGPP can settle with the payer, by lowering 20% of the penalties, interests
on late payments, and price-level restatements. This settlement will be valid only if the
payer pays in full all the mandatory contributions being disputed, 100% of the interests on
late payments regarding retirement contributions and 80% penalties, interests on late
payments, and price-level restatements regarding the rest of the contributions.
Penalties: When the procedure is determining the validity of a penalty imposed by the
UGPP, but no mandatory contributions are being discussed, the settlement made with the
payer can reduce up to 50% the penalties imposed to the taxpayer. For that, the payer will
have to pay 50% of the penalties determined by the UGPP prior to the Court trial.
THE EMPLOYMENT AND PAY-ROLL TAX ADMINISTRATION (UGPP) IS NOW ABLE TO
TERMINATE ADMINISTRATIVE PROCEEDINGS
The UGPP will be able to terminate administrative proceedings that are currently in
progress regarding contributions, penalties, interests on late payments, and price-level
restatements
The taxpayer will be subject to the termination if it complies with the following
requirements:
In the proceedings regarding the determination of mandatory contributions, the UGPP will
terminate them once the taxpayer pays in full the mandatory contribution that was
determined, 100% of the interests on late payments regarding retirement contributions,
NEWSLETTER I COLOMBIA: REFORMA TRIBUTARIA ESTRUCTURAL 17/23
20% of the interests on late payments regarding the other mandatory contributions and
80% of the penalties.
If the administrative proceeding is determining a non-filling penalty, and the taxpayer pays
10% of the penalty, the UGPP will wave 90% of the total penalty amount.
THE EMPLOYMENT AND PAY-ROLL TAX ADMINISTRATION (UGPP) IS NOW ABLE TO
TERMINATE ADMINISTRATIVE PROCEEDINGS
The UGPP will be able to terminate administrative proceedings that are currently in
progress regarding contributions, penalties, interests on late payments, and price-level
restatements
The taxpayer will be subject to the termination if it complies with the following
requirements:
In the proceedings regarding the determination of mandatory contributions, the UGPP will
terminate them once the taxpayer pays in full the mandatory contribution that was
determined, 100% of the interests on late payments regarding retirement contributions,
20% of the interests on late payments regarding the other mandatory contributions and
80% of the penalties.
If the administrative proceeding is determining a non-filling penalty, and the taxpayer pays
10% of the penalty, the UGPP will wave 90% of the total penalty amount.
A NEW TAX AMNESTY PROGRAM WAS INTRODUCED REGARDING INVALID VALUE
ADDED TAX (VAT) AND WITHHOLDING RETURNS
This benefit applies until the 30th of November of 2016
Taxpayers will be able to file again invalid VAT returns until the 30 th of November of 2016
without having to compute penalties or late payment interests.
This benefit is also applicable to withholding tax returns.
NEWSLETTER I COLOMBIA: REFORMA TRIBUTARIA ESTRUCTURAL 18/23
TAX BENEFITS FOR TAXPAYERS THAT INCREASE THEIR INVESTMENTS ON
HYDROCARBONS AND MINING EXPLORATION
A Tax Reimbursement Certificate (CERT) will be granted to these taxpayers
This benefit will only be granted if the increase in the investment is directed to:
Discovering new hydrocarbons reservoirs, adding confirmed oil reserves or incorporating
new recoverable reserves.
Maintaining or increasing the mining production of the current mining projects and
accelerating projects that not being currently exploited (making the step from the
construction or assembly phase to mining).
TWO NEW CRIMINAL OFFENSES WERE INTRODUCED IN CONNECTION WITH TAX
EVASION
The criminal offenses are related with the failure to report assets or the inclusion of non-
existent liabilities and the failure to pay withheld taxes
The Tax Reform creates the so-called "Criminal Offenses Against the Tax Administration".
The criminal offense related with the failure to report assets or the inclusion of non-
existent liabilities punishes those taxpayers which intentionally omit assets or report
inaccurate information in relation to the assets, or who report non-existent liabilities, for a
value equal to or greater than seven thousand two hundred and fifty (7,250) minimum
legal monthly wages. This behavior will be subject to incarceration for a term of forty-
eight (48) up to one hundred and eight (108) months and a fine of twenty percent (20%)
of the value of the unreported assets, the value of the asset inaccurately reported or of
the value of the non-existent liability.
The criminal offense regarding the omission of duties as withholding agent punishes those
withholding agents or self-withholding taxpayers that do not pay before the Tax
Administration the withheld taxes within 2 months following the date set by the National
Government. The penalty established is incarceration from forty-eight (48) to one hundred
and eight (108) months and a fine equal to twice the un-paid amount without exceeding
the equivalent of one million twenty thousand (1,020,000) Tax Value Units. This same
sanction will be applied to those VAT or National Consumption Taxpayers that, having a
legal obligation to do so, do not pay the amounts collected in connection with those taxes
within two (2) months following the date set by the National Government.
NEWSLETTER I COLOMBIA: REFORMA TRIBUTARIA ESTRUCTURAL 19/23
With regards to both criminal offenses, there is a possibility of extinguishing the criminal
action if the taxpayer files or amends the corresponding tax return and makes the
applicable payments.
These changes were included in Articles 338 and 339 of Law 1819 of 2016.
A NEW NATIONAL REGISTRY WILL BE CREATED FOR ENTITIES WISHING TO ACCESS
TO THE SPECIAL TAX REGIME OF NON-FOR-PROFIT ORGANIZATIONS
Entities should seek to qualify before DIAN in order to apply the special tax regime, and
also must fulfill new reporting obligations online and before the Chamber of Commerce
All entities that wish to belong to the special tax regime, must file an application so as to
be qualified by DIAN. If such authorization is denied, the entity will be deemed as a
corporation for tax purposes.
The entities that at December 31st of 2016 were part of the special tax regime will remain
as such if they comply with the requirements for doing so.
Those legally incorporated non-for-profit organizations that as of January 1, 2017 were
considered as taxpayers of the ordinary income tax regime that were eligible for filing
their application to the special tax regime, are automatically admitted and qualified in it.
In those cases in which it is decided to modify the quality of the entity, an administrative
act shall be issued no later than October 31, 2018.
These regulations are included in Article 140 and 148 of Law 1819 of 2016.
ALTERNATIVE METHOD TO DETERMINE UNJUSTIFIED EQUITY INCREASES OF
QUALIFIED ENTITIES BELONGING TO THE SPECIAL TAX REGIME
Entities that are part of the special tax regime will be subject of the income tax
determination mechanism by equity comparison
The income mechanism by equity comparison will be applied to quantify differences in the
behavior of the surplus net benefits between taxable periods. In case that the difference is
unjustified, a taxable income will be triggered for the qualified entity.
NEWSLETTER I COLOMBIA: REFORMA TRIBUTARIA ESTRUCTURAL 20/23
CONTRACTS WITH INDIVIDUALS RELATED DIRECTLY OR INDIRECTLY TO THE NON-
FOR-PROFIT ENTITY SHALL BE REGISTERED BEFORE DIAN
Contracts with founders, managers, donors, family members among others, which own
more than 30% of the entity, shall be registered
All payments or execution of contracts, whether free of charge or not, made in favor of
founders, managers, donors, family members among others, which own more than 30% of
the entity, will be considered as an indirect distribution of profits and will have as
consequence the exclusion of the entity from the special tax regime.
All contracts or legal acts entered into with the founders, donors, managers or their relatives
who own more than 30% of the entity must be registered with DIAN. The Tax Administration
will determine if the contract constitutes an indirect distribution of profits, and if so, the
entity will be excluded from the special tax regime.
The indirect distribution of profits and remuneration of the management positions of
taxpayers to the special tax regime is contemplated in Article 147 of Law 1819 of 2016.
NEW ACTIVITIES WILL BE ESTABLISHED FOR BELONGING TO THE SPECIAL TAX
REGIME OF NON-FOR-PROFIT ENTITIES
The list of activities subject to the special tax regime is extended to new activities
The new activities covered by the special tax regime include the protection of the
environment, the prevention on the consumption of psychoactive substances, the
promotion of sport activities, the religious freedom, the economy development, the
promotion of the improvement of the justice administration and the execution of funds
deriving from international cooperation of foreign non-profit entities.
TIME LIMIT FOR THE INVESTMENT IN PERMANENT ASSIGNMENTS OF NON-FOR-
PROFIT ENTITIES
A limit of 5 years applies. New assets can be acquired with these assignments, as long as
they are destined to the development of the meritorious activity
When an investment program is being implemented whose execution requires additional
terms or new permanent allocations, an authorization by the General Assembly or
governing body of the entity will be required. However, permanent assignments may not
have a term of more than five (5) years.
With permanent assignments, new assets can be acquired, as long as they are destined to
the development of meritorious activity. However, the profits acquired with the permanent
assignments must be destined to the development of the social object of the entities.
NEWSLETTER I COLOMBIA: REFORMA TRIBUTARIA ESTRUCTURAL 21/23
This treatment is regulated in Article 153 of Law 1819 of 2016.
CREATION OF THE SINGLE TAX FOR SMALL RETAIL BUSINESS
The single tax for small retail business was created in order to promote formal business
and facilitate the compliance with the tax obligations
The single tax seeks to replace the income tax for individuals who obtain their income
from informal activities (retail or hairdressing) and who voluntarily subject themselves to
the regime of this new tax. The objective of this tax is to establish more beneficial rates
and a simpler system for taxpayers.
The taxpayers of the single tax are individuals who meet the following conditions:
Have gross income, in the taxable year, equal or above 1400 UVT (COP$
44,604,000) and less than 3500 UVT (COP$ 111,510,000)
To carry out their economic activity in an establishment with an area of less than
50 square meters.
Be eligible to receive the Social Service of Supplemental Periodic Economic Benefits
-BEPS.
Carry out as an economic activity in the field of retail or hairdressing as well as
other beauty treatments.
The amount to be paid will depend on the gross income of the taxpayer, according to the
categories defined in the law.
The single tax is included in Article 165 of Law 1819 of 2016.
NEW TAXATION FOR THE CONSUMPTION OF PLASTIC BAGS
From the 1st of July of 2017, the use of plastic bags to carry items that were purchased in
stores or other retail business will be subject to this new tax.
Persons that use plastic bags to carry products purchased in any kind of businesses,
including the bags used for their delivery, will be charged with this new tax according to
the following chart:
NEWSLETTER I COLOMBIA: REFORMA TRIBUTARIA ESTRUCTURAL 22/23
YEAR TAX AMOUNT PER BAG (COP)
2017 $20
2018 $30
2019 $40
2020 $50
NEW CARBON TAX
The new carbon tax was adopted
The sale, extraction, import for its own consumption or import for the sale of all fossil
fuels, including oil derivatives and all types of fossil gases used for energy purposes, will
be taxed from 2017. The rate applicable to this tax varies according to the percentage of
carbon content of different fossil fuels, petroleum derivatives and all types of fossil gas.
The carbon tax is included in Article 221 of the new tax reform.
ARBITRATION AWARDS AND COURT RULINGS WILL BE TAXED IF THEY HAVE AN
ECONOMIC CONTENT
This tax is applicable for all individuals, corporations and trusts
Individuals and corporations in whose favor a payment is ordered in compliance with an
arbitration or judicial ruling, for a value of more than seventy-three (73) legal minimum
monthly wages, will be subject to this new contribution. The rate established for this
contribution is two percent (2%) of the total value of the payments awarded. However, the
contribution may not exceed one thousand (1.000) legal minimum monthly wages.
The payer shall withhold the contribution at the moment of making the payment of the
amount ordered by the respective judicial ruling or arbitration award.
This treatment is established in the Article 364 of Law 1819 of 2016.
NEWSLETTER I COLOMBIA: REFORMA TRIBUTARIA ESTRUCTURAL 23/23
CHANGES TO THE INDUSTRY AND COMMERCE TAX (ICA)
The new regulation included a description of the service activities subject to the tax
These activities should include all the services, activities, or labors executed by an
individual or a corporation, outside of a labor relationship or contract between the parties,
regardless of the predominance of the material or intellectual content of the activity.
The new regulation also included a new criterion for determining the territoriality for
“investment” activities. All income perceived from businesses wi ll be taxed by the city
where the business or corporation is located. This means that the dividends perceived by
Colombian holding entities will be subject to ICA tax.
This treatment is established in Article 343 of Law 1819 of 2016.