close
Share with your friends

Colombia: Legislation includes VAT measures, corporate rate reduction, investment incentives

Tax legislation in Colombia

A bill submitted to Colombia’s legislature on 31 October 2018 is intended to raise revenue in an effort to reduce the current deficit. The main revenue raising provision would be the broadening of items subject to value added tax (VAT) even though the bill includes measures that would gradually reduce the current VAT rate of 19% to 17% by 2021.

1000

Related content

The bill would also reduce the corporate income tax rate from 33% to 30%, and would provide certain tax incentives to promote investment, economic growth, and employment. The legislation is expected to be approved before the end of the year. 

Overview of tax proposals

VAT measures

The bill would reduce the VAT rate to 17% by 2021. However, the Colombian government intends to raise revenue through imposition of VAT (despite the provision to lower the rate of VAT) by expanding the items subject to VAT and by eliminating exemptions and exceptions that generally have been targeted at lower-income consumers.

The bill would also modify the VAT collection rules for non-residents by allowing banks to elect to withhold VAT on payments made for electronic or digital services and intangibles. 

Another measure would allow the amount of VAT paid on capital goods to be creditable against the VAT-payer’s income taxes.

Corporate income tax rate reduction, other tax measures

The bill would gradually reduce the corporate income tax rate from 33% to 30% by 2022. It also would introduce a 5% withholding tax on distributions from one Colombian company to another Colombian company. 

It appears that the bill would repeal the “presumptive net worth” income tax rate by 2021; however, it is not clear whether this would be a permanent repeal or simply a suspension of the current 3.5% rate so that the tax would spring back and be effective in 2022. 

In addition, the 30% penalty rate on disposition of shares in an entity that has undergone a tax-free or tax-deferred reorganization within two years prior to the disposition would be repealed. 

International tax proposals

The legislative proposal also would made certain changes to Colombia’s international tax rules including:

  • While the withholding tax rate on dividends would remain at 5%, an increase to the rate of withhholding tax for royalties and services to 20% (increased from 15%) and an increase to 33% for the rate on payments of management fees
  • Changes to the taxation of branches, with a change from the current territorial system to a worldwide system, and measures to deny the deductibility of financial expenses attributable to the branch
  • Taxation of the indirect transfer of shares in a Colombian company, with exceptions allowed when the shares are traded on a recognized and regulated stock exchange, or when the underlying Colombian assets represent no more than the 20% of the total value of the assets of the sold foreign entity
  • If the active income of a controlled foreign company (CFC) reaches 80% of the CFC's total income, all the income (taking into consideration costs and expenses) would be deemed to be active income
  • A new holding company regime to attract multinational entities by means of tax exemptions allowed for foreign dividends, the sale of foreign subsidiary shares, and CFC shares

Other changes

The bill would allow:

  • A deduction for taxes attributable to income-producing activities
  • Income tax credits for 50% of the municipal turnover tax (ICA) and financial transactions tax (GMF) 
  • The tax authorities to require arm´s length valuation on domestic sales of goods and services

The bill would amend or introduce certain incentives for: (1) lower income tax rates, accelerated depreciation, and dividend withholding tax exemptions for “mega investments;” (2) tax credits for private investors involved in public works projects in “conflict zones;” (3) a “tax holiday” of five years for high-tech investments and 10 years for agri-business investment; and (4) a 9% income tax rate, applicable for 20 years, for new or “significantly remodeled” hotels.

 

For more information, contact a tax professional with KPMG’s Latin America Markets practice or with the KPMG member firm in Colombia:

 

Alfonso A-Pallete | +1 (305) 913 2789 | apallete@kpmg.com

Zulay Perez | +57 (1) 618 8000, ex. 1386 | zulayperez@kpmg.com

Eric Thompson | +57 (1) 618 8000, ex. 1322 | ericthompson@kpmg.com

© 2019 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal