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.
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.
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.
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entity that has undergone a tax-free or tax-deferred reorganization within two years prior to the disposition would be repealed.
The legislative proposal also would made certain changes to Colombia’s international tax rules including:
The bill would allow:
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 | firstname.lastname@example.org
Zulay Perez | +57 (1) 618 8000, ex. 1386 | email@example.com
Eric Thompson | +57 (1) 618 8000, ex. 1322 | firstname.lastname@example.org
© 2020 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.