Tax returns and compliance
Tax rates
Residence rules
Termination of residence
Economic employer approach
Types of taxable compensation
Tax-exempt income
Expatriate concessions
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
General deductions from income
Tax reimbursement methods
Calculation of estimates/prepayments/withholdings
Relief for foreign taxes
General tax credits
Sample tax calculation

All income tax information is summarized by KPMG Impuestos y Servicios Legales Ltda., the Colombian member firm of KPMG International, based on the Colombian Tax Code, Articles 24, 25, 46, 55, 56, 90, 126-1, 126-4, 241, 242, 245, 246, 247, 329 to 343, 283, 388, 407 to 411, and 592 to 594 and the Colombian National Constitution, Article 338.

When should income tax returns to be submitted to the tax authorities? 

The tax authorities publish a schedule each year (in December of the previous year), which sets out the due dates for submission of the tax returns. Usually those are scheduled during August and the exact due date may differ for each individual based on the last two digits of his/her tax identification number (NIT).

What is the tax year-end? 

The tax year coincides with the calendar year and ends on 31 December.

What are the requirements for completing tax returns in Colombia?

In general, an individual who have received income and/or own property, after 31 December in any tax year, must submit a tax return if the income/value of their property is above a certain amount. Failure to do so will result in a monthly penalty, payable in arrears, equal to 5 percent (for each month) of the outstanding tax, capped at 100 percent of the amount payable.

Taxpayers who fulfill all the following conditions are liable to submit a tax return for FY2017.

• All inviduals whose income is higher than COP 46.418.400 , or whose gross equity is higher than COP 143.365.500, within the respective tax year. 
• Credit card purchases or whole purchases during the taxable year that exceed COP 46.418.400.
• The accumulated balance on banking accounts, savings, deposits or financial investments, during the taxable year that are higher than COP 44.602.600.

Taxpayers who are not resident for fiscal matters who will have to pay the full current tax rate (35% for FY2017). It is important to mention that if a foreign individual was subject to a withholding of 35%, would not be liable to file the Colombian income tax return.

Any outstanding tax must be paid at the time of filing the return. Failure to pay tax when due will result in a penalty and interest will accrue daily on any unpaid taxes at a rate of approximately 33.51 percent per annum (until 31 March 2017, for liabilities associated to FY2016). On 1 April 2017, the government will announce the applicable rate for the next quarter.
All foreign nationals are required to obtain a National Identification Number (NIT) to be used in their tax affairs.

Employers are obliged to withhold tax from expatriates’ earnings every month as follows:

• If the expatriate is a non-resident, 15 percent of total monthly compensation should be withheld.
• If the expatriate is a resident his labor income will be liable for tax at the progressive rates from 0 percent to 33 percent in accordance with the table determined by law.
  

Any tax withheld will be taken into account in the calculation of the final tax liability.

A person who does not meet the criteria of a resident is considered to be a non-resident for fiscal matters.

A person who spends less than 183 days in any 365 days period in Colombia is therefore a non-resident for fiscal matters.

Colombian nationals and foreign taxpayers who are considered non-resident for fiscal matters, are liable for tax in Colombia only on income derived directly or indirectly from a Colombian source.

What are the current income tax rates for residents and non-residents in Colombia?

A tax reform was approved in Colombia and is in force from FY 2017. The Law 1819 introduced several changes to the individual’s tax structure. From FY 2017 (returns which will be filed in 2018), the rents received by individuals should be separated in “baskets” depending on the type of income:

1. Labor Income;
2. Pensions;
3. Capital income (interests or financial yields, rentals, royalties, etc.);
4. Non-labor income (residual basket) and
5. Dividends.

In addition, there would be a regime for capital gains, understood as the gain obtained from selling assets possessed for more than two years. In this case, the tax rate applicable is 10%.

For the 2017 tax year, income tax rates increase on a marginal basis from 0 percent to 33 percent as detailed below, for labor income:

Labor Income tax table for 2017

For foreign non-residents, the income tax rate for taxable year 2017 is 35 percent.

For the purposes of income tax, when is an individual considered to be a resident of Colombia?

Colombian law sets out that a person is considered resident for fiscal matters in Colombia if the individual remains in the country, whether or not the stay is continuous, for a period of more than 183 days during a 365 days period or if, within the fiscal year, the 183 days are completed.

A resident also includes a Colombian national whose family, assets or business remains in the country even though the Colombian national resides in a foreign country.

A person who does not meet the criteria of a resident is considered to be a non-resident for fiscal matters.

A person who spends less than 183 days in Colombia during a 365 days period is therefore a non-resident for fiscal matters.

A person who is resident for fiscal matters in the country is liable for tax in Colombia on worldwide income.

Taxpayers who are considered non-resident for fiscal matters, are liable for tax in Colombia only on income derived directly or indirectly from a Colombian source.

Is there a minimum number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

The count of days spent in the country is calculated upon the individual's arrivals and departures to/from Colombia during the taxable year, regardless of official assignment start or end dates.

What if the assignee enters the country before their assignment begins?

If the individual enters the country before his/her assignment begins, those days are also counted to determine the residence status for income tax purposes.

Are there any tax compliance requirements when leaving Colombia?

Besides airport and exit taxes, if an individual receives a bonus or other compensation regarding the services rendered in Colombia, after the end of the assignment such bonus or compensation is considered taxable income in Colombia.

What if the assignee comes back for a trip after residency has terminated?

If the trip is in the same taxable year of the end of the assignment, those trip days will be also included within the calculation made to determine the residence status of the individual according to the counting days rule aforementioned.

Do the immigration authorities in Colombia provide information to the local taxation authorities regarding when a person enters or leaves Colombia?

Even though the immigration authority is an independent entity from the tax authority (Dirección Nacional de Impuestos y Aduanas Nacionales DIAN), the DIAN may request at any time the information of every individual who arrives or leaves the country and may ask for the complete report of the arrivals and departures within a taxable year to determine the residence.

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

An assignee who has returned to his/her home country, or who has been assigned to a different country, may still be required to file an income tax return in Colombia, depending on the individual’s situation. For example, an assignee that began the tax year as a resident in Colombia and has returned to his/her home country within the same taxable period will be required to file an income tax return in respect of the time he/she rendered the services in Colombia during the year.

Do the taxation authorities in Colombia adopt the economic employer approach² to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Colombia considering the adoption of this interpretation of economic employer in the future?

The tax authorities in Colombia have not considered yet the adoption of the interpretation of economic employer.

Is there a de minimus number of days before the tax authorities in Colombia will apply the economic employer approach? If yes, what is the de minimus number of days³?

The tax authorities in Colombia have not considered yet the adoption of the interpretation of economic employer.

What categories are subject to income tax in general situations? 

As mentioned above, the rents received by individuals should be separated in “baskets” depending on the type of income:

1. Labor Income;
2. Pensions;
3. Capital income (interests or financial yields, rentals, royalties, etc.);
4. Non-labor income (residual basket) and
5. Dividends.

In addition, there would be a regime for capital gains, understood as the gain obtained from selling assets possessed for more than two years. In this case, the tax rate applicable is 10%.

Now, the new Colombian tax regime applicable to each income should not affect any other, therefore the respective taxable base (related to each basket) cannot be unduly affected by deductions, tax benefits, and costs and expenses that should only be charged to a particular income (belonging to a specific basket). As a result of the calculation process of each basket, a net income will be generated in each event, which will be added at the end to the other net income related to the other categories (baskets: labor income and pensions, capital income and non-labor income and dividends), in order to determine the definitive income tax liability for the employee.

From the labor perspective all remuneration, fees, and allowances paid under an employment contract or as an independent worker are treated as taxable income to the extent they are received in return for services provided in Colombia. For this reason, all payments received in cash or in kind by an employee are taxable, regardless of where the compensation is paid.

Source: KPMG in Colombia, 2017

Expatriate compensation packages commonly contain the following taxable benefits:

• base salary
• housing allowance
• payment for cost of children’s education
• bonuses.

Are there any areas of income that are exempt from taxation in Colombia? If so, please provide a general definition of these areas:

• benefits in respect of an employer owned vehicle used for business purposes.
• 25 percent of salary (gross income minus costs and deductions and other exempt income).
• Voluntary contributions to pension funds or AFC savings account are now considered as exempt income and limited to the 30% of taxable income or to an annual cap of COP125.992.800 (approximately USD40,300). Those contributions that are withdrawn before a minimum term of 10 years will be included, however, as income in the year of withdrawal, with the exception of withdrawals made to acquire real estate.

It is important to bear in mind that the tax reform introduced a limitation exempt income and deductions cannot exceed 40% of gross income less health and pension contributions or COP167.106.240 , for FY2018.

The provision of an employer-owned vehicle is not a taxable benefit where the vehicle is used mainly for work purposes.

For 2018, 25 percent of net salary is exempt from income up to a monthly maximum of COP7,957,440 (approximately USD2,500) and COP7,646.160 (approximately USD2,400) for the year 2017.

Once again, it is important to bear in mind that the tax reform introduced a limitation exempt income and deductions cannot exceed 40% of gross income less health and pension contributions or COP167.106.240 , for FY2018.

Are there any concessions made for expatriates in Colombia?

Colombia does not have any concessions available for expatriates. The general regime for Colombian individuals applies to assignees.

Is salary earned from working abroad taxed in Colombia? If so, how?

The salary earned from working abroad is taxable in Colombia, when the individuals are considered as resident for tax matters. However, the Colombian tax legislation allows to take as a tax credit the taxes paid abroad on the foreign source income, only to the amount that such income would be taxed in Colombia.

Are investment income and capital gains taxed in Colombia? If so, how?

Non – Labor / Capítal Income tax table for 2018

If the income is received as non-Labor or capital income, the following progressive tax rates will apply:

If the income received as investment income in this event is considered as a “Dividend”, then it should be observed that the Colombian tax regime to be applied would be the following:

At first a 35% on the amount of dividends received by the employee, plus an additional income tax rate according to the chart below, which it is applied to the difference between the total initial or gross amount of dividends less the mentioned 35%, which in the higher bracket would be a nominal rate of around 41.5%:

On the other hand, capital gains are generally taxed at 10 percent. For example, capital gains may arise on the sale of fixed assets, owned for more than two years.

Capital gains also arise on prizes, raffles, and lottery winnings in respect of any amount received in excess of the capital subscribed.

Investment income is normally included in the individual’s tax base.

A dividend includes any ordinary or extraordinary distribution, made in-cash or in-kind, by a company or similar entity, to its shareholders or partners, paid out of net profits earned in the tax year or retained from previous years, including an extraordinary distribution paid on the reorganization or liquidation of the company.

Interest income received by resident individuals or entities is included as taxable income and taxed under the ordinary rules. For legal purposes, interest is deemed to include all amounts paid by a debtor to a creditor, other than the initial credit granted, even where the amounts may be justified as fees, commissions, or other similar income. Interest also includes amounts paid by a debtor for services directly connected with the credit, which is in excess of amounts specified in the regulations.

Royalties derived from trademarks, patents, copyrights, know-how, and other intangibles assets are included as gross income and are subject to income tax.

After a certain amount of time with a company, an employee may be entitled to an option to receive shares as an award in an international group company. When considered as nonresident for tax purposes, employees are required to include the benefit of the share options when vesting or exercised (depending on the moment where the payment is made or received by the employee), associated to the services rendered in Colombia, in his/her annual income tax return, as with any other labor payments.

Resident employees are required to declare the benefit of the share options for services rendered overseas as well as in Colombia. The tax return must be filed on the following year in which the income is received.

Any amounts received in a foreign currency should be converted into Colombian Pesos using the official rate of exchange at the date of payment.

The exchange rate difference, resulting from the adjustments to the closing value of assets, is also treated as income.

Adjustments in respect of exchange differences: payments made in a foreign currency should be recorded in Colombian Pesos, using the official rate of exchange at the date of acquisition.

At the year end, any outstanding balances should be restated using the official rate of exchange at that date and any differences should be credited/charged to the profit and loss account.

Likewise, at the date when an outstanding balance is settled, any difference between the amount actually paid and the respective account payable should be credited/charged to the profit and loss account.

Please note that any inflationary component of the adjustment due to exchange rate differences is not deductible.

No information available.

Capital losses can be deducted from capital gains, resulting in a net capital gain or loss.

For the purpose of determining the net capital gain, no losses shall be allowed in respect of:

• the sale of social rights or shares of family companies
• the sale of fixed assets.

Where fixed assets are owned for less than two years, the profit or loss on sale of such assets should be treated as an ordinary taxable income.

No information available.

As capital gains for taxpayers subject to this tax are those originated in inheritance, bequests and donations, and the amount received as marital portion. Such gains are taxable based on the monetary value at the time the gift is received.

The monetary value of goods inherited or received as bequests, is the value recorded in the income and net worth tax return of the decedent on the last day of the taxable period prior to the year of his/her death.

Where donations are received as goods, their monetary value is determined from their fiscal value, recorded in the income and net worth tax return of the donor for the immediately preceding taxable period.

Where the property is acquired by the donor in the same year as the gift is made the monetary value of the donation is taken to be the fiscal cost.

Are there additional capital gains tax (CGT) issues in Colombia? If so, please provide details?

Capital gains are normally subject to ordinary income tax (10 percent), with the exception of a few items which are either subject to special tax rules or exempt from income tax altogether.

The taxable gain is the difference between the fiscal cost and the transfer price.

When computing taxable income or capital gains from the transfer of immovable property in Colombia, the fiscal cost of the property should be adjusted in accordance with the calculation change in the consumer price index. In addition, the original cost may be adjusted by the value of improvements and additions.

To compute the capital gain derived from the transfer of shares or contributions that are treated as fixed assets, the cost should be adjusted in accordance with the consumer price index.

The cost of immovable property includes the cost of construction, any improvements to the property which have not been deducted as repairs, any expenses and taxes which were necessary to put the asset into use, any financial expenses which have been capitalized, and the adjustment for inflation up to December 2006, less any depreciation claimed.

The cost of movable property includes the acquisition price, the cost of any additions or improvements, any expenses and taxes which were necessary to put the asset into use, any financial expenses which have been capitalized and the adjustment for inflation up to December 2006, less any depreciation claimed.

Assets held for more than two years are subject to income tax at 10%, and are calculated independent from the taxable income.

Withholding tax is not applicable on the sales of shares through brokerage companies.

Profits from the sale of shares on a Colombian stock exchange are not taxable, providing the individual does not hold more than 10 percent of the shares of the company.

Are there any exemptions in respect of capital gains? If so, please provide details?

Assignments for death causes or marital portions to legitimate heirs and spouses. Inheritances or bequests to persons different from legitimate heirs and spouse. Capital gains are exempt from income taxation in the following instance:

• gains arising from inheritance legacies and give up to certain amount
• prices received in open contests having a scientific, literary, journalistic, artistic or sporting nature approved by the national government up to a certain limit.

No information available.

No information available.

What are the general deductions from income allowed in Colombia?

Generally, for income different than labor income, any expenses incurred during the year which are necessary to develop an income-generating activity are deductible. It is important to bear in mind the limitations established.

Certain items are deductible from an individual’s gross income to arrive at the net taxable base, as follows:

• interest payment on loans taken out to acquire the taxpayer’s dwelling, providing the loan is secured by a mortgage and in accordance with certain rules, limited to COP 39.787.200 (USD 12,700, approx.).

• payments made towards health insurance, prepaid medical plans, limited to COP 530.496 (USD170)

• Payments for economical dependents, limited to 10 percent of gross income or to COP 1.060.992 (USD340, approx.).

Once again, it is important to bear in mind that the tax reform introduced a limitation exempt income and deductions cannot exceed 40% of gross income less health and pension contributions or COP167.106.240 , for FY2017.

What are the tax reimbursement methods generally used by employers in Colombia?

Generally, employers in Colombia will refund the cost of expenses. Now, regarding withholdings, if the employer practiced a withholding which exceeded the liability of the employee, such employee could request directly the excess of withholding to the employer. 

How are estimates/prepayments/withholdings of tax handled in Colombia? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

The aim of withholding tax in Colombia is to collect the tax in the same period that it accrues, that is, tax is withheld on a monthly basis at the same time the salary payments are made to the individual (PAYE).

No information available.

No information available.

When are estimates/prepayments/withholdings of tax due in Colombia? For example: monthly, annually, both, and so on.

In the same month the tax accrues.

Is there any Relief for Foreign Taxes in Colombia? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

If a tax resident individual pays tax in another country, on income earned abroad (foreign source income), the amount of tax paid abroad may be deducted from the tax payable in Colombia, up to 100 percent of the tax payable in Colombia in respect of that income.

In addition, the tax credit is also capped to the 75% of the tax due that results from the calculation of the presumptive rent system. 

What are the general tax credits that may be claimed in Colombia? Please list below.

A credit for foreign tax is available for residents for tax purposes. Any income tax paid overseas is taken as a tax credit from the Colombian tax, up to a maximum of 100 percent of the Colombian tax due in respect of that income.

In addition, the tax credit is also capped to the 75% of the tax due that results from the calculation of the presumptive rent system.

This calculation⁵ assumes a married taxpayer resident in Colombia with two children whose three-year assignment begins 1 January 2016 and ends 31 December 2018. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

Exchange rate used for calculation: USD1.00 = COP3,000.00.

• All earned income is from labor local sources.
• Bonuses accrue evenly over the tax year and are paid on 31 December.
• The company car is used for business and private purposes and originally cost USD50,000.
• The employee is deemed to be Colombian resident throughout the assignment.
• Tax treaties and totalization agreements are ignored for the purpose of this example.
• The tributary value units for FY 2018 are COP 33.156, and for FY 2019 and 2020 the tributary value units were calculated based on an estimate yearly increase of 4.5 percent of the prices index.
  

Calculation of taxable income

Calculation of tax liability