Explore the requirements and rules that apply to Indirect Taxes in Colombia.
Explore the requirements and rules that apply to Indirect Taxes in Colombia.
Types of indirect taxes (VAT/GST and other indirect taxes).
Are there other indirect taxes?
Excise tax, financial transactions tax (Gravamen a los Movimientos Financieros or GMF) and registry tax.
What supplies are subject to VAT?
Colombian VAT is a tax based on the value-added method. VAT is due on:
For VAT purposes, the concept of taxable “sale” includes:
Under the VAT system, tax is levied at each stage of the manufacturing and distribution process on a non-cumulative basis. The accumulation of tax is avoided through the deduction of VAT invoiced to the entity. The entity should assess the VAT on the total amount invoiced in each tax period but is entitled to recover the input VAT invoiced to the entity during the same period. If in any tax period the credit for input VAT is higher than the amount of VAT due on output, the entity is not entitled to a refund (unless the input VAT is related to exports, to exempt goods produced or is VAT withheld). Instead, the excess of input VAT is credited against future VAT liabilities.
What are the standard or other rates (i.e. reduced rate) for VAT/GST and other indirect taxes?
Who is required to register for VAT/GST and other indirect taxes?
National excise tax
Regional excise duties
Producers and importers of cigarettes, alcoholic beverages, beer and beer mixtures.
The financial entities are the withholding agents.
The registration offices and Chambers of commerce act as the tax collector.
Is voluntary registration for VAT/GST and other indirect taxes possible for an overseas company (e.g. if the annual turnover is below the relevant VAT/GST and other indirect taxes registration threshold)?
Registration is mandatory for overseas companies supplying services from abroad to Colombian- based costumers provided they are not required by law to withhold VAT). No thresholds are applicable.
The registration started on 3 August 2018 with the issuance of Decree 1415 of the same year. Nevertheless obligation for non-residents to charge VAT on supplies to Colombian residents started as of 1 July 2018 (where the Colombian resident is not required to withhold VAT)
Companies without domicile or residence in Colombia selling goods located in the country at the time of the sale would be required to register for VAT purposes.
Are there any simplifications that could avoid the need for an overseas company to register for VAT?
In principle, VAT registration of an overseas company is not necessary.
Non-resident companies that sell goods from overseas are not responsible for VAT.
Companies providing services from abroad to Colombian residents are not required to register, provided that the customer is required to withhold VAT. In this case, VAT is self-assessed by the customer (reverse charge).
All Colombian entities are required to withhold VAT (VAT common regime), while only certain individuals have been designated as VAT withholding agents.
Does an overseas company need to appoint a fiscal representative?
The fiscal representative notion is not regulated by the Colombian tax law. In principle, non-residents will be able to file and sign directly its VAT returns electronically through the tax authority's portal. A legal representative could also be appointed for this purposes.
Foreign entities selling goods in Colombia on a regular basis must incorporate a permanent establishment (e.g. branch office or a subsidiary for such purposes).
Foreign companies rendering taxable services from abroad are required to file VAT returns in Colombia (obligation to charge VAT started as of 1 July 2018 while the obligation to file returns would start as of November 2018); therefore, they should be registered and should have designated an authorized signatory.
Which forms and supporting documentation does an overseas company need to submit for VAT/GST and other indirect tax registrations?
With regard to non-resident sellers of goods that incorporate a branch or subsidiary as a consequence of activities within the territory, the requirements for registering for tax effects, are the following:
For non-resident services providers required to register, the following documentation should be filed with the registration request:
In addition, the non-resident provider must provide the following documentation:
Is grouping* for VAT/GST and other indirect taxes possible?
How frequently are VAT/GST and other indirect tax returns submitted?
What are the exchange rate rules in your country?
Transactions in foreign currencies must be converted to Colombian pesos and the VAT must be paid in the local currency. The Colombian Central Bank (Banco de la República) regulates the exchange system.
Exports – Goods
How are exports of goods treated?
Exports of goods are exempt from VAT (zero-rated).
Exports – Services
How are exports of services treated for VAT/GST purposes?
Exportation of services are VAT exempt (zero- rated). For services provided by Colombian entities/individuals to non-locally established entities to be considered as an export of services for Colombian VAT purposes, and therefore subject to VAT at 0 percent, the following conditions must all be met:
Imports – Goods
How are goods dealt with on importation?
When goods are imported into Colombian territory, the VAT due on the importation, and the customs duties, should be paid by the importer with the importation return.
Imports – Services
How are services brought in from abroad treated for VAT purposes?
When services are imported into Colombia (i.e. provided from abroad to a Colombian tax resident) VAT at the general 19 percent rate is triggered.
When the beneficiary of the services (i.e. the Colombian tax resident) is required to withhold VAT, then the tax would be “self-assessed” by the beneficiary of services (reverse charge).
When the beneficiary of services is not required to withhold VAT, the services provider should register with the tax authority and file VAT returns.
Can an overseas company recover VAT/GST and other indirect taxes if not registered for VAT/GST locally?
In principle and based on general VAT rules, registered entities/individuals are entitled to recover or deduct the input VAT.
However, procedures for an overseas company rendering taxable services and filing VAT returns have not been established yet.
Are there any exemptions with the right to recover or deduct input VAT?
Yes, certain VAT exemptions have the right to recover input VAT, among them exportations, provided several requirements are met.
Are there any restrictions to the deduction of input VAT?
When taxpayers undertake activities that generate VAT, zero-rated activities and VAT-excluded activities at the same time, deduction of input VAT is subject to an apportionment calculation (i.e. not all input VAT would be recoverable).
When is VAT/GST due on a supply of goods or services?
In accordance with applicable regulations, VAT is triggered as follows:
Is a business required to issue tax invoices?
Yes, except when providers belong to the VAT simplified regime (applicable to individuals, not entities).
In the case of overseas companies required to register for VAT purposes in principle, no formal Colombian invoice should be issued, but a supporting document of the operation that should contain:
Is it possible/mandatory to issue invoices electronically?
It is possible when requirements are met but not mandatory.
Currently enforceable regulations do not contemplate mandatory electronic invoicing for overseas companies.
Pursuant to the dispositions of the recent tax reform, electronic invoicing would be mandatory as of 2019 once the government and the tax administration regulate the subject.
Is it possible for the vendor to issue an invoice (i.e. self-billing)?
No, however in certain specific circumstances, the taxpayer is required to prepare an internal document denominated “equivalent document” to formalize operations with individuals that are not required to issue invoices.
Regulations for overseas companies in this regard have not been issued to the date.
How long must records and invoices be retained?
For tax purposes, the retention period of the documents that support respective operations is equivalent to the respective statute of limitations of income tax returns. VAT returns statute of limitations period is 3 years from the filing of the income tax return for the year in which the VAT is filed.
Can the invoices be stored abroad?
There are no regulations that prohibit storing supporting documentation out of Colombian territory. Therefore, taxpayers are allowed to store invoices abroad to the extent that, upon the tax authority’s request, the taxpayer is able to provide requested invoices within the term granted by the tax authority.
Do tax audits take place on a regular basis?
Audits are random. They are generally triggered by a VAT refund request submitted by the taxpayer or due to audit programs of the tax authority.
Are audits done electronically in your country (e-audit)? If so, what system is in use?
What penalties can arise from non-compliance?
The delay penalty is 5 percent of the amount due for the tax per month, or fraction, of delay, plus interest on arrears. The penalty would be increased to 10 percent if the outstanding return is filed after being summoned by the tax authority. Should the taxpayer not file the returns after being summoned, the non-compliance penalty will be equivalent to 10 percent of the gross revenues (among other parameters) of the corresponding VAT period.
Are there any special rules for the sale of a company by one taxpayer to another where VAT is not due on the sale?
There is no specific VAT rule applicable on the sale of a company. Therefore, this operation should be analysed as a sale of assets and liabilities. Thus, for VAT purposes, the sale of fixed assets and intangibles are not subject to VAT. However, inventories and intangibles associated with industrial property (i.e. brands, patents, commercial names, industrial designs, industrial secrets, etc. – except copyrights) involved in such a sale could be taxable. In the event of the acquisition of a company by the purchase of its shares, no VAT would be triggered.
Are there unique specific indirect tax rules that you would not expect to find in ‘standard’ VAT jurisdictions?
Yes. Pursuant to the dispositions of the recent tax reform, overseas companies rendering taxable services from abroad to Colombian entities / individuals are required to register for VAT purposes and file the respective returns. Procedures for registration and filing of the returns have not been established yet.
Does a reverse-charge mechanism apply for goods or services?
Yes. The Tax Code provides a reverse-charge mechanism to be applied on operations in which services are rendered from abroad to Colombian costumers who are invested as VAT withholding tax agents for those services.
The reverse-charge mechanism rate is 100 percent of the VAT due.
The reverse charge is not applicable upon the supplies of goods. Note that when the supply is undertaken from abroad (i.e. imported by the customer) no VAT applies.
Are there indirect tax incentives available (e.g. reduced rates, tax holidays)?
VAT benefits on importations
Payment of the VAT in instalments: In importation of heavy machinery for basic industries and provided that the respective machine´s cost, insurance and freight (CIF) value is greater than USD500,000 the taxpayers will be allowed to pay the VAT caused by the importation in three instalments: 40 percent with the importation return and the other 60 percent in two equal instalments within two years. A payment agreement shall be signed with the tax authority for this purpose.
Corporate tax credit: Taxpayers are able to use as a tax credit the VAT paid in the importation of heavy machinery for basic industries in the year in which the respective VAT is paid or in the following years.
It is important to point out that said benefits would be applicable only in the case of ordinary importations of machinery (i.e. not temporary importations).
Importations not subject to VAT: The temporary importation of heavy machinery for basic industries is not subject to VAT, provided that there is no production of the respective goods in Colombia. It should be highlighted that mining, hydrocarbons and heavy chemicals are considered basic industries (among others).
In addition, the Tax Code also foresees in the case of manufacturers and service providers, VAT paid on importation and acquisition of capital goods can also be used as a corporate tax deduction in the year of the importation.
Are rulings and decisions issued by the tax authorities publicly available?
Rulings are publicly available. However, rulings in Colombia do not cover particular or specific taxpayer situations but are general interpretations of the tax law. Rulings are not mandatory for taxpayers, although they can be used to support their operations with the tax authority.
María Consuelo Torres
KPMG in Colombia
T: +57 1618 8000
*By ‘grouping’ we mean: either a consolidation mechanism between taxpayers belonging to the same group (payment and refund are compensated but taxpayers remain distinct) or a fiscal unity for VAT/GST purposes (several taxpayers are regarded as a single taxpayer).