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Colombia - Indirect Tax Guide

Colombia - Indirect Tax Guide

Explore the requirements and rules that apply to Indirect Taxes in Colombia.

Explore the requirements and rules that apply to Indirect Taxes in Colombia.

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General

Types of indirect taxes (VAT/GST and other indirect taxes).

VAT.

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:

  • the sale of movable and immovable tangible property located in Colombia, that is not expressly excluded
  • the supply of services inside the Colombian territory and the supply of services from abroad
  • the importation of movable tangible properties that are not expressly excluded
  • the sale or running of gambling and gaming services (excluding lottery)
  • the alienation or cession of rights over intangible assets only associated to industrial property.

For VAT purposes, the concept of taxable “sale” includes:

  • all acts involving the transfer of ownership of movable and immovable tangible property (whether free or onerous), as well as the cession of intangible assets related to industrial property, regardless of the name given to the agreement
  • the incorporation of movable tangible property to immovable property or services not taxed, as well as the transformation of taxed goods into non-taxed goods, when they are created, manufactured, processed by the party exerting the transformation
  • the withdrawal of movable property by the owner for personal use or consumption or in order to form part of the fixed assets of the company.

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?

  • Beginning 1 January 2017, VAT: 19 percent (standard rate); 5 percent and 0 percent.
  • National excise tax: 4 percent for mobile phone and mobile internet services; 8 percent for vehicles with free-on-board (FOB) value of less than US dollars 30,000 (USD), boats for recreation, certain motorcycles, restaurants, and bar and club services; 16 percent for vehicles which FOB value is equivalent to or greater than USD30.000.
  • Regional excise duty: on alcoholic beverages, the rate is based on two components. The first is determined in local currency, the Colombian peso (COP), and in accordance with the alcoholic grade of the beverage; this component is updated each year with the respective inflation. The second is 20 percent for wines and 25 percent for other alcoholic beverages (over the selling price before taxes). Additionally, alcoholic beverages are subject to a 5 percent VAT.
  • Regional excise duty on cigarettes and elaborated tobacco products has two components as well: the first one is a tax expressed in a COP amount charged on every package of 20 units, this component is updated each year with the respective inflation. The second component is 10 percent over the selling price.
    • Financial tax: 0.4 percent.
    • Registry tax: 0.3 to 1 percent.

VAT/GST registration

Who is required to register for VAT/GST and other indirect taxes?

VAT

  • Resident individuals and entities rendering taxable supplies of goods and/or services in Colombia.
  • Individuals and entities rendering taxable services from abroad to Colombian tax residents, when the latter are not required by law to apply VAT withholdings. The obligation takes place as of July 2018.
  • Importers of goods.
  • In the sale of aircraft, the traders and the occasional sellers of such goods. 

National excise tax

  • Individuals and entities rendering taxable supplies of goods and/or services.
  • Importers of goods subject to the tax.

Regional excise duties

Producers and importers of cigarettes, alcoholic beverages, beer and beer mixtures.

Financial tax

The financial entities are the withholding agents.

Registry tax

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:

  • certificate of incumbency issued by the Chamber of Commerce
  • certified identification documents of the legal representative.

For non-resident services providers required to register, the following documentation should be filed with the registration request:

  • document expressing the willingness to register in the Unique Tax Registry to comply with the single simplified VAT procedure
  • type of services provided from abroad
  • country of origin of the service
  • web page from where the service is provided
  • email address
  • name and contact telephone number
  • name or business name of the applicant.

In addition, the non-resident provider must provide the following documentation:

  • the certificate of incumbency duly apostilled, translated into Spanish and legalized with the competent authority. If the certificate of incumbency does not include the foreign provider’s contact information, another certificate shall be attached in which the legal representative accounts for the information embedded in the certificate.
  • a copy of the identification card of the company’s legal representative.

Is grouping* for VAT/GST and other indirect taxes possible?

No.

VAT/GST compliance

How frequently are VAT/GST and other indirect tax returns submitted?

  • VAT returns are filed and VAT due is paid every 2 months or quarterly, depending on the previous year’s earnings.
  • As for service providers from abroad, VAT returns must be submitted every 2 months.
  • VAT accrued via the reverse-charge mechanism must be declared and paid by the customer through a monthly withholding tax return.
  • Excise tax returns are filed and excise tax is paid every 2 months.
  • Regional excise duties are filed and paid every 15 days. However, there is a special period in regard to cigarettes.
  • Registry tax must be paid upon registration of the respective act.

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.

International Supplies of Goods and Services

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:

  • the services should be provided in Colombian territory
  • the services must be exclusively used or consumed abroad
  • the beneficiary of the services must directly use or consume the services
  • the beneficiary of the services must have no activities or businesses in Colombia
  • The services provider must be registered in the Unique Tax Registry as an exporter
  • The services provider must retain the following documents: 
    • the invoice or equivalent document
    • the document, in physical or electronic form, should contain: the services description; the services value or a way of determining it; the country to which services are exported; the name and address of the services purchaser and its establishment abroad. This document may be a commercial offer of quotation and acceptance, contract, purchase order, or a letter of intent to purchase and acknowledgment of receipt of services.
    • a certificate provided by the services provider that confirms services being used or consumed exclusively abroad.

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.

VAT/GST recovery

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?

  • The VAT paid on the acquisition of goods and services for the production and/or sale of excluded goods/services (i.e. goods/services out scope of VAT) is not recoverable as input VAT.
  • The VAT paid on the purchase or importation of fixed assets.

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).

Tax points

When is VAT/GST due on a supply of goods or services?

In accordance with applicable regulations, VAT is triggered as follows:

  • on sale of goods, at the date of the issuance of the invoice or when the goods are delivered, whichever happens first
  • on the withdrawals of inventory for own use at the date of withdrawal
  • on the supply of services at the date of issuance of the invoice or when the service has been effectively provided, or when the payment or account deposit takes place, whichever happens first
  • on importation of goods at the moment of its nationalization. In this case, VAT shall be settled and paid along with customs rights.

Invoices

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:

  • name of the services provider
  • tax ID of the services provider (of the country of residence)
  • date
  • the consecutive number of the transaction
  • total value of the operation in COP
  • detail of the VAT in COP.

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.

Record-Keeping Requirements

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.

Audits

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?

No.

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.

Special Indirect tax rules

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)? 

  • Reduced tax rates are expressly indicated (e.g. complementary health).
  • The introduction of merchandise from overseas to a free-trade zone is not considered an import as long as it remains within such zone; therefore, it is not subject to VAT.
  • The sale of goods from the Colombian territory to an industrial user of services or goods established in a free-trade zone are zero-rated provided these goods are necessary for the development of the business objective of the industrial user.

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.

Rulings

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.

For further information please contact:

María Consuelo Torres
Partner
KPMG in Colombia
T: +57 1618 8000
E: mctorres@kpmg.com

Footnote

*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).

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