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entity that has undergone a tax-free or tax-deferred reorganization within two years prior to the disposition would be repealed.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 | email@example.com
Zulay Perez | +57 (1) 618 8000, ex. 1386 | firstname.lastname@example.org
Eric Thompson | +57 (1) 618 8000, ex. 1322 | email@example.com
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