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Colombia: Corporate tax rate reduction, investment incentives, international tax changes

Colombia: Corporate tax rate reduction

New tax provisions were introduced in Colombia beginning in 2019.

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Among the measures in the new tax law—enacted in late December 2018 and effective 1 January 2019—are provisions that reduce the corporate income tax rate from 33% to 30% and that offer certain tax incentives to promote investment, economic growth, and employment. 

Overview of tax proposals

VAT measures

The legislation modifies the value added tax (VAT) rules that apply for non-residents by appointing financial institutions as VAT collecting agents for electronic, digital, and royalty payments.

In addition, VAT paid on capital goods is now creditable for income tax purposes.

Corporate income tax rate reduction, other tax measures

The new tax law includes a gradual reduction of the corporate income tax rate from 33% to 30% by 2022. It also introduces a new 7.5% withholding tax on dividend distributions among Colombian entities.  

The “presumptive net worth” income tax is repealed by 2021—a major change towards applying what is viewed as a more transparent taxation of profits. 

International tax proposals

The tax legislation also introduces changes to Colombia’s international tax rules concerning among other items:

  • Dividend distributions:
    • A tax rate increase for the withholding tax imposed with respect to previously taxed income to 7.5%.
    • A 33% withholding tax on dividends from non-previously tax income (that is thus linked to the corporate income tax rate).
  • Management fees, royalty and service payments:
    • The withholding tax on royalty payments and services is increased to 20% (from 15%).
    • The withholding tax on management fees is increased to 33%.
  • Branch taxation:
    • The then-current territorial system is revised to be a worldwide system, and the new tax law includes measures to deny the deductibility of financial expenses attributable to branches.
  • Indirect assets transfer:
    • There are new measures for taxation of indirect transfers of assets (including shares), but subject to exceptions when the shares are traded on a recognized and regulated stock exchange, or when the underlying Colombian assets represent no more than the 20% of the total value of the assets of the foreign entity being transferred.
  • Controlled foreign corporation (CFC) rules:
    • All income from CFCs will be considered to be “active” income if more than 80% of the income is considered “active.”
  • Holding company regime:
    • The tax legislation includes a new holding company regime that includes full participation exemption of foreign income and capital gains. 

Tax incentives

The tax legislation reflects measures concerning:

  • The tax deduction on expenses attributable to income-producing activities
  • Income tax credits for 50% of the municipal turnover tax (ICA) and financial transactions tax (GMF) 
  • New requirement for arm´s length valuation on domestic sales of goods and services

The tax legislation also amends and/or introduce certain incentives for: (1) lower income tax rates, accelerated depreciation, and dividend withholding tax exemptions for “mega investments;” (those of approximately U.S. $320 million): (2) tax credits for private investors involved in public works projects in “conflict zones;” (3) a five-year “tax holiday” for high-tech investments and 10-year tax holiday 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 | apallete@kpmg.com

Zulay Perez | +57 (1) 618 8000, ex. 1386 | zulayperez@kpmg.com

Eric Thompson | +57 (1) 618 8000, ex. 1322 | ericthompson@kpmg.com

 

Read a January 2019 report (Spanish) [PDF 3.12 MB] prepared by the KPMG member firm in Colombia

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