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How to Pay Taxes in Colombia

*Due to changes in the tax regime (Law 2010, December 27th, 2019) this chapter is being updated*

José Francisco Mafla, partner at Brigard Urrutia Lawyers, presents the “Business Creation” chapter from the 2019 Bogota’s Foreing Investment Guide.

The Colombian tax system is divided into three different levels of tax collection: national, departmental and municipal taxes. 

National taxes consist of:

Income tax, VAT, national consumption tax, financial transaction tax (GMF, Gravamen a los Movimientos Financieros), national gasoline and diesel gas tax, national carbon tax and the stamp duty, among others.

  • Income tax is a tax on the taxpayers’ profits that increase their net worth and derive from their regular transactions. This can be paid in advance through withholding tax, which is a procedure for the early collection of taxes. 
  • VAT has a standard rate of 19%; however, it has differential rates of 0% and 5% for certain products and services. 
  • National consumption tax applies to the provision or sale of goods and services to end-users, or to the import of goods and services. These taxes are generally VAT exclusive, but there are exceptions. 
  • GMF tax is a tax on the financial transactions that result from the resources deposited in checking or savings accounts.

Departmental taxes consist of:

The main departmental taxes include registration tax; excise tax on cigarettes, beer and alcoholic beverages; and motor vehicle taxes, among others. 

Municipal taxes consist of:

The main municipal taxes include the industry and commerce tax (ICA), the unified property tax, the urban construction tax, and the capital gains tax, among others. 
*This chapter will be updated due to changes in the tax reform.

Keep in mind

  • The Colombian Holding Companies (CHC) regime allows for the dividends received by  a CHC from a foreign entity to be tax exempt in Colombia. Dividends paid out by the CHC to its non-resident shareholders are also tax exempted, to the extent such dividends are paid out of dividends previously received by the CHC from foreign entities.
  • The regime for Controlled Foreign Corporations (CFCs) applies to residents who hold a 10% share or more of the capital or profits of the Colombian-controlled foreign entity, in which case the passive income obtained by the CFC is taxed immediately on the head of the Colombian shareholder. 
  • The transfer pricing regime looks to ensure that transactions with foreign related parties are made at arm’s length. The transfer pricing regime also covers transaction with related companies located in free trade zones, as well as transactions with companies located in tax havens (even if they are not related).

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