Income Tax in Colombia

Personal Income Tax

Tax Return Date

The tax authorities publish a schedule each year (in December of the previous year), which sets out the due dates for submission of the tax returns. Usually those are scheduled during August and the exact due date may differ for each individual based on the last two digits of his/her tax identification number (TIN).
The tax year is calendar year.

Determination of Income

Employment income

A foreign resident is taxed on employment income earned for services performed in Colombia no matter where payment is made. Employment income includes salary and non-salary items, such as bonuses, living allowances, housing allowances, tax reimbursements, benefits in kind, and certain payments that must be made under Colombian labour law. All employees, including those who have agreed to receive an integral salary (i.e. without social benefits of the legal bonus and severance compensations), can treat up to 25% of the total annual employment income as exempt income. This 25% is limited to a maximum cap of COP 7.957.440 (FY 2018) per month. Although some payments derived from a labour relationship may be agreed as not being salary, they are deemed to be income and subject to income tax.

Special savings account deposits

Deposits made to special savings accounts to support the purchase of housing (AFC) are considered exempt income, provided these amounts, added to the mandatory and voluntary contributions to the pension system, do not exceed 30% of the employee's labour income for the year or COP 125.992.800 for FY 2018 (UVT 3,800) and that the employee does not withdraw them before ten years from the date of deposit. However, even if the deposit is withdrawn within ten years, it would continue to be treated as exempt income if it is used to pay for a housing acquisition.

Contributions to pension system

Mandatory contributions made to the Colombian pension system funds by an employee are not deemed to constitute income or capital gains for the employee and are not part of the withholding tax (WHT) basis. Additionally, along with mandatory contributions to the health system, these mandatory pension contributions are considered non-taxable income.

Voluntary contributions made by the employee or the employer to these funds are considered exempt income for the employee and are not part of the WHT basis, provided these amounts, added to the AFC saving account, do not exceed 30% of the employee’s employment income or COP 125.992.800 (UVT 3,800).

Notwithstanding the above, voluntary pension contributions will be taxed if they are withdrawn from the pension fund by the employee within ten years of having been deposited into the fund. Also in this case, even if the deposit is withdrawn within ten years, it would continue to be treated as exempt income if it is used to pay for a housing acquisition.
Contributions made to foreign pension systems are deemed to be taxable for the expatriate or employee and are part of the WHT basis.

Capital gains

Capital gains are subject to capital gains tax (see the Other taxes section).

Dividend income

Domestic shareholders and individual foreign shareholders resident in Colombia are subject to income tax on dividends or participations received from Colombian companies when these are paid out of profits taxed at the distributing entity level at the applicable rate from 0% to 10% (see the Taxes on personal income section). If received dividends were not subject to tax at the distributing entity level, such dividends will be taxed at a 35% flat rate, and the net income resulting from subtracting such tax from the gross dividend income will be subject to an additional tax from 0% to 10%.

Interest income

‘Monetary correction’ on savings accounts (an adjustment that savings and loan institutions credit to clients placed in certain types of savings or term-deposit accounts in order to compensate for inflation) is free of tax. The correction must be certified by the financial institution. Any additional gain recognised as interest is, however, taxable.

The inflation component of interest received by individuals (not required to carry accounting books) on certain bonds is not subject to income tax.

Tax Rates


Employment and Pension Income

Employment income is that received for services performed in Colombia, no matter were the payment was received.

Pension income is that received from retirement, disabilities, labour risks, compensations that substitute pensions, or refund of pension plans savings.

The rates for fiscal residents (nationals or foreign) applicable to employment and pension income are:

Taxable Income (UVT*)
Tax Rate
Above 4,100

* In December 2006, the Colombian government approved a reform of the Colombian tax system. Such reform incorporated the tax unit (Unidad de Valor Tributario or UVT) to measure the different limits and thresholds originally set in absolute numbers, adjusted every year by decree. The value of each tax unit is equivalent to COP 33.156 for fiscal year (FY) 2018.

Non-employment income and capital income

Interests, financial income, rental income, royalties, and intellectual properties (IP) income are all considered capital income.

All types of income that are not classified in previous sections are considered as non-employment income.

The rates for fiscal residents (nationals or foreign) applicable to non-employment income and capital gains are:

Taxable Income (UVT*)
Tax Rate
Above 4,000


Taxable Income (UVT*)
Tax Rate
Above 1,000

Dividends that were not subject to tax at the corporate level will be taxed at a 35% flat rate, and the net income resulting from subtracting such tax from the gross income will be subject to an additional tax according to the previous table.

Local income taxes

There are no local taxes on individual income in Colombia.

Non residents

For foreign non-residents, the income tax rate for taxable year 2017 is 35 percent.

Residency Rule


Colombian law sets out that a person is considered resident for fiscal matters in Colombia if the individual remains in the country, whether or not the stay is continuous, for a period of more than 183 days during a 365 days period or if, within the fiscal year, the 183 days are completed.

A resident also includes a Colombian national whose family, assets or business remains in the country even though the Colombian national resides in a foreign country.

Non Residents

A person who does not meet the criteria of a resident is considered to be a non-resident for fiscal matters.

A person who spends less than 183 days in Colombia during a 365 days period is therefore a non-resident for fiscal matters.

A person who is resident for fiscal matters in the country is liable for tax in Colombia on worldwide income.

Taxpayers who are considered non-resident for fiscal matters, are liable for tax in Colombia only on income derived directly or indirectly from a Colombian source.

Exempt Incomes

The following incomes are exempt from income tax:
· benefits in respect of an employer owned vehicle used for business purposes.
· 25 percent of salary (gross income minus costs and deductions and other exempt income).
· Voluntary contributions to pension funds or AFC savings account are now considered as exempt income and limited to the 30% of taxable income or to an annual cap of COP121,064,200 (approximately USD40,300). Those contributions that are withdrawn before a minimum term of 10 years will be included, however, as income in the year of withdrawal, with the exception of withdrawals made to acquire real estate.

It is important to bear in mind that the tax reform introduced a limitation exempt income and deductions cannot exceed 40% of gross income less health and pension contributions or COP160,569,360, for FY2017.

The provision of an employer-owned vehicle is not a taxable benefit where the vehicle is used mainly for work purposes.

For 2017, 25 percent of net salary is exempt from income up to a monthly maximum of COP7,646,160 (approximately USD2,500) and COP7,140,720 (approximately USD2,400) for the year 2016.

Once again, it is important to bear in mind that the tax reform introduced a limitation exempt income and deductions cannot exceed 40% of gross income less health and pension contributions or COP160,569,360, for FY2017.

Deductions from Income

Generally, for income different than labor income, any expenses incurred during the year which are necessary to develop an income-generating activity are deductible. It is important 
to bear in mind the limitations established.
Certain items are deductible from an individual’s gross income to arrive at the net taxable base, as follows:
· interest payment on loans taken out to acquire the taxpayer’s dwelling, providing the loan is secured by a mortgage and in accordance with certain rules, limited to COP 38,230,800 (USD 12,700, approx.).
· payments made towards health insurance, prepaid medical plans, limited to COP 509,744 (USD170)
· payments for economical dependents, limited to 10 percent of gross income or to COP 1,019,488 (USD340, approx.).

Once again, it is important to bear in mind that the tax reform introduced a limitation exempt income and deductions cannot exceed 40% of gross income less health and pension contributions or COP160,569,360, for FY2017.

Corporate Tax

National companies (i.e. incorporated in Colombia under Colombian law) are taxed on worldwide income. Foreign non-resident companies and local branches of foreign companies are taxed on their Colombian-source income only. The current general CIT rate is 34% for FY 2017 and 33% for the following years. This rate is applied upon taxable income.

Taxable income is generally defined as the excess of all operating and non-operating revenue over deductible costs and expenses. The customary costs and expenses of a business are generally acceptable as deductible expenditure for CIT purposes, provided they are necessary, reasonable, and have been realised during the relevant tax year under the accrual or cash method of accounting, as the case may be.

The current general capital gains tax rate is 10%.

Qualifying businesses located in Free Trade Zones (FTZs) enjoy a reduced rate of 20% (while subject to capital gains tax at 10%, where applicable).

Domestic income earned by non-resident entities that is not attributable to branches and PEs will be taxed at 34% in FY 2017 (33% for future years), provided the non-resident entity must file an income tax return in Colombia. Upon this rate, there is a surcharge that is applicable when the taxpayer's net taxable income equals or exceeds COP 800 million. The surcharge is applicable for FY 2017 and FY 2018 at the rates of 6% and 4%, respectively.

If the taxpayer is obligated to pay the income tax surcharge, it will be liable for making an anticipated payment of 100% of the surcharge, wherein the base will be the income tax liability paid in the previous year.

Minimum presumptive tax

CIT payers are required to pay a minimum amount of income tax, which is determined based on the presumptive income method. Under this method, presumptive taxable income is measured at 3.5% of net equity as of 31 December of the previous year, in accordance with the information provided by the taxpayer on such year’s CIT return. The nominal CIT rate is then applied to the greater of regular taxable income (revenue less allowable costs and expenses) or presumptive taxable income (exempting certain business activities).

In order to determine the taxable base for presumptive income purposes, it is necessary to subtract from the total amount of net assets, which is the base to calculate presumptive income, the following amounts:

The net asset value of the shares owned in national companies.

The net asset value of the assets affected by force majeure.

The net asset value of assets associated with operations in unproductive periods.

The net asset value of assets destined exclusively to sport activities of social clubs or sport clubs.

Each year, taxpayers must compare the value resulting from the application of the foregoing two systems. The income tax for the taxable year will be calculated on the higher value resulting from this comparison. If presumptive income is higher than the ordinary net income, the difference constitutes an excess of presumptive income, which can be carried forward (adjusted for inflation) to any of the following five taxable years and offset against the net income determined by the taxpayer.

Excess of presumptive income tax can be offset against income tax generated in FY 2017 and following years, as long as the following formula is applied:

VEF2017 = ((ERPirc *T RyC) + (EBMCree * TCREE)) / TRyC2017

VEF2017: Excess of presumptive income tax and CREE minimum base that can be offset in FY 2017 and following years.

ERPirc: Value of all presumptive income excesses accumulated as of 31 December 2016 that have not been offset yet.

TRyC: Nominal CIT rate applicable as of 31 December 2016.

EBMCree: Value of all CREE minimum base excesses accumulated as of 31 December 2016 that have not been offset yet.

TCREE: Nominal CREE rate applicable as of 31 December 2016.

TRyC2017: Nominal CIT rate applicable for year 2017, without including the surcharge.

Income tax for equality (CREE)

CREE was repealed with the tax bill of 2016; nevertheless, there are some minimum base excesses (CREE taxable income less CREE minimum base) that can be offset during FY 2017 and following years, respecting a cap of five years from the moment in which the excess was generated. CREE tax losses can also be offset during FY 2017 and following years without a time limitation.

Stability Agreement Regime

As of 1 January 2013, the Legal and Tax Stability Framework was repealed. Applications under consideration will be grandfathered and approved if they meet the applicable requirement. Any already executed Legal Stability Agreements will continue to apply until expiration.

Residency Rule

Corporate residence is determined by the place of incorporation of any given company.
For CIT purposes, companies incorporated under foreign laws that have their main domicile abroad are considered ’foreign companies’, whereas any company incorporated in Colombia under Colombian law qualifies as a ‘national company’ even if fully owned by foreign shareholders.

Rules on effective place of management are in place (see below).

Permanent establishment (PE)

The Colombian internal legislation incorporates the concept of PE. This concept follows the Organisation for Economic Co-operation and Development (OECD) criteria and means a fixed place of business through which an entity carries out its activity, whether partially or totally.

A PE will also be incorporated when a person (other than an independent agent) has the capacity to conclude contracts on behalf of the foreign entity, except for preparatory and auxiliary activities.

In order to define what should be understood as preparatory and auxiliary activities, local regulations have adopted the OECD criteria.

Colombian law upholds the triggering of a PE upon the presence of a fixed place of business that is located in a given place and features a certain degree of permanence (no cut-off timeline is provided) where a non-resident entity conducts part or the whole of its business.

Auxiliary and preparatory activities that do not cause a PE to exist are listed out. The regulations reiterate that a PE is subject to income tax on domestic income attributable to its course of business as well as on any domestic income directly earned.

Also, a PE will be subject to domestic withholding tax (WHT) rates whenever engaged with resident parties.

However, payments or accruals to non-residents having a PE may continue to be subject to rates set out for non-residents if the underlying transaction is unrelated to the PE's purpose. A PE will be required to make annual CIT filings. PEs are given the capacity to withhold and remit taxes as well as to charge and collect value-added tax (VAT) to the extent of taxable transactions.

Requisites for registration of a PE are set out and include, inter alia, good standing documentation or proof of existence as well as an active account at a local bank or financial institution.

A PE is required to prepare contemporaneous documentation (in addition to transfer pricing compliance requirements) with a functional and technical analysis of the assets, liabilities, capital, risks income, costs, and expenses attributable to its business in Colombia. In addition, a PE must, for tax purposes, prepare separate accounts for purposes of the attribution of income and capital gains.

Effective place of management

Guidance is available (Regulation 3028 of 27 December 2013) on how to register a non-resident entity that is effectively managed in Colombia and treated as a resident for tax purposes.

The process requires submission of a good standing documentation, proof of identity of the legal representative (or attorney if a mandate to register exists), and availability of an active bank account at a resident bank or financial institution.

The rules require a non-resident entity effectively managed in Colombia to carry local books under IFRS as well as to satisfy tax compliance requirements upon completion of the tax registration.

Non-resident entities effectively managed in Colombia are obligated to withhold and remit taxes as well as to charge and collect VAT to the extent of taxable transactions.

No effective place of management will be deemed to exist in Colombia for (i) non-resident issuers listed on the Colombian stock exchange, or any other internationally reputed exchange, nor (ii) non-resident entities when 80% or more of its revenue is sourced in the country where the entity is domiciled.

Tax havens

One of the following criteria must be complied with to determine if a jurisdiction must be deemed as non-cooperative or as a place of null or minimum taxation:
· Inexistence of taxation or existence of nominal taxation under the nominal rate used in Colombia.
· Absence of an effective exchange of information or existence rules or administrative practices hindering it.
· Lack of transparency on a legislative, administrative, or regulatory level.
· Inexistence of substantive local presence, development of a real activity, or economic substance.

In addition to the four bullets listed above, there is an extra requisite to define preferential tax regimes, which refers to jurisdictions that ring-fence their benefits for their residents and offer them only to non-resident entities or individuals. If two out of these five rules are met, the jurisdiction under analysis will be deemed as a preferential tax regime.

Aside from these criteria, the Colombian government is enabled to use the accepted international criteria in this matter.

In accordance with the above, the Colombian government will be entitled to adopt a tax haven list; such a list exists currently and can be updated from time to time.

Any payment or accrual, regardless of its nature, that constitutes taxable income for a beneficiary that is deemed as resident, established, located, or functioning in a tax haven jurisdiction is subject to a 34% WHT for FY 2017 and 33% for future years.

Transactions with entities that are tax haven residents are subject to the transfer pricing regime. As a result, Colombian taxpayers must file a transfer pricing report and a transfer pricing informative return for such transactions, regardless of whether or not the entity’s equity or gross income is lower than the threshold established by Colombian law for applying such compliance obligations.

In addition, if the transaction occurs with a related party, the resident taxpayer is required to prepare and submit an additional supporting study, proving the details of the functions performed, along with any assets used or risks assumed, and the full costs and expenses incurred by the tax haven resident while rendering the service or in the overall conduct of the activity to which the deduction relates.

Deductions from Income

In Colombia, the customary costs and expenses of a business are generally acceptable as deductible expenditure for CIT purposes, provided they are necessary, reasonable, and have been realised during the relevant tax year under the accrual method of accounting. Examples of common (and not so common) deductions include the items below.


Assets held during 2016 and previous years
Assets acquired and reported as of 31 December 2016 will be depreciated following the fiscally accepted methodologies for 2016 and previous years. In regard to those assets, the normal estimated useful lives are as follows:

Useful Life (Years)
Buildings and pipelines
Machinery and equipment, office furniture, and fixtures
Vehicles and computer equipment

The acceptable methods for depreciation are:

· Straight-line: The straight-line method is the easiest and most commonly used method of depreciation by companies; it is calculated by dividing the value of the asset by the asset's useful life.
· Declining-balance: This method takes into consideration an accelerated rate of depreciation and is useful for those assets in which a higher value is lost during the beginning years of usage. Under the declining-balance tax depreciation method, in no case will a residual value lower than 10% of the asset’s cost be allowed nor will accelerated depreciation based on additional shifts be deductible.
· Any other method of recognised value in accordance with the opinion of the tax authorities.
Depreciation rates can be increased by 25% for each additional eight-hour shift of asset use (and pro rata for fractions thereof). When tax depreciation exceeds book depreciation, the taxpayer is required to establish a reserve equivalent to 70% of the difference. Recapture of depreciation on the sale of depreciated property is taxable for CIT.

Assets acquired during 2017 onwards

For assets acquired after 31 December 2016, IFRS rules apply. In accordance, such assets will be depreciated in consideration with the effective benefits that are expected to be obtained. Under IFRS rules, equipment will not only be seen as a whole; instead, each part of it could be recognised as unique, and its depreciation may vary as well.

Note that for fiscal purposes, both regulations (depreciation for 2016 and IFRS) will be valid at the same time depending on whether the asset was acquired in FY 2016 or FY 2017 onwards. Therefore, depreciation outstanding balances of fixed assets held as of 31 December 2016 must be depreciated during the lifespan of the asset using one of the accounting methodologies applicable before the tax bill enactment (please see Assets held during 2016 and previous years above).

For assets acquired from 2017 onwards, the depreciation rules under IFRS are accepted. For income tax purposes, taxpayers obligated to have accounting books are allowed to deduct the reasonable depreciation quantities recognised for assets used in businesses or activities yielding income during the taxable period. Nevertheless, the deduction for depreciation of assets is limited to the following percentages:

Depreciable assets
Annual fiscal rate for depreciation (%)
Constructions and buildings
Pipelines, plants, and networks
Communication routes
Fleet and airborne equipment
Fleet and iron equipment
Fleet and fluvial equipment
Weapon and surveillance equipment
Electrical equipment
Fleet and terrestrial transport equipment
Machinery and equipment
Movable goods and belongings
Scientific medical equipment
Bottles or recipients, packages, and tools
Computer equipment or hardware
Data processing network
Communication equipment

Note that depreciation rates can be increased by 25% for each additional 16 hour shift of asset use.

Amortisation of intangible assets

As a general rule, taxpayers can amortise, for CIT purposes, the cost of any acquired intangible asset over a period of five years using the straight-line method. The factor allowed per year as deductible is 20% of the fiscal cost.
Amortisation is available for intangible assets complying with the following requirements:
· The asset has a defined lifespan.
· The asset can be properly identified and measured in accordance with the accounting methodology.
· The asset acquisition generated taxable income complying with the commercial appraisal for its seller, whether Colombian resident or foreign.


Goodwill pending balances generated before 1 January 2017 will be deductible for CIT purposes, provided they are related to the business activity or income-producing activity. Goodwill must be amortised using the straight-line methodology within five years from 1 January 2017 onwards.

Goodwill generated from 2017 onwards will not be deductible for CIT purposes. Goodwill has been acknowledged as an intangible asset when formed or created by the enterprise. However, its tax basis will be zero.

Goodwill on share purchases

Goodwill on share purchases cannot be deducted via amortisation from 2017 onwards.

Start-up expenses

Start-up expenses are deductible for CIT purposes, provided they are necessary, reasonable, and have been realised during the relevant tax year under the accrual method of accounting.

Interest expenses

Taxpayers are generally entitled to deduct any interest paid to financial institutions or to third parties, provided certain requirements are met.

The Colombian Tax Regime has incorporated thin capitalisation rules (see Thin capitalisation in the Group taxation section).

Bad debt

Bad debt is deductible for CIT purposes, provided the debt is originated as a result of the development of an income-producing activity and complies with the quantities accepted by the regulation. Additionally, debts incurred between related parties, associated individuals, or between entities and its shareholders will not be allowed as deductible bad debts.

Provision of bad debt credits and provision of risk ratios generated during the taxable year by entities subject to surveillance of the Financial Superintendence can be deducted for CIT purposes. Additionally, provisions generated during the taxable year regarding assets received via payment in kind and leasing agreements to be developed in accordance with the current laws will be deductible.

Nevertheless, no deduction will be allowed for bad debt if:
· they exceed the limits required by law and the corresponding regulation in regard to entities subject to inspection and surveillance of the Financial Superintendence, or
· bad debt provisions were created willingly, even if suggested by the Financial 
Superintendence. Bear in mind that these provisions are mandatory for financial institutions.

Charitable contributions

Donations and charitable expenses are now creditable instead of deductible. To allow the credit, the taxpayer must be able to prove that the donation or charitable expense was made to certain institutions dedicated to development of health, education, culture, religion, sports, scientific and technological research, ecology and the protection of the environment, or to social development programs of general interest.

Expenses incurred abroad

As a general rule, the deduction of expenses incurred abroad for yielding national-source income is limited to 15% of the taxpayer’s net income, when such expenses were not subject to WHT. The following exceptions are applicable:
· Payments where the WHT is mandatory and was applied.
· Expenses generating foreign-source income in accordance with Section 25 of the Colombian Tax Code.
· Payments or accruals performed in the acquisition of movable goods.
· Payments or accruals performed complying with a legal burden, such as payments for custom certification services.
· Interests upon credits granted to Colombian resident taxpayers by credit multilateral organisations, which act of establishment has been approved by Colombia, remains in force, and an income tax exception has been granted for the multilateral organisation.

Fines and penalties

Fines and penalties are not deductible for CIT purposes.


It is important to mention that the current tax regulations state the following as the only taxes that can be claimed as a deductible expense:
· 100% of the industry and trade tax.
· 50% of the financial transactions tax.
· 100% of the property tax.
· The VAT that cannot be treated as output.
· Some local stamp taxes.

Special deductible items

Colombian income tax laws have established certain special deductible items, which include the following:
· 100% of acquisition costs are available as a tax amortisation or depreciation base.
· 100% of the investments made in certain scientific and/or technological projects or in professional training projects of governmental, public, or private institutions of higher education are deductible. Additionally, these taxpayers will be allowed to credit 25% of the investment against income tax to be paid in the period in which the investment took place.
· 25% of the investments made for the control and improvement of the environment are creditable.

Net operating losses

Net tax losses generated from 2017 can be carried forward within the following 12-year period. Recovery of tax loss is uncertain for long-time projects.

Net tax losses generated through the end of 2016 and previous years are grandfathered by the tax bill, and they may be carried forward without limitation. The value of such losses must be adjusted for inflation as of 31 December 2016, as no further adjustments are allowed.

In order to find out the total value of losses generated before 31 December 2016 that can be carried forward, a simple calculation must be made. In this calculation, CREE tax losses and CIT losses will be merged to define the final value to be carried forward (Section 123 of Law 1819 of 2016 explains further considerations in this regard).

Payments to foreign related parties

Royalties and similar charges

Royalties and the costs of exploitation or acquisition of all kinds of intangible property that are charged by foreign related parties are allowable as CIT deduction, provided that the corresponding WHT is collected at generally 15% (10% in the case of most DTTs). Other types of payments are subject to the general rules for expenses incurred abroad.

Royalties recognised to non-resident (or FTZ-located) related parties are not deductible if connected with an intangible created locally or related with finished products.

Management overhead expenses

Management overhead expenses paid to a foreign related party (e.g. the parent company) are deductible, provided they meet the arm’s-length test under transfer pricing regulations and provided the management services are duly substantiated and are specifically related to the income-producing activity of the local subsidiary that pays them. These expenses must also be carefully documented such that the local subsidiary can provide evidence to the authority of the fact that they are specifically related to its Colombian operations (i.e. to the planning and direction of the operations, the setting and implementation of management controls, the measurement of progress made toward specific business goals, the related financial results, etc.). Where these services are supplied outside or inside Colombia, a 15% WHT is also required to ensure deductibility.


Interest and related financial costs (including foreign exchange losses) paid to foreign related parties are deductible, provided they meet the arm’s-length test under transfer pricing regulations and the thin capitalisation rules (see the Group taxation section). Furthermore, interest and the related financial costs paid on short-term financing relating to imports of merchandise and raw materials directly supplied by foreign related parties are also deductible for CIT purposes. Interest paid or accrued to a non-resident triggers WHT over the payment or accrual at a rate of 15%.

Financial and non-financial institutions registered with the Colombian Central Bank are permitted to extend loans into Colombia. For further information, see Interest income in the Income determination section.

Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.

No comments:

Post a Comment