Colombian tax for non-residents explained

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Colombia is a country of enterprising and hard-working people. Despite challenges, it is an attractive economy in which to work and do business.

The government is committed to improving the quality of life for its citizens as well as expanding infrastructure, providing better quality services and exercising regulatory control.

As the country grows in population, technological capability, commerce, industry and education, it is adjusting to globalisation. In the last 25 years, 14 tax reforms have been introduced. The government is aiming to invest taxes to provide economic stability and a secure future for the country as it overcomes its problems of the past.

Following decades of political unrest, the governments of Juan Manuel Santos and Iván Duque raised VAT in order to finance the peace process as well as bolstering the country’s economy. Those with modest small and medium-sized enterprises stand to benefit from these reforms by way of lower rents and new taxes, specifically the Simple Tax, Normalisation Tax, Exit Tax and Wealth Tax. 

The current legislation is set out in the Tax Statute (Decree 624 of March 30, 1989), complemented by Law 2010 of 2019 on Economic Growth., this replaced Law 1943 of 2018, which was declared unconstitutional, but the new legislation preserves the same goals of encouraging investment and business creation as well as reducing the commercial companies  tax rate.

Notable changes under the new tax laws

A large part of Colombia’s tax law was modified in 2018 by Law 1943, including the following changes, aimed at helping those with low incomes:

  1. VAT was increased to 19%;
  2. VAT was applied to service providers from overseas;
  3. Extraordinary Tax in respect of patrimony was applied in respect of 2019, 2020 and 2021, payable by those liable to pay income tax who are nationals or foreign natural persons without residency in Colombia. Wealth Tax is payable on assets such as real estate, cars, works of art and aircraft valued at over 5,000 million COP at a rate of 1%.
  4. Withholding Tax rates were modified, for national or foreign commercial companies with or without residence, to 33% for 2019, 32% for 2020, 31% for 2021 and 30% for 2022.

Amongst other tax rules, Law 2010, passed in 2019, contains the following:

  1. Strengthened anti-procedure laws;
  2. National Development Plan 1955 of 2019;
  3. Fixed rates for stamp duty payable by non-resident nationals requiring consular services;
  4. The implementation of a principle of favourability in respect of collecting and reducing or arranging interest, payment agreements, set interest rates for restructuring agreements;
  5. Implemented reconciliation in tax matters;
  6. Termination by mutual agreement in the coercive process.

The entity with control over tax, customs and compliance is the National Directorate of Taxes and National Customs, commonly referred to as the DIAN, and is a government agency attached to the Ministry of Public State.

Does a non-resident Colombian national have to pay Colombian taxes?

The law states that provided you have assets or economic interests in Colombia, then if you are a Colombian national you are liable to pay Income Tax if you have earned above a specified amount.

In 2019, this tax was payable by those whose income was above 47,978,000 COP or whose gross equity was higher than 154,215,000 COP.

Extraordinary Wealth Tax and Property Tax are also payable.

Does a foreign national working in Colombia have to pay Colombian taxes?

Foreigners working in Colombia are liable for taxes in Colombia, although there may be a Double Taxation agreement with the country of origin which would allow compensation so that tax is not paid twice.

Foreign nationals who have spent less than 183 days in the country are required to pay Income Tax of 35% of their Colombian earnings. Once they have spent more than 183 days in Colombia, tax is payable on all of their worldwide income, with the percentage varying according to the amount earned.

Liability extends to VAT, Income Tax for Equity, Financial Transactions Tax, at a rate of 0.4% of the value of any transfer, and Property Tax where goods acquired are subject to registration.

Foreign companies that do not have a domicile in Colombia are subject to income tax on Colombian income. Like individuals who are subject to Colombian law, they are also liable for withholding tax at source for income within the territory. In respect of sales tax, they are required to withhold and declare.

For the years 2015-2018 inclusive, Law 1739 of 2014 regulated Wealth Tax, which applied to both natural and legal persons, with and without domicile in Colombia. This has been replaced by the new Wealth Tax introduced in 2019.

Any UK company operating in Colombia should be very aware of the applicable tax legislation and get adequate  international tax advice, including colombian tax counsel,  to ensure compliance.

Sources:

Tax Statute 2020, Agreed and commented by Jorge Hernán Zuluaga Potes, ECOE Ediciones, February 2020.

By: Gabriela Mastrodomenico, Colombian Lawyer at Del Canto Chambers


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