After the multiple discussions and adjustments presented to the tax bill presented on August 8 by the National Government, the Law was finally sanctioned this December 13, 2022 by the President of the Republic.

This tax reform expects to raise around Col$20 billion (around 1.29% of GDP) in the first year.

Below you will find the main changes introduced by Law 2277 of December 13, 2022:

1.Taxation of individuals 

-New limitations

a.All the bases of liquid income baskets are unified, including dividends, and shares, applying the rate contained in Art. 241 of the TC (Tax Code).

b.The exempt income limit was modified as follows: 

(i) Exempt income of 25% for labor payments, it will now have a limitation of 790UVT per year (before 2,880 UVT).

(ii) The general “basket” of individuals will now have a limitation of exempt income and attributable deductions of 1,340UVT per year (before 5,040 UVT).

c.The deduction for economic dependents is increased by 72 UVT per dependent up to a maximum of four (4) dependents.

d.A new deduction of 1% of the value of acquisitions is added without exceeding 240UVT annually.  Said purchases will not have to have a direct relationship with the income but must be supported by an Electronic Invoice.

e.A limit of 60% is established for the deductible costs and expenses from income that is derived from these.

In order to take the said deduction, the taxpayer must have electronic sales invoices, digital payroll and/or equivalent electronic documents.

- Effects capital gains

- On the other hand, in the case of resident individual, the applicable rate for capital gains will be 15% (previously 10%).

- Equity Tax

It is set a new permanent equity tax with the following considerations:

a.The taxable event is the possession of liquid equity as of January 1st of each year, equal to or greater than 72,000 UVT (Col$2,736,576,000 ).

b.The taxpayers would be:

i. Resident individuals’ income taxpayers.

ii. National or foreign Individuals Non-tax residents, with respect to assets owned indirectly through permanent establishments.

iii. Foreign entities or companies’ non-taxpayers in Colombia which own assets located in Colombia other than shares, accounts receivable, portfolio investments, and financial lease contracts.

c.The taxable base will be integrated by the assets held on January 1st, less the debts payable on the same date (net tax equity). 

For individuals, the first 12,000UVT of the equity value of their house or apartment is excluded from the base.

For non-tax resident individuals who have a permanent establishment in Colombia, the tax base will be the assets attributable to the permanent establishment.

d.The rate will be progressive, with a marginal rate ranging between 0.5% and 1.5% (the 1.5% will be applied temporally up to 2026). 

- Tax on dividends 

a.The rates or caps that were established in the previous reform bill are modified as follows:

i. Dividends distributed with a charge to profits that had not been taxed at the corporate level are subject to the Income Tax rate; of 35%.

ii. The rate established for withholding tax for dividends will be 15% for individual tax residents.

iii. The rate increases to 20% (previously 10%) for dividends received from foreign entities and by permanent establishments and individuals non-tax residents.

iv. The rate increases to 10% (7.5%) for dividends or shares received by national entities.

v. A new tax discount is created for resident’s dividends or illiquid successions as follows:

2. Taxation of corporations

- Income Tax 

a.The 35% rate is maintained for corporations.

b.Financial entities, insurance and reinsurance entities, stock brokerage firms, agricultural brokerage firms, exchanges of agricultural, agro-industrial, or other commodity goods and products, and stock market infrastructure providers. must pay 5 additional points of the general tax rate of 35%. During the years 2023 – 2027.

c.Industrial and commercial companies of the state maintain the 9% rate.

d.Electric power generators through water resources must pay 3 additional points of the general tax rate between 2023 and 2026.

e.A new general tax rate of 15% is established for hotels, tourism theme parks and agrotourism for a term of 10 years, that carry out new projects or remodeling / expansion 50% of the value of the acquisition.

f. A minimum tax rate of 15% is established for corporations and free trade zones, considering a debug tax rate (TTD).

g.The income tax rate applicable to publishing companies incorporated in Colombia, whose exclusive corporate purpose is book publishing, will be 15%.

h.Special deductions, exempt income and tax discounts are limited to 3% of general net income.

- Capital Gains Rate

The Capital Gains Tax Rate, applicable to non-resident individuals, and foreign corporations, increases from 10% to 15%.

- Free trade zone

For the year 2023 the tax rate will continue being 20% for industrial users. If at the end of 2022, those users have increased their revenues in 60% compared to 2019, the referred rate will be remained until 2025.

As of 2024, industrial users of the free zone must apply the following rules:

• It may be applied the 20% rate on the portion of income related to export tax revenue.

•Net income not related to the portion of export revenues will be taxed at a rate of 35%.

The offshore free zone rate: industrial users of special permanent free zones of port services, industrial users of port services of a free zone, industrial users of special permanent free zones, whose main corporate purpose is the refining of fuels derived from

petroleum or refining of industrial biofuels; industrial users of services that provide logistics services will be 20%

If they do not meet the requirements, a 35% tax rate will be applied.

3. Foreign Entities Rate

The 35% Income Tax rate is maintained. 

4. The Supplementary Tax on Billboard Advertising (ICA) is no longer discountable but deductible 

The possibility of claiming 50% of the ICA as a tax discount is eliminated. Now you will only have the option of taking it as a deduction.

5. Royalties are no longer deductible

The possibility of the royalties paid by the oil and gas sector are taken as cost or expenses is eliminated.

6. Tax billing

The tax billing mechanism referred to in Law 2155 is expanded, including, in addition to income and complementary taxes, sales tax - VAT and national consumption taxes.

It is important to mention that if the taxpayer disagrees with the invoice issued by the tax administration, he has two months to declare and pay with the declaration prepared by the taxpayer. In this case, the invoice will lose enforceability and, as a result, will not proceed with any appeal.

7. New income from National source (Art. 24)

The definition of income from a national source is extended to include income derived from a significant economic presence.

8. Significant Economic Presence

a. Art. 20-3 is incorporated to ET, through which it is mentioned that non-residents or entities not domiciled in Colombia with a significant economic presence in the country will be subject to income tax on income from the sale of goods and/or provision of services in favor of clients and/or users located in the national territory.

b. A significant presence takes place if:

In the Marketing of goods and/or services as well as provision of digital services from abroad:

i. Deliberate and systematic interaction(s) is maintained in the Colombian market, that is, with client(s) and/or user(s) located in the territory National (It is presumed that there is a deliberate and systematic interaction; and interactions or marketing display with more than 300,000 Colombian users during the taxable year, including the possibility of displaying prices or allowing payment in (COP) Colombian pesos).

ii. Obtains gross income of 31.300 UVT or more during the taxable year for transactions involving real estate or services in Colombia.

For the provision of digital services from abroad, people who provide any of the following are subject to income tax, and it is necessary to comply with the previous numerals:

i. Online advertising services: digital content services are online or downloadable, including mobile applications, e-books, music, and movies

ii. Free streaming services, including TV shows, movies, streaming, music, streaming media - "podcasts" and any form of digital content.

iii. Any form of monetization of information and/or data of users located in Colombia and has been generated by the activity of said users in e-markets.

iv. The online services of intermediation platforms.

v. Digital subscriptions to audiovisual media including, among others, news, magazines, newspapers, music, video, any kind of games.

vi. The management, administration or handling of electronic data including web storage, online data storage, file sharing services or cloud storage.

vii. Standardized or automated online search engine licensing or services, including custom software.

viii. The provision of the License to use or exploit intangibles.

ix. Other electronic or digital services for users located in Colombia.

x. Any other service provided through a e-market for users located in Colombia.

c. The resident and non-resident person or entity not domiciled in Colombia may choose to declare and pay a fee of 3% on the income obtained in Colombia and thus request the non-application of withholding at source.

d. The significant economic presence will come into force as of January 1st, 2024.

9. Consumption taxes (sugar-sweetened beverages and ultra-processed foods consumption taxes (sugar-sweetened drinks and ultra-processed foods)

Two new taxable events are established in the consumption tax, (i) production and 

consequently, the first sale or import of ultra-processed beverages, concentrates, powders, and syrups that, after mixing or dilution, produces sugar-sweetened beverages, energy, or flavored drinks, and (ii) the production and consequently the first sale or import of industrialized processed foods with a high sugar content.

In this regard, the taxable base in the first case is determined by the sugar content in grams per 100 ml of beverage sold or imported, and for concentrates, powders, and syrups, the sugar content in grams per 100 mil of beverage, which on the packaging or container certifies that they can be produced by means of the respective mixture.

The rate provided for is expressed in (COP) Colombian pesos per 100 mil of beverage and the unit value is based on the sugar content in grams. 

The taxable base for ultra-processed foods will be the sale price and, in the case of imported products, the declared value of the imported merchandise in (COP) Colombian pesos (CIF- cost, insurance and freight). The fee will be 10%.

10. Coal tax

The companies that are dedicated to the extraction of traces, lignite coal must settle additional points in the income tax rate. The foregoing with respect to the average price of the respective taxable year, between 0%, 5% and 10%.

The sale of coal within national territory is taxed, as well as that which is withdrawn for personal consumption, imported for consumption, or for sale.

A single-stage tax is imposed with respect to the taxable event that occurs first.

The rate will be determined by tons. For coal, it was set at COP$52,215. However, a gradual approach was established for when it came into force, and is as follows:

• Years 2023 and 2024: 0%
• Year 2025: 25% of the value of the total rate
• Year 2026: 50% of the value of the total rate
• Year 2027: 75% of the value of the total rate
• From the year 2028: full rate

It is important to mention that the declaration will be bimonthly.

11. Oil and Gas export tax and others

The companies that are dedicated to the extraction of crude oil must settle additional points in the income tax rate. The foregoing with respect to the average price of the respective taxable year, between 0%, 5%, 10% and 15%.

12. Disposal of VAT- free days

Articles 37, 38, and 39 of Law 2155 are repealed, establishing 3 (three) VAT-free days per year.

13. Additional tax measures

a.Payments made to non-resident individuals with a significant economic presence in Colombia who do not fall under the assumptions of Art. 408 TS will be subject to a tax that is withheld at the source at 10%.

b.Regarding the declaration of assets abroad, taxpayers of Income Tax substitution regimes are included as those who are obligated to report. 

c.The expression "from" is modified to "originating" from Art. 428 TS, to avoid triangulation and as such, an evading of the tax on shipments by the postal system of less than USD$200.

d.A new tax called the National Tax on single-use plastics used for packaging, wrapping, or packing goods has been created.

e.A voluntary contribution is created in the income statement with a specific destination for social programs. This payment has no tax benefit.

f.The discount made for investments made in research, technological development or innovation is increased by 30% (previously 25%).

g.Payments made to natural persons not responsible for VAT made with debit and credit cards will not be subject to withholding at source.

h.Temporary deduction is created for the year 2023 for commercial establishments that are in San Andres, Santa Catalina, and Providencia Islands. They may deduct 150% of the value of salaries and social benefits.

i.The declaration of withholding at the source without full payment will produce legal effects if the tax to be paid is less than 10 UVT. The taxpayer will have 1 year to make the payment of the tax together with the late payment interest.

j.A transitory paragraph is created for the payment of declarations of withholdings at source that are ineffective at the time of promulgation of the Law and that the value to be paid is less than 10 UVT, to pay the tax + the corresponding default interest until the June 30th, 2023, and thus the declaration will be corrected.

k.Article 651 is modified, reducing the sanctions as follows:

Note: Taxpayers who have incurred in violations of Art. 651 and have not been notified of the statement of charges, may correct, or correct the information, presenting it until April 1st, 2023, applying the reduced penalty at 10% and reducing it again to five percent (5%).

l.The deputy director of collection is empowered to establish payment agreements for up to 5 years.

m.Temporary late payment interest rate for obligations that are canceled or for which payment agreements are signed will be 50% of the interest rate established by Law. 

Taxpayer has until June 30th, 2023, to apply for this benefit.

n.Returns without legal effects in VAT, may be submitted without penalties or default interest, for the above declarations without effects must be considered as such before November 30th, 2022, and the taxpayer has 4 months to correct this.

o.Reduction of tax sanctions and default interest for omissions. Late sanctions will be reduced at 60% of the determined amount. Default interest will be reduced at 60%

14.Tax Evasion Control

a.The term effective management headquarters is extended and includes the expression: "a place where the necessary commercial and management decisions are made to carry out the activities of the company or entity on a day-to-day basis" (bold outside the text).

b.Moreover, the drafted text eliminates "senior executives" and only leaves the expression administrators of the entity as follows: "(...) circumstances that are pertinent, especially those related to the places where the administrators of the company or entity exercise their responsibilities and carry out the daily activities of the company or entity”.

c.For the taxation of permanent establishments, the term "significant economic presence" is incorporated as a mechanism to tax income from the digital economy.

d.Taxpayers who omit assets or declare a lower value of assets or declare non-existent liabilities for an amount equal to or greater than 1,000 current legal monthly minimum wages will incur a prison term of 48 to 108 months. The criminal action will be extinguished up to two times when the active subject of the conduct makes the respective payments of taxes, tax sanctions and corresponding interests.

e.It will be incurred a prison term of 36 to 60 months, anyone who, being obliged to declare, does not declare, or who in a tax declaration omits income, or includes non-existent costs or expenses, or claims improper tax credits, withholdings or advances, with the purpose of defrauding or evasion, that generate a lower value to pay or a greater balance in favor in tax returns, in an amount equal to or greater than 100 current legal monthly minimum wages. The criminal action will be extinguished up to two times when the active subject of the conduct makes the respective payments of taxes, tax sanctions and corresponding interests.

15. Contribution Base Income (Social Security) of self-employed

The Contribution Base Income (Social Security) for those who are self-employed, with or without personal service benefits, is 40% of the monthly value of the income earned for those who keep accounts, or those which are received for those who do not have this obligation.

It is important to mention that the quoted price must be paid at the end of the month.

16. In-kind revenues

For Income Tax purposes, it must be reported as revenue in favor of the beneficiary in kind at market value.

For free goods or services whose value cannot be determined, under no circumstances will they be chargeable as a cost or deduction in the payer's Income Tax.

17. Stamp duty 

The stamp duty tax will be charged, with respect to the documents that have been elevated to public deed, if it is not the alienation of any real estate title whose value is less than twenty thousand (20,000) UVT and has not been subject to this tax, or ships, or constitution or cancellation of mortgages on them. In the case of an open mortgage, this tax will be paid on the respective duty documents.

The marginal rate will be between 0% to 3%, depending on the value in UVT.

Ver: https://jadelrio.com/Colombia/Bolet04/LEY2277DE13DEDICIEMBREDE2022.pdf

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