On October 31, 2018, the National Government presented to Congress the Law Project called: “Financing Act to re-establish balance in the federal budget – Whereby financing reforms are issued in order to re-establish balance in the domestic budget and other provisions are enacted”.
The main changes proposed by this project are:
Sales Tax – VAT
• The general VAT rate will be gradually reduced to 17%, for this purpose, for fiscal years 2019 and 2020, the rate will be 18% and as of 2021, the rate will be 17%.
• The list of VAT-exempt goods and services will be reduced.
• Article 481 of the TS (Tax Statute) is amended as to exempt goods entitled to a refund.
• Guidelines in connection with compliance with VAT duties by service providers from abroad are added to article 437 of the TS.
• A VAT compensation for lower-income population shall be carried out.
• The rate for VAT withholding shall increase from 15% to 50% of the tax value.
• There is a proposal to eliminate the simplified VAT regime, establishing a list of persons who are not liable.
Income tax upon individuals
• The base is increased and the rates applicable to the income obtained by individuals.
• The taxation rate shall amount up to el 37%, (for income exceeding 13.100 UVT).
• A general record including work, pension, capital, and non-labor income is created. Dividends and interest are established in an individual taxation.
• Costs and deductions may amount to 35% provided they do not exceed 240 UVT per month (Col$8.000.000 – US$2.667 approximately).
• Withholding rates at the source for labor payments are modified to amount 37%.
• Taxable bases are increased, starting from 85 UVT (before it was 90 UVT).
Estate tax and taxation normalization
• Created for the years: 2019, 2020, 2021 and 2022 estate tax.
• The generating fact shall be possession of estate in excess of Col$3.000.000.000 (US$1.000.000 approximately) as of January 1, 2019.
• The rate shall be 0.75% for estate amounting up to Col$5.000 million (US$1.667.000 approximately) and 1.5% for estate exceeding said figure.
• The estate tax will not be deductible and will not give the right to a discount on income tax.
• For 2019, a tax normalization is created as a complementary tax to income tax and estate tax, applicable to taxpayers with omitted assets or non-existing liabilities.
• The tax normalization rate would be 13%.
• Tax normalization does not generate estate comparison.
Income Tax and complementary
• There will be a gradual decrease in the income tax rate until it reaches 30%. For 2019, it will be 33%, for 2020 it will be 32%, for 2021 the rate will be 31% and, as of 2022, the rate will be 30%.
• Dividends and interest rates are modified.
• Permanent establishments will be taxed on their income from a world source attributable to these.
• Article 25 of the TS “income from a foreign source” is amended to incorporate CHC rules – Colombia Holding Companies.
• A deduction of 100% on taxes paid and a discount of 50% on VAT and GMV (tax on financial transactions) is granted.
• A discount on VAT is granted on the tax paid on import, incorporation, construction or acquisition of fixed assets, during the year of acquisition or the following years after extinction.
• The presumed rent will be gradually discounted, for 2019 it will be 3%, for 2020, 1.5% and as of 2021, 0%.
• Incentives are created for orange economy, granting an exempt rent for 5 years provided certain requirements are met, such as: (i) domicile in Colombia, (ii) incorporated and beginning operations before December 31, 2021, (iii) develop one of the activities described on article 235-2 of the TS, number 1, item c, (iv) comply with certain employment minimums, among others.
• Exempt income for 20 years for income from services rendered by new hotels built within the 10 years following the term of the law. It will also apply to those hotels remodeled up to more than 50% of the value of acquisition.
• Withholding rates for payments abroad are increased from 15% to 20% in entries such as fees, commissions, royalties, leases, compensation on personal services or exploitation of all kinds of industrial property or know-how, rendering services, benefits or royalties from literary, artistic and scientific property, as well as consulting, technical and technical assistance services rendered by non-residents and not domiciled at Colombia.
• Payments or deposits on administration or management services go from 15% to 33%.
• DIAN may perform an electronic notice of actions to the email registered on the taxpayers’ RUT.
• Article 90 of the TS is modified, including not only goods but also services. In addition, it is set forth that commercial value notoriously differs when separating from the prices established in commerce for goods and services of the same species by more than 15%.
Other provisions
• The simplified regime is eliminated.
• The simple taxation regime is created – SIMPLE. This regime is optional and may include both individuals and artificial persons with income in excess of 1.400 UVT (Col$46.148.400 – US$15.473, approximately) and up to 80.000 UVT (Col$2.652.480.000 – US$884.160, approximately), among other conditions.
• The regime on income for mega investments is created, large companies generating at least 50 direct jobs and making investment in Colombia exceeding 50.000.000 de UVT (Col$1.657.800.000.000 – US$552.600.000 approximately) may opt for this regime.
• The main benefits for companies opting for this regime are:
a. Not subject to determine presumed income
b. Not subject to estate tax
c. Dividends will not be taxed
d. Income tax rate will be 27% and 9% for.
e. They may have a legal stability regime for 20 years.
• A Colombian Holding Companies (CHC) regime is created. Domestic companies whose purpose is holding securities, investment or holdings from foreign shareholders may be under this regime, with the following benefits:
a. Dividends distributed by entities abroad to a CHC shall be exempt from income tax.
b. Dividends distributed by CHC to residents shall be taxed but will be entitled to the discount established on article 254 of the TS.
c. If dividends are distributed by CHC to a NON resident, they will be deemed income from a foreign source.
d. Occasional profit derived from the sale or transfer of CHC’s interest in NON resident entities shall be deemed exempt.
• New rules are added to the application of work for taxes.
• The standards on the simplified regime and inflationary component, among others, are repealed.
• Mutual agreement proceedings are created for cases where there are double taxation agreements signed by Colombia.
• During 2019, persons unable to issue an electronic invoice due to technical difficulties or justified commercial inconvenience and issue invoices under means other than electronic, will not be subject to sanctions provided they prove these conditions.
• New joint liabilities are created.
Source: Law Project/ See Document
Exhibit: Grounds / See Document
