In December last year, Colombia approved a tax reform which would decrease the tax paid by companies from 33% to 30%, and among other factors, permit the return of Value Added Tax (VAT), set at 19%, for smaller earners.
The initiative of the government of the President, Iván Duque, aimed to maintain the benefits of Law 1943 from 2018, also known as the Finance Law, which was due to end on 1st January. This reform keeps the main aspects of the Finance Law, with some significant adjustments.
One of the most widest reaching measures in terms of the population is the regulations on VAT, where the new tax system established a tax return mechanism for lower income households and stated that for three days a year, certain products will be exempt from VAT. As such, the import and duty-free sector will benefit from a cut on the taxable values of imported goods that have any national component, discounting the value of the raw materials and services for which the VAT has already been paid. VAT will also still be exempt for property sales, as established by the Finance Law, while it will also be exempt from insurance broker agreements
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Originally, the VAT return was due to come into place next year, but it will now come into force during the second half of 2020 through Sisbén IV.
Corporation tax will be progressively lowered from 33% to 30%. For the tax year 2020, the tax will be fixed at 32%, lowering to 31% in 2021 and 30% in 2022. Another measure being taken in this regard is the reduction in presumptive income from 1.5% to 0.5% for 2020, and as of 2021 it will be 0%. Furthermore, there will also be a reduction on income tax for activities in the so-called Orange Economy (cultural, creative and identification activities).
For individuals, income tax regulations establish that workers who receive income from various sources may allocate their costs and expenses incurred from these activities. There will also be a special discount put in place for interest paid on ICETEX educational loans, limited to 100 UVT per year ($3.5).
The Growth Law, as the tax reform approved of in December is also known, establishes a 1% net worth tax for the years 2020 and 2021 in those cases in which the taxpayer has a net worth equal or above COP 5 billion as of 1st January 2020.
Other factors regulated by the new tax system are the creation of a new standardization tax for 2020 at a rate of 15% on the amount of omitted assets or non-existent liabilities, the extension until 30th June 2021 of the Private Capital Funds and Mutual Investment Funds transition system, which keeps the regulations that were enforced until December 2018 in place for the funds existing prior to said date, and the removal of Consumer Tax on real estate properties.
In regard to dividends, for non-residents and foreign legal entities (companies), the tax payments will increase from 7.5% to 10%. In Exchange, for residents, the dividend tax will be reduced from 15% to 10%.
The health contributions made by those who receive the minimum wage will be progressively reduced from 12% currently to 8% in 2020 and 4% in 2021. Those who earn between one or two minimum wages will also have their health contributions reduced to 10% as of next year.
Municipalities will receive 20% of airport compensation whenever there is a concession or joint public-private agreement awarded. In the case of those passengers arriving in the country via air, they will have to pay a tax of USD 15, which will be put towards a social benefit programme.
Coronavirus Tax Measures
One of the measures adopted by the National Tax and Customs Agency (DIAN in Spanish) in Colombia was to offer payment relief to taxpayers by means of Decree 688 from 22nd May. “I want to tell all those people who are facing difficult financial times at the moment (due to the lockdown inflicted by the Coronavirus outbreak), that the DIAN is willing to offer you the chance to pay taxes in 12 months’ time by means of automatic payment agreements and easements”, stated José Andrés Romero, DIAN Director.
Until 6th August this year, taxpayers may request payment agreements and easements through a fast-track procedure. Once the request is approved by the DIAN, who will have a maximum of 15 days to respond, said the request would be processed without any security interest required.
Furthermore, in order to address the challenges posed by the Coronavirus pandemic, the government, by means of Decree 568, will create a Solidarity Tax for Covid-19 within the guidelines of the Economic Emergency that the country finds itself in, and will aim to support the most vulnerable. The regulation establishes that between 1st May and 31st July, public sector workers and contractors who earn between $10 million and $12.5 million must contribute 15% of their salary, while those workers earning between $12.5 million and $15 million will have to contribute 16%. In turn, those earning between $15 million and $20 million will pay 17% and those earning above $20 million will have to pay 20%.
This withholding will also apply to contractors. Those earning a monthly wage of $10 million or more will also be subject to Covid-19 Solidarity Tax liabilities.
Other provisions included are those related to changes in the tax year calendar, modifying the dates for tax returns and tax payments.