Colombia Introduces Major Tax Reforms

PRLog (Press Release) - Mar. 8, 2013 - The most significant new regulations are summarized under the following headings:

Individual Income Tax

·         A new simplified minimum tax introduced: The IMAS (impuesto mínimo alternativo simple) is applicable for resident employees having annual gross income lesser than 4,700 Tax Units (UVT). This provision is a substitute to the IMAN, as a separate tax rate slab is used to impose IMAN.

·         A new minimum tax introduced: The IMAN (impuesto minimo alternativo nacional) is a progressive flat tax based on the amount of income derived. The presumptive minimum income currently calculated at 3% on a taxpayer’s net tax worth has been abolished.

·         Exemptions on contributions to voluntary pension funds: With up to 30% of the employment income or general income per annum exempted in case the following conditions are satisfied:

        i.          The collected amount is not withdrawn within a 20-year period (increased from the current time limit of 5-years), or

       ii.          The amount is used for the buying a permanent home.

Corporate Income Tax

·         Corporate income tax rate reduced: For companies and non-resident companies generating income through a permanent establishment, the rate of corporate income tax is reduced to 25% from 33%.

·         A new domestic definition introduced: for resident companies and dividends.

·         In addition, a new provision of CREE (impuesto sobre la renta para la equidad), fair tax, introduced: CREE is allocated on income generated by permanent establishments in Colombia of non-resident companies and resident business entities. The tax rate is 9% on taxable income for taxable years 2013, 2014 and 2015; and the same reduced to 8% from 2016. It should be noted that the CREE tax payer would be exempted from the payroll fees accrued on wages and labor payments.

·         Changes to business reorganization provisions which are applicable in the case of mergers, spin-offs and capital contributions remain unaltered for income tax purposes, provided certain conditions are satisfied.

VAT

·         The applicable VAT rates number reduced from seven to three i.e. instead of the rates of 0%, 1.6%, 10%, 16%, 20%, 25% and 35% only the following rates would apply 0%, 5% and 16%.

·         The items subject to VAT at the rates of 20%, 25% or 35% have been consolidated to the 16% VAT rate and plus an excise tax would also apply.

·         It should be noted that changes to the business reorganization provisions that are effective in case of mergers, spin-offs and capital contributions remain neutral for VAT purposes, provided certain conditions are satisfied.

Consumption Tax

New consumption tax has been introduced; the tax rates are as follows:

·         Mobile phone services - 4%

·         Restaurant services - 8%

·         Sale of certain goods like yachts, boats and motorcycles - 8%

Other Important Provisions:

·         Anti-avoidance: New general anti-avoidance rules introduced to reduce offensive forms and agreements, cases which fall short of economic substance or business rationale. Thin-capitalization rules have also been prescribed.

·         Capital gains: For both residents and non-residents the tax rate reduced from 33% to 10%.

·         Income tax credit: If certain requirements are met, the foreign tax paid on dividends that are received by residents may be entitled to a full tax credit.

·         Permanent Establishments: Introduction of a new domestic definition of PE.

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