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Colombia Introduces Major Tax Reforms
The Colombian Government has recently introduced various measures which include new individual income tax, corporate tax
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i. The collected amount is not withdrawn within a 20-year period (increased from the current time limit of 5-years), or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.
· 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.
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:
· 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:
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