People Advisory Services
Carlos Mario Sandoval
Global Trade
Diego Vega
Law
Ximena Zuluaga
Camila González
Barranquilla
EY
+57 (1) 484-7397
Mobile: +57 (317) 502-1317
Email: carlos.sandoval@co.ey.com
+57 (1) 401-4792
Mobile: +57 (315) 873-6769
Email: diego.vega@co.ey.com
+57 (1) 484-7170
Mobile: +57 (310) 803-2065
Email: ximena.zuluaga@co.ey.com
+57 (1) 847-000
Mobile: +57 (320) 566-7446
Email: camila.gonzalez@co.ey.com
+57 (5) 385-2225
Mail address: Fax: +57 (5) 369-0580
Mailbox 092638
Barranquilla Colombia
Street address: Calle 77B No. 59-61
Suite 311
Barranquilla Colombia
Principal Tax Contact
Fredy Mora
+57 (1) 484-7603 (resident in Bogotá)
Mobile: +57 (311) 232-9759
Email: fredy.mora@co.ey.com Cali
EY
-5
-5
+57 (2) 485-6280
Mail address: Fax: +57 (2) 661-8007
Mailbox 092638
Cali Colombia
Street address: Avenida 4 Norte No. 6N-61
Suite 502
Cali Colombia
Principal Tax Contact
José Guarín
+57 (1) 484-7671 (resident in Bogotá)
Mobile: +57 (315) 432-4578
Email: jose.guarin@co.ey.com
EY
+57 (4) 369-8436
Mail address: Fax: +57 (4) 369-8484
Mailbox 092638
Medellín Colombia
Street address: Carrera 43A No. 3 Sur – 130
Piso 14
A reduced corporate income tax rate of 20% applies to legal entities qualified as Industrial Users of Goods and/or Services in a free-trade zone. Beginning in 2024, industrial users of the freetrade zone will keep benefiting from the 20% tax rate in relation to income derived from exportation of goods or services and to the extent they have agreed on an internationalization plan (with certain exportation targets). However, a 35% rate will apply to income derived from other types of activities. For industrial users that, for 2022, obtained a 60% increase on their gross income, compared with its 2019 gross income, the 20% rate over their income should apply until 2025. Based on a Constitutional Court decision of 2023, industrial users that complied with the requirements to apply the reduced corporate income tax rate before 13 December 2022 should have a grandfathering treatment to keep applying the reduced corporate income tax rate to local sales income (not only to exportation income). Commercial Users in a free-trade zone are subject to the general corporate income tax rate.
Subject to certain conditions and requirements, a special reduced rate of 15% applies to certain activities, such as hotel services, ecotourism parks and/or agritourism parks, services provided in new or refurbished hotels, parks development in certain municipalities, and publishing companies that fulfill certain requirements.
Reduced and gradual corporate income tax rates (8.75% to 26.25%) are available until 2027 for some companies whose main domicile and whole activity is carried out in zones most affected by armed conflict (ZOMAC). Also, reduced and gradual rates (0% to 17.5%) apply to companies whose main domicile and whole activity is carried out in so-called Special Economic and Social Zones (ZESE) and generate certain increases in employment. It is still possible to apply for a ZESE benefit in certain municipalities until the end of 2024.
Certain tax credits are available (see Foreign tax relief).
Colombian Holding Company regime. The Colombian Holding Company (CHC) regime applies to Colombian entities as long as they comply with the following requirements:
• They hold at least 10% of the capital of two or more Colombian or foreign entities during at least 12 months.
• They have three or more employees and have human and material resources in Colombia.
To be included in the CHC regime, a request must be made to the tax authority.
Dividends distributed by foreign entities to CHCs are not taxed. When such dividends are distributed in turn by CHCs to Colombian residents, they are taxed, but when such dividends are distributed in turn to nonresidents, they are not taxed.
Income derived from the sale of shares or quotas in a CHC is generally exempt from income tax on the portion that relates to activities performed abroad. In addition, gain on the sale of foreign entities by the CHC is exempted in the hands of the CHC.
Minimum corporate income tax rate. Income taxpayers are subject to a 15% minimum tax rate (adjusted tax rate or ATR). The ATR
inapplicable from the tax year following the one when the international agreement enters into force (this rule is related with Pillar One of the Base Erosion and Profit Shifting (BEPS) 2.0 project of the Organisation for Economic Co-operation and Development [OECD]).
Foreign tax relief. For national corporations and resident individuals, a credit for foreign taxes paid on foreign-source income is granted, up to the amount of Colombian corporate income tax payable on the foreign-source income.
An indirect tax credit is also granted for foreign taxes paid on income at the level of the foreign company that is distributing corresponding dividends to Colombian shareholders or quota holders. This tax credit equals the amount resulting from the application of the effective income tax rate of the foreign company to the amount of distributed dividends. The sum of the direct tax credit and indirect tax credit may not exceed the corporate income tax payable in Colombia on such dividends.
To be entitled to the direct and indirect tax credit, the domestic taxpayer must prove that the corresponding tax was effectively paid in each relevant jurisdiction. In addition, for the indirect tax credit, the investments must be qualified as fixed assets for the taxpayer. Consequently, indirect tax credits cannot be claimed on portfolio investments.
The tax credit may be claimed in the tax year in which the foreign tax is paid or in any of the following years.
C. Determination of taxable income
General. Taxable income is determined in accordance with the following calculation: gross income, minus non-taxable income, returns, rebates and discounts, equals net income, minus costs and expenses, equals taxable income. In the first instance, such values must be determined in accordance with the Colombian generally accepted accounting principles, which generally follow International Financial Reporting Standards and are subject to several adjustments provided in the tax rules.
In general, to be deductible, expenses must be related to the activity that generates taxable income and must be proportional and necessary with respect to the productive activity of the taxpayer. Some limitations and prohibitions may apply to the deductibility of certain expenses.
In determining taxable income, taxpayers may deduct all paid taxes related to their economic activity, except for certain items such as the debit tax (only 50% is deductible, regardless of whether the tax relates to an income-producing activity) and the equity tax or the single-use plastic tax, which are not deductible.
Payments to entities resident outside Colombia are deductible if they meet the general rules above and, for expenses related to Colombian-source income, if the applicable withholding tax is paid. In general, if no withholding tax applies, the expenses are allowed as deductions, up to a maximum of 15% of the taxpayer’s net income before considering all costs and expenses abroad not subject to Colombian withholding tax. Costs or expenses incurred abroad that are related to foreign-source income subject to
Restrictions apply to the transfer of losses in mergers or spin-offs (tax-free events for the participating companies for Colombian tax purposes if certain requirements are observed). The surviving entity can offset losses originated in the merged entities (including the surviving entity itself), but only up to the percentage of the equity participation of the merged entities in the surviving entity’s equity. Similar rules apply to spin-offs of companies.
The special treatment of tax losses in mergers and spin-offs applies only if the economic activity of the companies involved remains the same after the merger or spin-off occurs.
Inflation adjustment. An optional tax readjustment of fixed assets may be applied. This readjustment is calculated by applying the percentage certified by the government for the adjustment of the tax unit. The readjustment affects the tax basis for the transfer of fixed assets and the determination of taxable net equity. Although the inflation adjustments were eliminated, the accumulated inflation adjustments can be depreciated.
D. Other significant taxes
The following table summarizes other significant taxes.
Value-added tax; imposed, unless expressly excluded by law, on sales of tangible assets and intangibles related to industrial property, on imports of movable tangible assets and on most services rendered in Colombia or from abroad to a Colombian recipient of the services
General rate
19%
Basic products, such as coffee and wheat 5%
National consumption tax; imposed on, among other items, food services in restaurants, mobile phone services and certain cars 4% to 16%
Industry and commerce tax; a municipal tax on annual or bimonthly gross revenue (other tax periods may apply, depending on the jurisdiction); rates vary depending on the company’s activity and municipality; tax effectively paid during the year is a 100% deductible expense
Bogotá 0.414% to 1.4%
Municipalities other than Bogotá 0.2% to 1%
Signs and Posters Tax; imposed on enterprises with advertisements in public places; tax rate applied to the industry and commerce tax due 15%
Tax on Visible Advertisement Hoardings; imposed on each advertisement on hoardings or billboards with a size equal to or larger than 8 square meters (86,111 square feet)
(The minimum wage for 2024 is COP1,300,000 [approximately USD333].)
5 minimum wages
Nature of tax Rate
employees, employers are still required to pay the Compensation Fund contribution [4%].) 9%
Custom duty, on Cost, Insurance, Freight (CIF) value; general rates 0% to 15%
Real estate tax; municipal tax imposed on the ownership of land or immovable property; tax rate is applied to the commercial value of the property; rate set by the municipality and varies according to the location and use of the property; general range of rates 0.1% to 3.3%
E. Miscellaneous matters
Foreign-exchange controls. Colombia has a flexible foreignexchange regime. However, the foreign-exchange regulation provides that some operations must be channeled through the foreign-exchange market (controlled operations). These operations have special reporting procedures and obligations. Any other operation is considered a free-market operation and consequently channeling through the foreign-exchange market is not mandatory. The following are the controlled operations:
• Foreign loans
• Foreign investment in Colombia and Colombian investment abroad
• Foreign-trade operations (imports and export of goods)
• Derivatives transactions
• Endorsements and warranties
The operations under the controlled exchange market must be channeled through authorized foreign-exchange intermediaries (financial institutions and commercial banks) or compensation accounts (foreign bank accounts that are registered with the Colombian Central Bank [Banco de la República de Colombia]).
Exchange operations that are not covered by the controlled market are conducted through the free market. These operations include the purchase of foreign currency that is used to open free-market bank accounts abroad.
Foreign investors may receive abroad, without limitation, annual profits derived from an investment that is registered with the Colombian Central Bank. This operation must be reported to the Colombian Central Bank within the legal term and the report must follow the procedures set forth in the law.
Nonresident individuals are not allowed to grant foreign loans to Colombian residents. However, some exceptions to this prohibition applies. The loans must be registered with a foreignexchange intermediary, prior or simultaneously to the disbursement of the loan, and the cash flow of foreign currency related to the foreign loans must be channeled. These loans can be stipulated, disbursed and paid in Colombian or foreign currency, as agreed by the parties.
Controlled foreign companies. The controlled foreign company (CFC) regime applies to Colombian tax residents (individuals or entities) that directly or indirectly hold an interest equal to or greater than 10% of the capital or of the profits of a foreign entity that is considered a CFC.
Colombia has entered into tax treaties covering certain international air transportation services with several countries, including Argentina, Brazil, France, Germany, Italy, Panama, Türkiye, the United States and Venezuela.
Colombia has also signed double tax treaties with Brazil, Luxembourg, the Netherlands, the United Arab Emirates and Uruguay, which are not yet in effect.
The following table presents the withholding tax rates for dividends, interest and royalties under Colombia’s double tax treaties.
(a) Dividends that are not taxed at the corporate level are subject to a tax rate of 35% (for 2024) at the shareholder level. However, the 35% rate may be reduced if the dividends are exempt from income tax at the corporate level and are reinvested for a three-year term.
(b) For details regarding these rates, see Section A.