Worldwide VAT, GST and Sales Tax Guide
• They do not use a franchise, concession agreement or royalty agreement with respect to the commercial establishment.
• They are not customs users.
• In the prior year, or in the current year, they did or do not enter into sales agreements for goods or services exceeding approximately USD35,300.
• During the prior year, or in the current year, bank deposits and financial investments made did or do not exceed approximately USD35,300.
Additionally, the following taxpayers will be considered as VAT non-responsible:
• Registered as part of the “simple” tax regime (i.e., a tax regime that applies to certain entities and individuals that replaces income tax, consumption tax and industry and trade tax) and engaging exclusively in one or more activities specified of taxpayers under the “simple” tax regime.
• Individual taxpayers under the “simple” tax regime will be considered as VAT non-responsible when their gross income does not exceed approximately USD35,300.
Exemption from registration. The VAT law in Colombia does not contain any provision for exemption from registration.
Voluntary registration and small businesses. VAT law in Colombia does not contain any provision for voluntary VAT registration. Special rules apply for small businesses (see above).
Group registration. Group VAT registration is not allowed in Colombia.
Fixed establishment. In Colombia there is no legal definition of a fixed establishment for VAT purposes. However, the PE rules also apply for VAT. There are two scenarios under which a PE can be configured in Colombian territory: (i) a fixed place of business or (ii) execution of activities by a dependent agent.
For a PE from a fixed place of business, a PE is understood to be: “a fixed place of business located in the country, through which a foreign company, whether a legal entity or any other foreign entity, or individual without residence in Colombia, as the case may be, carries out all or part of its activity.” Therefore, for a PE to be configured in Colombia, from a fixed place of business scenario, the following elements must be fulfilled:
• Place of business: the foreign entity has a physical space available in the country.
• Permanence criteria: there must be an intention of conducting business on a permanent basis and not a temporary basis.
• Execution of the activity: the foreign company or entity must perform all or part of its economic activity through that fixed location.
For a PE from the execution of activities through a dependent agent, a PE can be constituted in Colombia when the foreign entity has: (i) a dependent agent (legally or economically) that acts permanently on behalf of the foreign entity; or (ii) an independent agent that performs all or most of its activities on behalf of such entity, and between said entity and the agent, commercial or financial conditions are established that differ from those that would have been established or agreed upon between independent legal entities. In both cases, the agent is required to have and regularly exercise, within Colombian territory, activities that allow him to execute acts or agreements on behalf of the foreign company.
Non-established businesses. A “non-established business” is a business that satisfies the following two requirements:
• It does not have a permanent activity.
• It does not conduct activities in Colombia through a branch of a foreign company in Colombia (i.e., a PE).
The term “exempt supplies” refers to supplies of goods and services that are subject to VAT at the zero rate. Purchasers of exempt supplies may receive an input credit for the VAT they paid on inputs, generating VAT balances in their favor that can be requested as refund.
Examples of goods and services taxable at 0% (e.g., exempt supplies)
• Exports of movable tangible goods if the exporter is registered with the National Tax Registry (i.e., the RUT), has received a taxable person identification number and can, at the request of tax authorities, provide proof of agreements to provide exports, such as contracts, offers or purchase orders. It also includes sales to international trading companies, which are considered as an export activity.
• Services rendered exclusively in Colombia and used exclusively abroad by companies or individuals who are not engaged in business in Colombia. (Companies not engaged in business in Colombia include companies that are direct beneficiaries of the services, the VAT exemption does not extend to related parties such as a subsidiary, branch, affiliate, representative office or home office in Colombia.)
Examples of goods and services taxable at 5%
• Toasted coffee
• Wheat
• Sugar cane
• Cotton seeds
• Soy
• Rice
• Prepaid health services
• Health insurance
• Storage of agricultural products
The term “excluded supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
Examples of exempt supplies of goods and services (e.g., excluded supplies)
• Interest and financial income from credit operations
• Education services provided by preschool, primary, middle and intermediate, higher and special or nonformal education establishments recognized as such by the national government
• Energy and public energy services based on gas or other inputs
• Water for the provision of public water supply and sewerage services, public water supply and sewerage services, public sanitation services and public garbage collection services
• Import of goods subject to postal traffic, express shipments or fast delivery shipments whose value does not exceed USD200
• Sale of tickets related to cultural events, such as cinema and concerts (note, this excludes the sale of tickets related with animal spectacles such as dog races and bullfights, which is taxable at the standard rate, as per the Law 2277 of 2022)
Note that the VAT exclusion for the import of goods subject to postal traffic, express shipments or fast delivery shipments whose value does not exceed USD200 is limited, and therefore will only be applicable if the import of goods is made from countries with which Colombia has executed a free trade agreement in which it is specified that VAT is not levied. Compliance with the requirements and conditions established in each free trade agreement entered with Colombia must be proved to qualify for the benefit.
Option to tax for exempt supplies. The option to tax exempt supplies is not available in Colombia.
• VAT exemption for local sales when the purchaser is an industrial user of a FTZ and the goods (e.g., raw materials, spare parts, semifinished goods) will be used in compliance with FTZ rules and regulations.
• The intermediary production services that these companies may provide are equally exempt from VAT, as long as the final product is effectively exported.
• Exemption from withholding tax in the payment or credit to account for the acquisition of goods, destined to be exported, provided a certificate of purchase is issued to the seller in which a declaration is made regarding the future export of the product.
• If the sale of products is to the rest of the Colombian territory, the taxable basis includes foreign goods and local goods acquired for such finished goods plus all national components (i.e., services and goods).
International trade companies. International trade companies (ITCs) are intended to trade and sell Colombian products abroad. These products are purchased in the domestic market or may be manufactured by partners of an ITC. These companies must be registered before the DIAN.
The most important benefits of these companies are:
• Exemption from VAT on purchases of movable tangible goods, as long as these are effectively exported or transformed.
• The intermediary production services that these companies may provide are equally exempt from VAT, as long as the final product is effectively exported.
• Exemption from withholding tax in the payment or credit to account for the acquisition of goods, destined to be exported, provided a certificate of purchase is issued to the seller in which a declaration is made regarding the future export of the product.
F. Recovery of VAT by taxable persons
A taxable person may treat as creditable (i.e., credit) VAT paid on purchases (i.e., input tax) from VAT charged on sales (i.e., output tax) if the input tax related to certain types of expenditure.
Input tax paid on the acquisition of movable tangible goods and on services supplied to a taxable person, or VAT paid on imports of movable goods, may be claimed as creditable (i.e., credit) up to a limit determined by applying the rate of VAT charged on the supply of the goods or services provided by the taxable person to the input tax incurred.
Any excess input tax paid (i.e., the amount of input tax exceeding the limit determined by applying the VAT rate charged on the supply of goods and services) may be requested as a refund but only after the income tax return for the given period has been filed and if such balance in favor corresponds to the authorized refundable VAT (i.e., exempted activities or VAT derived from withholding applied to the taxable person; as described below).
In addition, for transactions with foreign suppliers, the reverse-charge (i.e., self-assessment) mechanism must be used, and the VAT withheld may be treated as input tax in accordance with the general rules and limitations if the taxable person can prove to the tax authorities that the tax has been withheld. Alternatively, the VAT withheld can be treated as a higher cost or expense if the rules to claim the input tax as a credit are not met.
The time limit for a taxable person to reclaim input tax in Colombia is two years. Requests for balances in favor must be filed no later than two years from the due date to file the corresponding VAT return.
Nondeductible input tax. Input tax may not be recovered on purchases of goods and services that are not used for making taxable supplies or that are not used for business purposes (e.g., goods acquired for private use by an entrepreneur). If expenditure relates to both business and nonbusiness activities, only the portion related to the business may be recovered. In addition, input tax may not be recovered for some items of business expenditure.
Bad debts. If a customer is unable to pay a supplier for supplies on which the supplier has paid VAT, the supplier can claim bad debt relief, but the supplier must have exhausted all customary procedures for collecting the debt.
Noneconomic activities. Input tax incurred in relation to noneconomic activities is not recoverable in Colombia.
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses that are not registered for VAT in Colombia is not recoverable. However, members of accredited diplomatic missions and members of the United Nations may claim a refund of VAT paid.
H. Invoicing
VAT invoices. A taxable person must provide a VAT invoice for all taxable supplies made, including exports. An electronic invoice or authorized equivalent document is necessary to support a claim for input tax credit.
Credit notes. Credit notes should be issued when returns or cancellations are made, as long as the transaction has not been accepted by the acquirer. The canceled invoice numbers cannot be reused and a record of the canceled invoices must be kept. Credit notes must correspond to a consecutive numbering system and must contain at least the number and date of the invoice to which they refer, name or business name and NIT of the acquirer, the date of the note, number of units, description, VAT (where applicable), unit value and total value. This only affects the generated VAT; scenarios such as discounts do not apply.
Electronic invoicing. Electronic invoicing is mandatory in Colombia, for certain taxable persons.
Scope of electronic invoicing. For B2B, B2C and business-to-government (B2G) supplies, electronic invoicing is mandatory for certain taxable persons in Colombia.
The electronic invoicing system is mandatory for the purchase and sale of goods and services and other operations such as payroll payments, exports, imports and payments in favor of those who are not responsible for the VAT.
The following taxable persons are not required to issue electronic invoicing in their transactions:
• Banks, financial corporations and financing companies
• Credit unions, higher-level cooperative organizations, cooperative support institutions, multiactive and integral cooperatives, and employee funds, in relation to their financial operations
• Individuals considered as VAT non-responsible, provided they meet all the conditions
• Companies incorporated as legal or individuals that provide urban or metropolitan public passenger transportation, in relation to these activities
• Individuals bound by a labor or legal and regulatory relationship, and pensioners in relation to the income derived from these activities
• Individuals who solely sell excluded goods or provide services not subject to VAT and who received total gross income from these activities in the previous year or the current year amounting to less than approx. USD33,700 (gross income does not include income derived from a labor or legal and regulatory relationship, pensions or occasional gains)
• Service providers from abroad without tax residence in Colombia for the provision of electronic or digital services
• Community Action Boards (Juntas de Acción Comunal), provided they do not require requesting refund and/or offset of favorable balances in VAT
At the time of preparing this chapter, a regulation has been proposed to create an electronic document equivalent to an electronic invoice, which will be applicable to some of the taxable persons
listed above. Currently there are 12 equivalent documents to the electronic invoice. The proposed regulation seeks to regulate the electronic equivalent document for an electronic invoice. To date, no further details have been released.
Equivalent documents to the electronic invoice:
• Cash register ticket with point of service (POS) system
• A cinema entrance ticket
• A passenger transport ticket
• An extract provided by some entities such as fiduciaries, private equity funds, foreign investment funds, pension funds, among others
• A passenger air transport ticket
• A document emitted by the gaming sector for games of chance that have a physical location
• A ticket, fraction, form, cardboard, ticket or instrument for games of luck and chance other than those mentioned above
• A document issued for the collection of tolls
• A proof of settlement of operations issued by the stock exchange
• A document of operations on the stock exchange for agricultural and other commodities
• A document issued for domestic public services
• A ticket for admission to public shows.
The electronic equivalent document. All electronic invoices for tax recognition purposes must be validated prior to their issuance by the tax authority or an authorized technological supplier. As a consequence, the invoice shall be deemed to have been issued only when it has been validated and delivered to the acquirer. In cases where prior validation of the electronic invoice cannot be carried out, for reasons attributable to the tax authority or to an authorized supplier, the party obliged to invoice is entitled to deliver the electronic invoice to the acquirer without prior validation.
In all cases, the responsibility for the delivery of the electronic invoice, for its validation and the delivery to the purchaser once validated, corresponds to the party obliged to invoice.
Simplified VAT invoices. Simplified VAT invoicing is not allowed in Colombia. As such, full VAT invoices are required.
Self-billing. Self-billing is allowed in Colombia. Special rules apply where the tax authority can require an invoice from a business for the withdrawal of stocks for self-consumption. In addition, with implementation of the electronic invoice, it is required to invoice the payroll department.
Proof of exports. VAT is not chargeable on supplies of exported goods. Exports are exempt from VAT. However, to qualify as VAT free, exports must be supported by customs documents that prove that the goods have actually left Colombia. The exporter must file a return to the tax authorities by filling out a Declaración de Exportación (DEX) and be registered as an exporter with the Registro Único Tributario (RUT). In Colombia, sales of goods required for the normal development of the businesses of operators or industrial users located in free-trade zones and sales to International Commercialization Companies are considered to be exports if the goods are effectively supplied to the purchaser. Consequently, these transactions are also exempt from VAT.
Foreign currency invoices. The invoice (XML file) must be issued in Colombian pesos (COP) and show the equivalent in a foreign currency. It must be paid in the domestic currency, which is the COP, unless the customer is a foreign entity. The graphic representation of the e-invoice (PDF file) can be expressed in a foreign currency and/or a foreign language, but the XML file should be in COP and in Spanish. When transactions take place locally, the VAT amount must be converted to COP using the market exchange rate on the date of the transaction. The Colombian Central Bank manages the exchange system. Colombian tax legislation establishes that the electronic sales invoice must expressly indicate the exchange rate on the day of issuance of the
Special schemes. No special schemes are available in Colombia.
Annual returns. Annual returns are not required in Colombia.
Supplementary filings. Consumption tax return. A consumption tax applies to certain goods and services, including but not limited to restaurant services (including catering services), mobile phone services, the sale or import of certain vehicles, the sale of jewelry, the sale of plastic bags and the sale of medicinal cannabis.
The consumption tax rates are as follows:
• Certain vehicles based on their free on board (FOB) value: 8%
• Restaurant services: 8%
• Mobile phone services: 4%
• Medicinal cannabis: 16%
• Plastic bag consumption: COP66 per bag in 2024
• Luxury vehicles, chassis, hot air balloons and airships: 16%
The tax is levied at the date and time the invoice is issued to the final consumer or upon delivery of the goods or services to the final consumer.
Returns for the consumption tax are filed quarterly, starting on the date when taxable activities commenced and ending at the end of the calendar quarter.
Consumption tax paid does not generate input tax (i.e., VAT credit) but may be treated as a deduction for income tax purposes, except in the case of plastic bags.
Correcting errors in previous returns. When a taxable person has filed tax returns with inaccurate information or delay, it has the obligation to amend them and pay an amendment penalty. The opportunity for the taxable person to amend its own tax return is either by initiative or requirement from the tax administration. If the taxable person decides not to amend its tax returns, the tax authority can proceed to establish a penalty for inaccuracy. Colombian legislation establishes that in the specific scenario in which the taxable person decides to amend its return, the penalty would be paid regarding the higher payable tax or the lower balance in favor in the amendment made.
Digital tax administration. Magnetic media. Known in Colombia as “magnetic media,” it is an obligation for individuals and legal entities to file a report before the tax authority regarding all fiscal and commercial relations with third parties. For VAT purposes, any individuals, legal entities, public and private entities and others obliged to carry out a withholding tax must comply with this obligation. In accordance with the Colombian Tax Code, the DIAN has the authority to request tax information. The Tax Code empowers the DIAN to request from individuals or entities, taxable persons and nontaxable persons, information to carry out studies and cross-checks necessary for the proper auditing and control of taxes, as well as to comply with other functions within its competence, including those related to compliance with obligations and commitments enshrined in the tax conventions and treaties signed by Colombia.
J. Penalties
Penalties for late registration. A penalty corresponding to one (1) tax unit (i.e., UVT), which in 2024 is COP47,065 is levied for each day of late registration.
Penalties for late payment and filings. The penalty for late filing and payment applies for each calendar month (or fraction of a month) of delay. It equals 5% of the total tax due or withheld in the taxable period, up to a maximum of 100% of the tax.
If the taxable person is not required to pay VAT, the penalty for each month of delay (or fraction of a month) equals 0.5% of the gross income received by the taxable person, up to a maximum