Colombia has proven time and time again that it is an excellent jurisdiction to do business. The economy is growing steadily and, according to reports, will continue expanding in the coming years. More and more investors are coming to Colombia and taking full advantage of all the many commercial opportunities the country has to offer, as well as the more open governmental policy of the last few years.
When you decide to incorporate a business in Colombia, you will become part of the Colombian tax system. Determining how much tax you must pay can be slightly complicated, due to different tax brackets for residents or foreign companies. For this reason, it is advantageous to partner with a local agent who can assist you in complying with the accounting tax requirements in Colombia.
Business Accounting Requirements in Colombia – The International Financial Reporting Standards in Colombia – ‘IFRS’
The IFRS is an organisation that establishes a globally recognised accounting standard which is renowned for its simplicity of enforcement. Applicable in Colombia, it is important that you ensure any accountant that you work with complies with these standards, as it will make accountancy management much easier for you as a foreign investor.
Business/Company Accounting Requirements in Colombia
In Colombia, you will need to pay taxes on the taxable income of the company. The taxable income is the gross income of a company minus the returns, rebates, discounts, and all other ordinary costs incurred in deriving net income and allowable deductions. The rate of taxable income is 33% for most types of companies in Colombia. The only exception being any company that is located in a free trade zone (FTZ); this rate will be 20%.
Taxation of Dividends
When your company has dividends and income from profit, it is considered to be part of the taxable income. When the dividends are received by a company from profits that were not taxed at the corporate level, the tax rate for the dividends will be 35%. If the dividends are paid from profits that were taxed at the corporate level, the tax rate will only be 5%.
Dividends received by a resident from profits that were not taxed at the corporate level will be subject to a rate of 35%. If a resident receives dividends from profits that were taxed at the corporate level, the rate will be between 0% – 10%.
The Surtax is a temporary income tax (in addition to the income tax) that has a rate of 4% of net income over COP$8 Million.
Alternative Minimum Tax (AMT)
The Alternative Minimum Tax is a mandatory alternative to the standard income tax. You will have to pay this when the company is making more money than the exemption and uses many common itemized deductions. The reason the AMT affects those in higher tax brackets is that it eliminates many of those deductions. If you make more than the AMT exemption amount and use the deductions, you will need to calculate your taxes twice.
Want to Learn More About Colombia´s Tax and Accounting Requirements?
For many industries, if you are looking for a place to start or expand your business, Colombia is an ideal destination. We understand that doing business in a new, Latin American country can be stressful. Biz Latin Hub can offer you tailored business services from company formation and market entry to due diligence and legal representation. Contact our CEO, Craig here to see how we can support you and your business in Colombia and Latin America.
To learn more about why you should do business in Colombia, watch the following video!