Corporate taxes in Colombia are imposed at the national and regional levels. All legal persons or entities operating in the country must pay such taxes. Local law dictates regional taxes, which are set by each department (state) or municipality.
Understanding the different corporate taxes in Colombia is essential for foreign executives thinking about incorporating a company in the country.
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Who regulates corporate taxes in Colombia?
In Colombia, the National Tax and Customs Directorate (DIAN) is responsible for all process related to national taxes, including:
- National Tax registration and Tax ID
- Tax determination procedure
- Tax return
- Fines and penalties
- Managing the appeals process related to taxation
Each department also has its own taxation agency to handle local taxes, which for local businesses are largely realted to taxable turnover and buying property in Colombia.
The District Finance Secretariate (SHD) is another taxation body, which can collect taxes and impose sanctions on entities not registered in any other jurisdiction or that carry out their activities remotely from abroad.
Finding a trusted tax advisor is therefore crucial to negotiating Colombia’s tax regime to your greatest advantage.
General tax compliance requirements
Corporate taxes in Colombia are imposed on entities operating in the country or generating revenue inside the country, who must comply with the following requirements:
- Apply for a Tax Identification Number: This must be done during the company incorporation process, with the company assigned a number known locally as a “RUT” (pronounced “root”).
- Apply for a municipal Tax ID: This must be be applied for in the main jurisdictions in which commercial activities are being carried out, with the company assigned a number known as a “RIT”.
- Filing tax returns: While generally done electronically, some small or rural jurisdictions may require filling lithographic forms, making compliance more difficult.
The main corporate taxes in Colombia are:
Corporate Income Tax
This is an annual tax due in the first half of each year, based on schedule published by the DIAN, the income tax rate is set to drop over coming years.
Additional to income tax and set at 7.5% for Colombian residents and 10% for non-residents.
Value Added Tax (VAT)
All goods or services rendered in the national territory incur VAT. The majority of goods and services incur a rate of 19%. Certain products enjoy special lower rates while others are VAT free.
VAT payment are made every two months, every four months, or once a year. This variation is based on the taxpayers’ status:
- Every two months: For large taxpayers directly designated by the National Government, or for taxpayers with a gross income of $880,000 or above based on the previous year’s earnings
- Every four months: For every other taxpayer with annual income below $880,000 (USD).
- Annual: For specially designated taxpayers. Mostly local start-ups and small businesses with special regimes.
Financial transactions tax
Tax is imposed on purchases made through the local banking system. The current rate of 2 x 1000 will be halved in 2021 and eliminated the following year. Note that bank entities withhold this tax.
Social security contributions and ‘payroll taxes’
The following taxation requirements related to employees are imposed in Colombia:
- Healthcare contribution: The employer must pay 8.5% of the value of the employees’ salary to the healthcare system, with the employee paying 4%.
- Pension: The employer pays 12% of the value of the employees’ salary into a pension, with t employee paying 4%.
- Payroll taxes: Individual wages above $2,357 (USD) per month must pay an additional 9% parafiscal contribution.
Corporate taxes in Colombia: local taxes
Regional or municipal corporative taxes that foreign businesses should be aware of:
- Turnover tax: The rates of this tax vary based on location and activity carried out. Generally the rate ranges from 0.2% to 2% of income.
- Fuel tax: Municipalities charge a 25% fuel tax over the value paid. The retailer withholds and pays this tax.
- Real estate tax: Annual property tax rate generally range between 0.5% and 1.1%.
As part of the Andean Community of Nations, Colombia has agreements in place with Bolivia, Ecuador and Peru to avoid double taxation. Colombia has three layers of transfer pricing compliance:
- Informative return: for transactions with related parties located in lower tax or non-cooperative jurisdictions, or free trade zones. This is for companies with gross equity above $914,000 (USD), and/or gross income over $558,000 (USD).
- Master and local file: companies who make transactions to related parties above $412,000 (USD), or to non-related parties abroad above $92,000 (USD).
- Country by country report: For Group Parental companies based in Colombia, or for non-leading Colombian entities when said entity produces more than 20% of the group’s total income.
Import compliance requirements
Anyone thinking about importing products to Colombia must meet the following requirments:
- Update their Tax ID to reflect the status of the importer: Note that importers must fill an online application request with Colombia’s Ministry of Commerce.
- Meet the tariff headings (customs duties): Tariff headings in Colombia describe each product category that can be imported into the country. In general, companies can mark their own corresponding tariff heading according to their product description. Another option is to ask the DIAN to do it for them, the fee for doing this is approximately $250 (USD). This last option is recommended when the company is trying to apply for a lower rate or for a very specific or innovative product.
The general rate for imports is 15%, but some products have special lower rates. Further, some products of national interest are exempt from those rates, either temporarily or permanently. Face masks, for example, were exempted from such rates during the Covid-19 pandemic.
It is essential to provide a detailed description of the product, including materials, technology involved in the production process, and related information, in order to understand the applicable rates.
Once goods arrive at an authorized point of entry in Colombia, the importer must submit to the following process:
- Inspection of the goods by local authorities
- Individual imports above $5,000 (USD) must declare the full value and provide other relevant information.
- Pay the customs duties and the VAT through the digital channels provided by National Tax Authorities.
The DIAN stipulates that an import valued above $1,000 (USD) must be processed through a private body known as a “Customs Agency,” which effectively acts as a buffer between the importing organization and the taxation athority. Finding a dependable customs agency is important to any import operation.
Frequent and high volume imorters can request special status from the DIAN after three years of operations, allowing them to undertake their commercial activities without the use of a customs agency.
Understand Corporate taxes in Colombia with the help of Biz Latin Hub
Understanding corporate taxes in Colombia can be a challenging experience for foreign business executives. Therefore, to ensure your company complies with all local tax regulations you must engage with a local, trusted partner. Having a partner that is knowledgeable about tax requirements in Colombia can ensure the good health of your business.
At Biz Latin Hub, our team of multilingual tax specialists is equipped to provide personalized taxation and accounting advice. We also provide professional company formation and incorporation, legal, and financial services tailored to you and your company’s needs for help on getting your business set up in Colombia.
Contact us now to learn more about corporate taxes in Colombia.
Learn more about our team and expert authors and watch the following video to learn how to form a company in Colombia.