Are you planning to invest or expand your company’s operation in Colombia? Learn how to file taxes as a corporation in Colombia.
Corporations operating in Colombia -one of the fastest-growing economies in Latin America- are expected to comply with taxes at the national, regional, and municipal levels. These taxes may vary depending on the local regulations in each territory. Here we outline the most important aspects foreign investors must consider when filing taxes in Colombia.
To be able to comply with Colombian tax regulations, corporations must apply for a Single Tax Registration or RUT (Registro Único Tributario). This registration number is assigned by the National Tax Authority, or DIAN (Dirección de Impuestos y Aduanas Nacionales).
The RUT will be the company’s main ID for tax purposes, as it describes the conditions of the company as a taxpayer and the associated obligations. Likewise, the Single Tax Registration details if a company is considered a large taxpayer or a withholding agent.
It is common in Colombia to request the RUT when interacting with a company. This is to determine which withholdings must be applied and which entity must make the withholdings for each case. In general, corporations doing business in Colombia must take into account the following tax requirements:
Corporate Income tax: Corporate income tax in Colombia is applied over a company’s income accrued between January 1st and December 31st of each year. The rate for 2020 is 32% and will decrease in 2021 to 31% and 30% in 2022. The returns for income tax must be electronically filled every year before the DIAN’s website.
VAT: Vat is applied over the value-added when rendering services or selling goods within Colombian borders. The general rate is 19%, however, some services and goods might have a rate of 5% or less. Companies with a yearly income above US$850.000 approximately are required to file VAT returns every 2 months. Otherwise, companies are expected to fill VAT returns every 4 months. Some small taxpayers and startups may have to file VAT once a year.
Withholdings: Although withholdings are not classified as taxes, companies operating in Colombia must be aware that Income tax and VAT generate withholding responsibilities. Withholding returns must be filled monthly. Note that the withheld amounts are Government´s money and any misconduct regarding withholdings can involve serious penalties.
Tax on financial transactions: The financial transaction tax is imposed through the banking system. The rate is 2×1000 for 2020 and 1×1000 for 2021. The taxable base is the value of the overall transaction and the value of the tax is in all cases withheld by the banking entity. This tax will cease to be in force as of 2022.
Colombia is divided into administrative regions or departments. In this sense, the national tax law allows for departments to handle some taxes. For corporate purposes, the relevant regional taxes are known ad the registry, fuel, and vehicle taxes. Note that regional taxes are also applied to the consumption of beer, liquors, cigarettes, and tobacco-based products.
Each department in Colombia can issue their own tax code. For this reason, rates and compliance dates may vary. As opposed to the national and municipal regimes, companies are not obliged to request additional tax registries or IDs for regional tax compliance. Some of the regional taxes are.
Registry tax: This tax is applied to acts and documents that must be processed before the regional chambers of commerce. Its causation is instant, and the value of the tax is withheld by the chamber of commerce accordingly.
Fuel tax: This tax is applied to fuel used by vehicles. The general rate is 6.5% of the value of the transaction and the tax is withheld by the fuel seller.
Vehicle Tax: This tax is applied to the value of a vehicle, in accordance with the provisions of the national government that take into consideration the vehicle’s size and model.
For tax purposes, Bogotá D.C. – Colombia’s capital city – is considered a municipality. This means that Bogotá is allowed to collect taxes as a region and/or as a municipality. This is mainly due to the importance and size of the city within the national economy.
Municipalities are the most basic administrative organization entities in Colombia. These entities may be large as Bogotá D.C. a city with more than 9 million inhabitants, or as small as a town with a few thousand inhabitants. In Colombia, municipalities are allowed to collect taxes and issue their own tax code. The main municipal taxes with implications for companies are:
Turnover tax: This tax is collected by each municipality over the value of the rendered services or commercialized goods inside their jurisdiction. The Colombian government is working towards standardizing compliance requirements, rates, and other particularities for all municipalities.
Property tax: Property tax is applied on the value of real estate owned in Colombia. This tax is charged every year by each municipality and the rates and compliance conditions may greatly vary. For example, a taxpayer should expect to pay higher rates for properties in major cities such as Bogotá, Cali, or Medellín, than for properties in small municipalities.
Corporations are required to register in each municipality where they operate. Municipalities will issue a taxpayer identification number, different from the national tax identification number explained previously in this document. Companies that operate or wish to operate in Colombia must have at least 2 tax records, one at the national level and at least one at the municipal level.
Understand Colombian tax regulations with expert advice
Tax compliance in Colombia requires great attention to detail. Corporations filing taxes in Colombia must understand the legal requirements that must be met at the national, regional, and municipal levels. At Biz Latin Hub, our team of multilingual legal and tax advisory experts is equipped to deliver excellence and guide you through the Colombian tax system.
We deliver a full suite of market entry and back-office services that are customizable to your business needs. Contact us now to learn more about ‘Key tax considerations for foreign companies in Colombia‘, and other relevant tax dispositions in regards to corporate taxes in Colombia.
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