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Understanding Colombia’s Tax Incentives for Businesses

Understanding Colombia’s Tax Incentives for Businesses

Learn more about Colombia's tax incentives for businesses and how you can take advantage of them to optimize revenue and deliver better results by year's end. In recent years, Colombia has undergone a process to increase its competitiveness and attractiveness, becoming an investment hub in Latin America. As part of this process, the country is constantly increasing its offer of tax benefits to reduce the overall tax burden that is often considered as one of the most expensive in the region. What are tax benefits in Colombia? Tax benefits in Colombia refer to any differential treatment that legal entities and individuals can apply to reduce their overall tax burden. All tax benefits must be established by the Colombian Congress if it is of national relevance or by the local councils if it is a municipal tax. To understand the tax benefits in Colombia, you should be aware that the tax benefits are not subject to interpretation and must be applied exactly as required by law. Similarly, you cannot make interpretations to be able to acquire a tax benefit. Which kind of tax benefits exist in Colombia? Colombia is constantly increasing its offer of tax benefits. In Colombia, there are 3 categories of tax benefits. They differ according to the way they impact the tax determination process. The 3 categories are: 1. Tax benefits to lower the taxable base. 2. Tax benefits that discount from the value to be paid. 3. Tax Benefits that return to the taxpayer the value already paid as taxes. Some sector-specific tax benefits may be applicable to some specific commercial operations....

Why Seek Tax Advisory Services in Colombia?

Why Seek Tax Advisory Services in Colombia?

Colombia is considered one of the most attractive countries in South America to invest and to do business in. However, with an ever-changing tax landscape, it is essential for companies and business owners to engage with a trusted tax advisory services provider. We outline the most important reasons why you must seek tax advisory services in Colombia when doing business in the country. Colombian tax system is complex In Colombia, registration processes at the national level are different from those at the municipal level. As we explored in our article “How to file taxes as a corporation in Colombia”, companies operating in the country are expected to comply with tax regulations on a national, regional, and municipal level. This multilayer of corporate compliance requirements might be challenging for those who are not expert in the field. For example, businesses operating in Colombia should be aware that registration processes at the national level are different from those at the municipal level. Most companies are assigned a National Tax ID number or RUT (Registro Único Tributario) during the national incorporation process. However, they must register before the municipal tax authorities that supervised the territory where they operate. This is to request a municipal Tax ID or RIT (Registro de Información Tributaria). This requirement is commonly overlooked and may cause fines and penalties. To avoid this, you must count on a local tax advisory services provider. Constantly changing tax regulations Colombia is now famous in Latin America for its constant fiscal reforms. A...

Explaining Corporate Dividend Tax in Colombia For Businesses

Explaining Corporate Dividend Tax in Colombia For Businesses

Find out everything you need to know about corporate dividend tax for businesses in Colombia. Understanding corporate dividend tax might be a challenging experience for companies recently operating or looking to operate in Colombia. We outline the key concepts every foreign executive should consider when complying with local regulations and interacting with Colombian tax authorities. What are dividends for tax purposes in Colombia? In Colombia, dividends can be taxed by the company who distributes them. As we explored in our article 'Understanding dividend withholding tax in Colombia for US residents in 2020', the definition of dividends for tax purposes can be found in section 30 of the Colombian Tax Code, which states the following: “Any distribution of benefits, in money or kind, charged to the equity that is made to partners, shareholders, community members, associates, subscribers or similar. The transfer of profits that correspond to income and occasional gains of national source obtained through permanent establishments or branches in Colombia, by non-resident natural persons or foreign companies and entities, in favour of related companies abroad.” Furthermore, according to the 48 and 49 section of the National Tax Code, dividends are taxed considering income tax. Likewise, dividends can be received by a third party without being taxed. Understand the difference between taxed and non-taxed dividends As previously explained, dividends in Colombia may be taxed by the company in charge of distributing them or by the individual or entity receiving said dividends. This...

Why Engage with an Accounting and Tax Advisory Provider in Colombia?

Why Engage with an Accounting and Tax Advisory Provider in Colombia?

Understand why it's important to engage with an accounting and tax advisory provider in Colombia. Colombia is one of the leading economies in Latin America. Its dynamic economy attracts the attention of investors from all over the world. However, with an average of 10 mandatory tax payments and nearly 256 hours per year dedicated by each company to tax and accounting activities, it's crucial to seek the support of an accounting and tax advisory provider to reduce administrative burdens. Advantages of engaging with an accounting and tax advisory provider When entering the Latin-American market, tax and accounting obligations might be overwhelming for foreign executives. Doing business in Colombia with the assistance of an accounting and tax advisory provider will ensure the success of your business operations. Some of the advantages include: Evolving tax ecosystem Colombian tax regulations are bound to change every year. Companies doing business in Colombia must be aware that the Colombian legal system is constantly evolving. This means that local tax regulations are bound to change every year. The Colombian Government has issued 3 major tax reforms in the past 4 years and a new one is expected to be issued before the end of 2020. Therefore, there are multiple tax regimes in force, which are applied according to the existing legislation of the year in which a business operates in the country. Having a trusted accounting and tax advisor can help your business to comply with local regulations and requirements you must consider for each case. Tax incentives, credits, and...

Overview of Corporate Tax and Planning in Colombia

Overview of Corporate Tax and Planning in Colombia

The corporate tax season in Colombia usually takes place between February and June of each year. During this time, companies of all sizes and sectors doing business in the country are encouraged to review their corporate tax expenditure and look for optimization alternatives through corporate tax planning for the next year. Understand why corporate tax planning will maintain your business in good standing while complying with Colombian fiscal policy. What is corporate tax in Colombia and who is subject to it? In Colombia, the general tax rate for 2020 is 32% of taxable income and will decrease to 31% in 2021. As stated in Article 5 of the Colombian Tax Code “corporate tax is based on income, occasional earnings and international transfer of income, as well as on commercial profits in the case of branches of companies and foreign entities”. Likewise, Article 12 of the Tax Code states that entities who are fiscal residents in Colombia are taxed for their global source income, and non-resident corporations are taxed only for their local source income. This means that in both cases, residents and non-residents who receive income in Colombia must comply with corporate tax requirements. However, non-residents usually comply with their corporate tax obligations through the withholdings that fiscal residents are bound to do when making payments to non-residents. In Colombia, the general tax rate for 2020 is 32% of taxable income and will decrease to 31% in 2021. Hotels and hospitals, publishing houses and partially state-owned companies have a tax rate of 9% and the users of free...

What Are the Labor Laws in Colombia?

What Are the Labor Laws in Colombia?

Labor laws are the core of work relationships in Colombia, as they establish the rights and duties of employees and business owners operating in the country. This legal framework incorporates the guidelines and parameters set out by the International Labor Organization (ILO). Furthermore, the Colombian labor code enshrines aspects related to the types of employment contracts, hours of work, vacations and other rules concerned to work activities. Being aware of labor laws in Colombia is crucial when incorporating your business in the country, Overview: labor laws in Colombia Labor laws establish the rights and duties of employees and business owners. The Colombian labor code is the most important regulatory framework regarding labor laws in the country. This code is vital to understand all aspects of work relationships in Colombia, such as: Probation period: Employers can establish a trial period for employees of up to 2 months, in which they can choose to terminate the contract without having to pay any compensation.Working hours: The standard working time period in Colombia is 48 hours, which can be distributed over 6 days by prior agreement. Likewise, overtime work is paid differently depending on whether it is day or night work.Internal work regulations: Internal regulations are a set of rules that determine the working conditions of employees.Termination of contracts: The employee can end the employment relationship through a resignation letter. On the other hand, the employer can terminate a contract with or without cause. If the contract is terminated with cause,...

Colombia and Costa Rica Join the OECD: What Does This Mean?

Colombia and Costa Rica Join the OECD: What Does This Mean?

The Organisation for Economic Co-operation and Development (OECD) is an international organization with the aim of designing policies for a better way of carrying out development and economic co-operation. These policies would bring prosperity, equality, opportunities, and well-being for everyone. The OECD works with the organization’s member governments to set international standards to produce solutions too different social, economic, and environmental challenges. They are described as “a single forum, a knowledge center for data collection and analysis, sharing of experiences and good practices”. Currently, the organization counts 38-member states, including Colombia and Costa Rica, who became members 37th and 38th respectively. Colombia: the journey to the OECD In 2020, Colombia became an official member of the OECD. Colombia began its journey to join the OECD in 2011 when its President, Juan Manuel Santos, showed interest in their country becoming a member state of the organization. Between 2013 and 2018, the 23 OECD committees worked on technical reviews in order to determine the viability on behalf of the Colombia Government to make the necessary modifications to access membership of the organization. In 2014, the country took the necessary actions for its accession to the organization. These included the issuing of a memorandum on legal instruments applicable to the country by the Organization which grants immunity to the members to carry out their duties as independently as possible. It was in 2018 when Colombia received a formal invitation to become a member...

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