Colombia: Tax Law 633 Of 2000

Co-written by Mr.Mario Posada

Law 633, which introduced reforms in several aspects of Colombian fiscal regulation, was approved by Congress on December 29, 2000. A brief summary of the key characteristics of the reforms follows:

• As of fiscal year 2001, a new levy called "Tax on Financial Transactions" has been introduced with the following characteristics:
• Taxable event: execution of financial transactions in which there is a disposition of financial resources from a checking or savings account, a savings account from the Central Bank (Banco de la República), or the issuance of a cashier’s check.
• Rate: three per thousand (3 x 1000).
• Taxable base: Total amount of the financial transaction.
• Taxpayers: (i) Users of the financial system; (ii) Entities of the financial system; and (iii) Central Bank.
• Withholding agents: (i) Central Bank; (ii) Entities of the financial system; and (iii) Entities that issue cashier’s checks.
• Payment responsibility: Withholding agents are obligated to fill out a tax return and pay the withheld taxes, under conditions established by the Central Government.
• Determination, assessment and collection of tax will be made under the general rules of the Fiscal Code.
• Not deductible for income tax purposes.

• Non-profit institutions will not be taxed, if earnings are reinvested in their corporate purpose (Article 5, Law 633/00).

• Profits obtained in the trade of shares through a Colombian stock market will not be levied with income tax if (i) all the shares belong to the same owner and, (ii) the transaction does not represent more than 10% of a company’s shares in trade (Article 9, Law 633/00).
• Profits obtained in the sale of a company’s shares to the public through a public offering, when 10% or more of company’s shares is offered (Article 10, Law 633/00).

• Foreign funds for donations, where a specific agreement exists between the foreign government and the Colombian government, are exempted from income tax, as well as from other national or local taxes (Article 89, Law 633/00).

• Income taxpayers may deduct the Industry and Commerce Tax, Property Tax, Vehicle Tax, Registration Tax and Stamp Tax paid during the fiscal year, provided that a direct relation between them and the income tax event exists. This deduction may be treated either as a cost or as an expense. The tax on financial transactions is not deductible.
• Entities under supervision by the Superintendence of Banks are able to deduct individual provisions for credit portfolios and provisions for risk ratio. Additionally, provisions for goods given as paymentand for leasing agreements will also be deductible as follows: For year 2000, 20%; 2001, 40%; 2002, 60%; 2003, 80%; as from year 2004, 100%. (Article 131, Law 633/00).
• VAT paid in the acquisition of fixed goods will not be deductible (Articles 134 and 52, Law 633/00).
• The excess of presumptive income in comparison with ordinary income will be deductible during the three years following the determination, as adjusted by inflation (Article 15, Law 633/00).
• It is not allowed to obtain fiscal benefits from donations if said donations consist of shares, rights or any kind of share owned in an entity or corporation (Article 11, Law 633/00).
• Private airline companies that increase service to Colombian locations which have difficult access may deduct from their gross income any new investments up to 15% of its net income per year before deducting the fiscal benefit (Article 97, Law 633/00).
• Taxpayers may deduct from their gross income investments made in jails (working and educational programs) or in the employment of by employing persons who have finished their imprisonment, up to 15% from its net income per year before deducting the fiscal benefit (Article 98, Law 633/00).
• Taxpayers may deduct 125% of the amount donated to an Investigation Center or to a Technological Development Center established as a non-profit entity or to Centers or Investigation Groups of Universities, provided that some additional requirements are met. These deductions may not exceed 20% of taxpayers’ net income (Article 12, Law 633/00). Investment projects will have to be developed in strategic areas for the country (i.e. basic science, social and human science, industrial development, environment, education, health, telecommunication, biotechnology, energy).
• Taxpayers may deduct from their assessed tax 60% of the amount donated to public and private universities (the university needs to be recognized by the Ministry of Education and must be established as a non-profit entity). These deductions may not exceed 30% of taxpayer’s income tax. Donors may not have any relation with the entity (Article 14, Law 633/00).

• Increase of presumptive income taxation: For income tax purposes, the taxpayer is presumed to have a net income valued at 6% of his net worth. (Previously, it was 5%).

• The percentage of withholding tax on any other fiscal income which is not expressly mentioned in the Colombian Fiscal Code is increased from 3.0% to 3.5% (Article 18, Law 633/00).
• The percentage of withholding tax for services is increased from 4% to 6% (Article 45, Law 633/00).

• Special treatment for self assessment of tax for fiscal years 2000 and earlier: For Taxpayers that included in their tax returns for the fiscal year 2000 assets in foreign currency owned abroad before December 31, 2000, the statute of limitations will run out in 4 months, provided that some other requirements are met (payment of tax amounts or at least a payment agreement, determination and payment of 3% of the gross value of the asset –as income tax and penalty-, and filing and payment of previous tax returns, in case of default) (Article 4, Law 633/00).
• Special treatment for tax returns for fiscal years 2000, 2001, 2002 and 2003: The statute of limitations for review will run out in 12 months, if taxpayers increase their net income tax by at least two times the inflation rate for the respective taxable year. (Article 17).

• The transfer of immovable goods given as payment (dación en pago) will be treated as an act without value for registration tax purposes (Article 88, Law 633/00).

• As from January 01, 2001 the general VAT rate is increased from 15% to 16% (Article 26, Law 633/00).
• International airline tickets are levied with a 16% VAT. For wholly domestic travel, airline tickets for wholly domestic travel are levied with 10% VAT, except for the high season when no VAT is applied.

• Law 633/00 establishes as new taxable events (i) the sale and importation of cigarettes and, (ii) satellitte television broadcasting (Article 28 and 29, Law 633/00).
• The taxable base for imported goods that include the rendering of a service or an intangible good will be determined using the custom appraisal rules (normas de valoración aduanera) as established in the Custom Appraisal Agreement of the WTO (Article 126, Law 633/00).

• Law 633/00 modified article 424 of the Colombian Fiscal Code and included as non-taxable goods, among others, some specific personal computers and original artistic work made directly by the artist (Article 27, Law 633/00).
• Importation of equipment made by Research Centers, Technological Development Centers and Universities is exempted from VAT (Article 30, Law 633/00).
• Importation of goods and equipment to be specifically used for sports, health, or scientific and technological research and education that is donated to non-profit entities or public entities are not levied with VAT (Article 32, Law 633/00).
• Services rendered within the country derived from a written agreement and to be used abroad, and tourism packages sold abroad by agencies or hotels included in the National Tourism Register (Registro Nacional de Turismo) are exempted from VAT (Article 33, Law 633/00).

• VAT withholding at source is increased from 50% to 75% (Article 24, Law 633/00).

• The Director of the Tax Administration will determine a list of taxpayers that will be obliged to fill out electronic tax returns. If a taxpayer who is obligated to fill out an electronic tax return fills out a printed form of tax return, the tax return will not be taken into account by the Tax Authorities (Article 38, Law 633/00).

• As of July 2001, the special interest rate charged for late fiscal payments will be the same as the usury rate determined by the Superintendence of Banks, less 5% (Article 40, Law 633/00).

• If a foreign government or agency asks for fiscal or criminal information under reciprocity agreements, Colombian Tax Authorities may supply such information (Article 43, Law 633/00).
• Law 633/00 establishes a special police for fiscal and custom matters (Article 53, Law 633/00).

• Law 633/00 establishes a new tax named Special Surtax for Custom Services (Tasa Especial por los Servicios Aduaneros) at a tariff of 1.2% on the FOB value of imported goods (Article 56, Law 633/00).
• Determination, assessment and collection of this surtax will be made by the National Tax Administration (DIAN).