ARTICLE
9 January 2019

Everything You Need To Know About The Proposed Tax Changes In Colombia

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TMF Group BV

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TMF Group experts work from 120 offices in 80+ jurisdictions, making sure that complex administrative tasks are done right and on time. From legal set-up and oversight to regulatory filings, accounting, tax and payroll, we look after our clients’ administrative burdens so they can focus on their businesses.
The new president in Colombia, President Iván Duque, has proposed a tax reform bill to help the country boost economic growth and increase productivity.
Colombia Tax
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The new president in Colombia, President Iván Duque, has proposed a tax reform bill to help the country boost economic growth and increase productivity.

There have been more than ten different reforms in the last twenty years for the country, so the hope is that this plan will increase the tax revenue while helping the country.

The new laws are effective as of January 1, 2019 but the process to turn this bill into a law is long and involved with four debates in the Congress, two debates in the House of Representatives and two debates in the Senate after which it can be ratified by the President. It is possible that many of the changes may not make it through the process. 

There is concern that the draft submitted by the national government does not respond to the needs of Colombia. In addition to not proposing a structural reform, the proposal is to mainly tax the population of the middle class, while leaving aside important sources of income that could contribute to making the tax system more equitable and progressive.

Proposed tax changes in Colombia 

One of the proposed changes will create a single form called the SIMPLE Taxation system for micro or small companies to use in order to settle their tax obligations. This will help to reduce costs. One of the goals of this reform is to create methods to reduce the high tax burden that is currently on companies. The hope is that the reduction will increase job creation and growth for the companies. 

The new taxes will be higher on upper earners. People with an average monthly income greater than $ 40 million, will have an income tax rate of 35%, income greater than $ 50 million will have a rate of 37% and greater than $105 million will have a rate of 39%. 

The bill would reduce the corporate income tax rate from 33% to 30% and income from some activities would be subject to a corporate income tax rate of 10%. Another aspect of the bill allows for taxpayers to treat the taxes they pay as deductible expenses and they can use the turnover taxes to offset the corporate tax obligations. 

The presumptive income tax is set to be eliminated over the course of the next three years. This is problematic because this tax has encouraged the productive use of goods and has helped to reduce tax evasion. Removing this tax could pose issues for the government. 

Tax standardisation is a new component in this bill. Private foundations from abroad as well as foreign trusts, insurance with material savings components, investment funds or any other fiduciary business from abroad are assimilated to fiduciary rights held in Colombia and subject to these taxes. 

VAT

The bill would reduce the general VAT rate from 19% to 18% starting in 2019 and continue to reduce it to 17% in 2022. The 5% VAT rate on certain services and products would be eliminated. Many of the current exclusions and exemptions will be removed and a VAT refund program would be added for low-income families. 

The reaction to the possible reforms has caused great uncertainty because of the possible negative effects on the economy. Businesses do have a higher level of positive expectation because the reform will reduce their tax burden. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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