2. Value Added Tax ("VAT")
2.1. Tax Rates
VAT's general rate is 16%.106 There are reduced (10%)107 and increased rates for certain goods and services, e.g., motor vehicles rates range from 20% to 35%, depending on the vehicle type.108
2.2. Taxable Transactions
The sale and importation of movable tangible property, and services rendered in Colombia are subject to VAT.109 The sale of intangibles and seller's fixed assets is not subject to VAT.110 Certain public entities of the national and local territorial level are not subject to VAT.111
Consulting, advising and auditing services, rendered outside of Colombian to a Colombian party are subject to VAT. In these cases the VAT does not affect the foreign party as the Colombian party must cover and pay directly to the tax authorities 100% of the accrued VAT.112
Certain goods and services are exempted ("Zero-rated")113 or not taxable with VAT ("Excluded") goods.114 The lists of zero-rated and excluded goods are extensive and should be checked in detail on a case-by-case basis. In the case of Excluded goods and services, any VAT paid by the taxpayer to her goods and service suppliers has to be capitalized as part of the cost of the Excluded goods sold. In the case of Zero-rated goods and services, any VAT paid by the taxpayer to her goods and service suppliers generates a VAT credit (See §2.4. below).115 In certain cases VAT credits from Zero-rated transactions may result in a refundable VAT balance.
2.3. Taxable Base
As a general rule, the taxable base is the price or value of the consideration paid for the goods or services, which should correspond to their fair market value.116 There are certain cases117 where certain items must be either included or excluded from the taxable base and/or cases with either mandatory or optional taxable bases, which should be analyzed on a case-by-case basis.
2.4. Creditable VAT
Unless otherwise provided, all VAT paid to suppliers of goods and services that constitute a cost or expense of the taxpayer's income producing activity, is creditable towards the VAT collected by the taxpayer from her clients.118
Unless otherwise allowed by law (See §2.5. below), VAT paid on the acquisition and importation of goods that become fixed assets for the buyer is neither creditable against VAT nor income tax.119 This VAT should be capitalized increasing the taxpayer's cost basis of the fixed asset.
There are certain limitations on the VAT credits available for zero-rated transactions.
2.5. Selected VAT Incentives
The following are some of the statutory VAT incentives available:
2.5.1. Temporary Importation of Heavy M&E
Temporary importation of "heavy120" M&E not produced in Colombia effectively used in a "basic industry121"in Colombia, should not be subject to import VAT.122 Although it is not clear, it is likely that this treatment does not apply to goods imported for construction sites.
2.5.2. Permanent Importation of Heavy M&E
Permanent importation of heavy M&E (whether or not produced in Colombia) is subject to VAT. But if the M&E's is going to be used in a "basic industry" and it's CIF value exceeds USD$500K, payment of the VAT can be deferred (40% upon importation, and 30% in each of the following 2 years).123 In addition, in these cases the VAT paid can be credited against the taxpayer's income tax in the taxable year in which the VAT was paid or in the subsequent taxable years if the VAT paid cannot be initially credited in full.124
2.5.3. Environmental Monitoring and Control Systems
Any domestic or imported equipments or devices to be used in the construction of control and monitoring systems required by environmental law and standards in any activity, are not subject to VAT.125 Access to this exemption requires certification of the environmental authority qualifying the specific equipment or devices acquired.126
2.6. Payment and Filing
VAT has a bimonthly taxable period.127 The VAT return must be filed and paid in full on the filing dates scheduled by the government for these purposes, which are usually after the first week immediately following the end of the corresponding bimonthly period.128
2.7. Andean Pact VAT Harmonization
In addition to Andean Pact Directive 578 to Avoid Double Income Taxation (see §1.20. above), Andean Pact Directive 599 establishes the framework for the near future harmonization of the VAT regimes in member countries.129
3. Net-worth Tax
From FY2007 through FY2010, taxpayers with a net-worth equal or greater than COP$ 3,000,000.00 are subject to a national level net-worth tax.130 Its taxable base is the taxpayers' net-worth as of January 1, 2007,131 i.e., assets minus liabilities, excluding stock held in Colombian corporations. The tax is computed and paid each of the four (4) taxable years on the same taxable base, using a 1.2% tax rate.132 Among others, Colombian companies and Colombian branches of foreign companies are subject to this tax.133
The 2010 tax reform act134 introduces a new "temporary" net-worth tax payable in installments from 2011 through 2014. This tax is almost identical to its predecessor 1.2% net-worth tax currently in force through fiscal year 2010.
Taxpayers subject to the newly adopted net-worth tax would have to assess the tax on their net-worth as of January 1st, 2011. If the taxpayer's net-worth as of January 1st, 2011 were $3,000,000,000 Colombian Pesos without exceeding $4,999,999,999.99 Colombian Pesos, the applicable rate would be 2.4%. If the taxpayer's net-worth exceeds $5,000,000,000 Colombian Pesos, the applicable rate would be 4.8%. If the taxpayer's net-worth does not exceed $2,999,999,999.99, the taxpayer would not be subject to the 2011 net-worth tax.
Although taxpayers subject to the 2011 net-worth tax would need to assess their net-worth tax liability on 2011 using their net-worth as of January 1st of that year, the tax would be payable in 8 installments. The first 2 installments would be payable on 2011 while the remaining 6 installments would be payable from 2012 through 2014, 2 installments each year on the dates that the Government indicates on the corresponding regulations.
In addition to a number of taxpayers that the 2010 tax reform act considers not subject to the new 2011 net-worth tax, even if their net-worth is within the taxable brackets, there are certain assets that the taxpayer can deduct from the 2011 net-worth taxable base.
4. Bank Debits Tax
This is a national level tax. Colombian banks (and other savings institutions) must withhold the tax at source.135 It applies on any funds deposited that are either withdrawn or transferred from checking or savings accounts.136 The taxable base is the amount withdrawn or transferred. The tax rate is 4 per thousand.137 There are very limited exemptions to this tax.138 It is an important tax to keep in mind when structuring a transactions' cash flow.
5. Local tax on industrial, commercial and service activities
This is a municipal (local) level tax applicable to all industrial commercial and service activities performed in the territory of a municipality. The taxable base is the sum of the taxpayer's gross revenue from the activity carried out in the relevant municipality. The tax rates vary from one municipality to the next and range from 2 to 10 per thousand139 (Bogota's rates go as high as 13,8 per thousand).140 This tax is usually paid and a return filed yearly, with the exception of some municipalities that have adopted a two (2) month taxable period, e.g., Bogota141 142. Incentives for this tax are created and regulated by each municipality. Therefore, the availability of incentives must be confirmed on a case-by-case basis.
6. Property Taxes
There are municipal (local) level taxes on real estate143 and vehicles. Each municipality adopts the applicable tax rates.144 Therefore, they vary from one municipality to the next. Real estate tax rates usually range between 1 per thousand and 33 per thousand145. Motor vehicles tax rates range between 1% and 3.5%. Unless otherwise specified, the taxable base in the case of real estate is the cadastral value of the property,146 and in the case of motor vehicles is their fair market value. Unless otherwise specified in the corresponding municipal ordinances, filing and payment is usually on a yearly basis.
Local tax incentives available, if any, are regulated by the relevant municipal ordinance applicable in the municipality in which the property is located or registered. Therefore, the availability of incentives must be confirmed on a case-by-case basis.
7. Registration Tax
A taxpayer registering acts and documents with the cadastral registry or merchants' registry offices is subject to this tax.147 Depending on the type of act or document, the tax rate ranges from 0.5% to 1.5%148 (including registration rights) when the registration is with the cadastral registry office, and from 0.3% to 0.7%149 when the registration is with the merchants' registry office. Unless otherwise provided, the taxable base is the amount of the price or consideration reflected in the document. Very few documents subject to registration are exempt from this tax.150 Documents subject to registration tax are exempted from the national level stamp tax (see §5. above). If one of the parties to the document is a public entity, the taxable base is reduced to 50% of the regular taxable base.151
8. Local Stamp Taxes
Certain laws authorize departments152 to enact local stamp taxes to support investments in hospitals, universities and other public entities and activities.153 Such local stamp taxes are usually levied at a 1% rate on the gross income attached to the taxable event. Before
engaging in activities, agreements or transactions with effects within the jurisdiction of any department in Colombia, the Taxpayer must confirm whether a local stamp tax is in place that could be triggered by such activity, agreement or transaction.
9. Royalties on Natural Resources Exploration Activities
Unless otherwise provided, all natural resources exploration activities are subject to the payment of royalties.154 This summary does not cover the royalty regime. Prior to engaging on any natural resources exploration activity in Colombia, you must seek qualified legal advice on the royalty regime applicable to the specific activity and jurisdiction.
10. Welfare Contributions
10.1. Retirement Contributions
The employee can elect between private or public pension funds.155 The contribution must be equal to at least 16% of the employee's wage;156 both employer and employees can make additional voluntary contributions. Contributions must be computed and paid to the pension funds monthly.157 The employer must cover 75%158 of the contribution, and the employee the remaining 25%. The employer must withhold the employee's 25%159 and deposit 100% of the monthly contribution in the pension fund.160
10.2. Health Contributions
The employee must be affiliated to a general Health Care Plan ("HCP").161 Contributions to the HCP must be equal to 12,5% of the employee's wage.162 Contributions must be computed and paid monthly. The employer must cover 2/3 of the contribution,163 and the employee the remaining 1/3.164 The employer must withhold the employee's 1/3 and pay 100% of the monthly health contribution.165
10.3. Employment Risks Insurance System
The employee must be affiliated to an employment risk insurance system of her election.166 Contributions must be between 0.348% and 8,7% (depending on the activity) and are computed and paid monthly.167 The employer must cover and pay to the insurer 100% of the contribution.
10.4. Contributions to Child and Family Protection Services, Public Training System, and Compensation Funds
The employer must make these 3%,168 2%169 and 4%170 contributions, respectively, on behalf of the employee. The employer must cover 100% of these contributions. Filing and payment is done monthly.171
10.5. Unemployment Fund Contribution
During the employment relation, the employer must contribute an amount equal to one monthly wage per year to the employee's unemployment fund of choice.172 In addition, the employer must pay to the employee a 12% yearly interest on the amount of that yearly contribution.173 Both the contribution and the interest must be paid on a yearly basis.
10.6. Incidence on Wages Deductibility
Payment of the above-mentioned welfare contributions is a requirement for deductibility of the corresponding wages paid by the employer.174
11. Customs Imports Regime
The following sections summarize some (not all) general aspects of the Colombian customs imports regime.
11.1. Imports Custom Duties
Unless Exempted, zero-rated or a different rate applies, importation of goods is subject to a 16% import VAT.175 In addition to import VAT, imports are also subject to custom duties ranging between 5% and 20%.176 Colombia has entered into Preferred Custom Duties Agreements with many countries, 177reducing the applicable custom duties for certain goods.
11.2. Taxable Base
Unless otherwise provided, custom duties are computed on the CIF value of the goods, while import VAT is computed on the CIF value plus the corresponding custom duties.178
11.3. Customs Valuation
Custom valuation rules in place in Colombia are those of the GATT (1994) valuation code, which are similar to the current WTO valuation rules. For valuation purposes, the Andean Pact valuation rules in Directives 378 and 379 apply. These rules are also similar to the first mentioned rules.179
11.4. Filing and Payment
An import return must be filed upon nationalizing the goods. As a general rule in the ordinary importation regime, custom duties and import VAT must be paid and an imports return filed within the first month following the arrival of the goods to Colombia. In certain cases the importer can request before custom authorities a one (1) month filing extension.180
11.5. Used M&E
Imported used M&E (and spare parts) require a previous import license that will be granted by the foreign trade authorities,181 only whenever the M&E are not produced locally or in any Andean Pact country. Importation of used spare parts is hardly authorized.182
11.6. Selected Custom Duties Imports Regimes Available
In addition to the regular imports regime, a variety of special customs regimes are available for M&E imports. The applicable duties and VAT vary depending on the specific regime.183
Both the regular and temporal imports regimes are available for M&E imports whether leased, on free bailment, or contributed in kind to a Colombian corporation or branch. Purchased M&E can only be imported into the country through the regular imports regime. The following is an overview of certain features of the regular and some temporal imports regimes available.
11.6.1. Regular Imports Regime
It applies to all goods that will remain permanently in Colombian territory without any use or jurisdictional restrictions. Upon nationalization, full payment of custom duties and import VAT is required.184 For foreign exchange purposes, these imports may be reimbursable or non-reimbursable. Non-reimbursable imports require a previously obtained imports license.185
11.6.2. Long-Term Temporary Imports Regime
It applies to M&E and spare parts listed by the applicable regulations as "Capital Goods." This regime is used whenever the goods are expected to remain in Colombia for a term of at least 10 months and no longer than 5 years.186 Under special circumstances, the Customs Administration has the authority to approve a longer term upon request.187 During this term, payment of custom duties and import VAT will be deferred, payable in equal instalments every six months.
It is important to keep in mind that computation of customs duties and import VAT must be performed upon the temporary nationalization of the goods and filing the return within the above-stated one (1) month period (See §12.4. above). If the Customs Administration authorizes a longer permanence period for the goods, payment of duties and VAT must be performed within the first 5-years of permanence.
In any event the importer must execute a compliance bond guaranteeing payment default or delays. For foreign exchange purposes, these imports may be reimbursable or non-reimbursable. Non-reimbursable imports require a previously obtained imports license. Upon finalization of the term, the importer can either export back or nationalize the goods without paying any additional amounts for custom duties or import VAT.188
11.6.3. Long-Term Temporary Imports Regime for Leased Equipment
The rules of this regime are similar to the above-explained rules. Nevertheless, because for foreign exchange purposes lease payments are treated as foreign debt payments, the imports must be non-reimbursable imports. In addition, this regime allows the substitution of the goods initially imported and the corresponding spare parts (if any).189
11.6.4. Short-Term Temporary Imports
This regime applies to specific goods that will be used for a certain activities taking no longer than six (6) months. The customs service can authorize a three (3) month extension.190 At the expiration of the authorized stay period, the goods must be exported back or the importer must apply for a long-term importation regime, otherwise the goods are forfeited and/or a 200% fine will be imposed.191 Although for control purposes an imports return must be filed within the above-stated one month period (see 12.4 above) assessing both customs duties and import VAT, payment of such duties and VAT is not required, provided that a guarantee for 150% of the VAT and customs duties amount is subscribed.192
11.6.5. VAT Incentives
The VAT incentives mentioned in §2.5. above are available for imported goods as well, provided compliance of certain requirements.
11.6.6. Free Trade Zones ("FTZ")
Colombia has an attractive FTZ regime193 that should be carefully explored by importers and other parties with business interest or permanent operations in the country. In addition to the practical reasons and other benefits attached to FTZ, two of the most important benefits available for operations carried out from FTZ users (industrial and operators) are: (i) the entitlement to a reduced 15% income tax rate;194 and (ii) Zero-rated VAT treatment for goods purchased both within the FTZ from other "FTZ users" or outside of the FTZ.195
11.6.7. "Plan Vallejo" Special Imports Regime
Pursuant to complying with certain requirements, under "Plan Vallejo" raw materials, capital goods, spare parts, and other goods exclusively employed in the manufacturing of goods that are effectively exported out of Colombia, or that are employed in rendering services effectively connected with such manufacturing activity, can be temporarily imported into Colombia as zero-rated goods for both customs and import VAT purposes.196 Both agricultural activities197 and service activities198 could be eligible for "Plan Vallejo" benefits.
106. Tax Code, § 468.
107. Tax Code, § 468-1 and 468-3.
108. Idem, § 471.
109. Idem, § 420.
111. Act 21-1992, § 100. Act 30-1992, § 92.
112. Tax Code, § 437-2.
113. Idem, § 477 to 479 and § 481.
114. Idem, § 423, 423-1, 424, 424-2/5/6, 425, 427, 428 and 480.
115. Tax Code, § 489.
116. Idem, § 447 and 453.
117. Idem, § 448.
118. Idem, § 484.
119. Idem, § 491.
120. Q lang="EN">ualified as such by the Ministry of Trade pursuant to a request filed by the importer.
121. i.e. mining, hydrocarbons, heavy chemistry, iron and steel industry, extracting metallurgy, electric generation and transmission, obtaining purification and conduction of hydrogen oxygen.
122. Tax Code, § 428.
123. Idem, § 258-2.
125. See note 167.
126. Decree 2532-2004, § 4.
127. Tax Code, § 600.
128. Decree 4680-2004, § 23.
129. Andean Pact Directive 599 of 2004.
130. Tax Code, § 292 and 293.
131. Idem, § 295.
132. Idem, § 296.
133. Tax Code, § 292.
134. Act 1370-2009
135. Idem, § 876.
136. Idem, § 871.
137. Idem, § 872.
138. Idem, § 879.
139. Act 14-1983, § 33.
140. Decree 352-2002, § 53.
141. Idem, § 36.
142. Technically Bogota is not a municipality, it is a different type of territorial entity but its tax regime structure shares many of the characteristics of municipalities.
143. Bill of rights, § 317.
144. Act 44-1990, § 4.
146. Idem, § 3.
147. Act 223-1995, § 226.
148. Idem, § 230.
150. Decree 650-1996.
152. A separate type of local territorial entity.
153. Bill of rights, § 300. Act 645-2001.
154. Bill of rights, § 360.
155. Act 100-1993, § 59.
156. Act 100-1993, § 20. Decree 4982-2007.
157. Decree 1406-1999, § 9.
158. Act 100-1993, § 20.
160. Idem, § 22.
161. Idem, § 157 and 203.
162. Idem, § 204.
165. Idem, § 161. Decree 1406-1999, § 9.
166. Decree 1295-1994, § 4. Decreto 1772-1994, § 3.
167. Decree 1406-1999, § 9. Decreto 1772-1994, § 13.
168. Act 89-1989, § 1.
169. Act 21-1982, § 12.
171. Act 21-1982, § 9 and 10. Act 89-1988, § 1.
172. Labour Code, § 249. Decree 663-1993, § 164.
173. Act 52-1975, § 1.
174. Tax Code, § 108. Act 7-1979, artcle 45.
175. Colombian lang="ES-CO"> lang="ES-MODERN">Tax Code, §468.
176. Decree 4589-2006.
177. CAN, ALADI and Bilateral Agreements.
178. Colombian Tax Code, §459. Colombian lang="ES-CO"> lang="ES-MODERN">Custom lang="ES-CO">Code, lang="ES-MODERN">§ lang="ES-CO">88.
179. Colombian lang="ES-CO"> lang="ES-MODERN">Custom lang="ES-CO"> lang="ES-MODERN">Code lang="ES-CO">, lang="ES-MODERN">§ lang="ES-CO">237; lang="ES-MODERN">Resolution lang="ES-CO">4240-2000, lang="ES-MODERN">§ lang="ES-CO">159.
180. Idem, lang="ES-MODERN">§ lang="ES-CO">115.
181. Decree 3803-2006, lang="ES-MODERN">§ lang="ES-CO">3.
182. Resolution 1512-2007.
183. Custom Code, lang="ES-MODERN">§ lang="ES-CO">116.
184. Idem, §117.
185. Decree 3803-2006, §15.
186. Colombian Custom Code, §143.
188. Idem, §150.
189. Idem, §153.
190. Idem, §144.
191. Idem, § lang="ES-MODERN">§ lang="ES-CO">502 and 503.
192. Idem, §147.
193. Act 1004-2005; Colombian Custom Code, lang="ES-MODERN">§ lang="ES-CO">392.
194. Colombian Tax Code, §240-1.
195. Colombia Custom Code, §394.
196. Resolution 1860-1999.
197. Decree 631-1985; lang="ES-MODERN">Resolution lang="ES-CO">4240-2000.
198. Decree 2331-2001; Decree 2099-2008; Decree 2100-2008.
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.