In order to fulfil the purposes of the Colombian National Development Plan 2018-2022, the government has promoted several legislative changes aimed at the reduction of unemployment rates among young employees (between 18 and 28 years old). In recent months the government has regulated two mechanisms as mutually exclusive (art 1.2.1.18.90, Decree 1625 of 2016, modified by Decree 392 of 2021), which can be characterised as follows:
| MUTUALLY EXCLUSIVE BENEFITS | First employment deduction | Economic aid to promote youth employment |
| Description | Income tax deduction
(Art. 108-5 Tax Statute + Decree 392/2021) |
Periodic Economic Aid
(Decree 688/2021) |
| Amount and frequency | 120% of the "young employee" wage, up to US $1.072 per month - as of the fiscal year 2021 | 25% Monthly Minimum Wage per each "young employee" (US $58), up to 12 months, until 31 Dec 2022 |
| Beneficiary | Income taxpaying employers that increase their headcount with young employees during the fiscal year | (i) Corporations and legal entities, (ii) Natural persons, (iii) Consortiums, (iv) Joint ventures, (v) Escrows and (vi) Cooperatives. |
| Understanding of "young employee" | 1. Employees under 28 years old;
2. Hired after 27 Dec 2019; 3. Who have not been registered in the Social Security System as a contributor (either as an employee or an independent) |
1. Employees between 18 and 28 years old;
2. New Employee as of 31 March 2021; 3. In the Social Security System for the whole month (30 days); 4. One (1) MMW as the minimum Contribution Income base (IBC by its Spanish acronym) |
| Process | Ministry of Labour Certification about the first employment of the employee - the deduction from the Income Tax should be applied by the taxpayer | The beneficiary should apply before a financial entity, which will send the application to the Colombian Social Contributions authority (UGPP by its Spanish Acronym) |
| Inspection and control | By the Colombian Tax Authority (DIAN) - during the 3 years after the Income Tax declaration | By the Colombian Social Contributions Authority (UGPP) - during the 4 years after the application |
Key Action Points for Human Resources and In-house Counsel
Colombian government has regulated two (2) mechanisms to promote youth employment, both of which should be analysed and compared to each other to apply for just one, according to the specific needs, cash flow, and tax strategy of the company in the long run.
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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