Colombian tax reform bill 2022

On 8 August, the new Colombian government introduced a new tax reform bill before Congress. After a three-month period of debates, the new bill has been approved. Most of the measures will enter into force on 1 January 2023. We highlight some of the most important changes to the corporate tax regime.

1. Corporate income tax rate

The tax reform does not modify the 35% general corporate income tax rate, it increases the capital gains rate from 10% to 15%. A surcharge applies to certain sectors, such as non-renewable extractive industries (up to 15%) and hydroelectric power generation (3%). The existing 3% surcharge on financial entities increases to 5%.

A 15% minimum effective tax rate has been established for national companies.

2. Dividend tax

The rate applicable to dividends paid by Colombian companies to foreign entities will rise from 10% to 20%, and the withholding tax applicable to dividend distributions to domestic companies will increase from 7.5% to 10%. These raises in dividend withholdings can be limited if a Double Tax Treaty (“DTT”) applies.

3. Limitation of beneficial tax provisions

Among other provisions that increase the corporate income tax liability of corporations, the tax reform eliminates the tax credit on 50% of the local turnover tax ("ICA") paid and prohibits the deduction of royalties paid for the exploitation of non-renewable natural resources.

4. Significant Economic Presence ("SEP")

The SEP enables taxing foreign companies that do not have a physical presence in Colombia but (a) market goods and services by interacting deliberately and systematically with clients in Colombia or (b) render digital services to users in Colombia. Whenever a SEP is deemed to exist, such SEP is subject to income tax in Colombia to be collected through a withholding mechanism or by filing a special tax return. This regime will enter into force in 2024. The application of DTTs can potentially reduce the scope of SEPs.

5. Definition of Place of Effective Management ("POEM")

The rules to determine the existence of a POEM of a foreign company in Colombia have been expanded to consider the day-to-day activities in Colombia, rather than just the place where the key and decisive decisions are made. This new definition leaves room for double taxation based on residence conflicts that can be defined if a DTT applies.

6. Changes in the Free Trade Zone ("FTZ") regime

Only the exports performed by FTZ users will benefit from the preferential 20% income tax rate. Other activities, including sales and services within Colombia, will be taxed at the general 35% corporate income tax rate.

Read the WTS Global International Corporate Tax Newsletter here.