| I. THE TAX REGIME IN COLOMBIA
A. Income and Related Taxes
This is a national tax, composed by three elements:
1. Income Tax Rate:
The standard rate is 35%
TAXABLE BASE
Taxable income is calculated as total regular and non recurring income
which would
increase the taxpayers net worth (with certain exceptions), less costs
and deductions
directly related to such income.
SPECIAL TREATMENT OF CERTAIN FORMS OF INCOME
Some income is not taxable:
- Share premium while retained or capitalized;
- The inflation component of financial yields earned by individuals
through mutual
funds and investment funds;
- Dividends and other capital yields;
- Payments for technical services or technical assistance provided
by persons not
resident or domiciled in Colombia;
- Income earned from converting public debt into exchange certificates.
ABSORPTION OF LOSSES
Companies may offset fiscal losses against income over the next five
years.
TAX ALLOWANCES
Allowances are deducted from income in the taxpayer's filing. The principal
allowances
are:
a. Those avoiding double taxation.
- Taxes paid abroad by Colombian taxpayers with foreign income, up
to the amount
that would have been paid in Colombia on the same income;
- Dividends and other capital yields received by companies domiciled
in any country
with which Colombia has an integration agreement up top the amount
obtained
by multiplying this income by the tax rate applied to the profits in
the company
generating them.
b. Incentives for production
- 35% of the tax rebate certificates (CERTs) received from the Central
Bank for
export sales;
- 20% of investments in reforestation, as certified by Inderena or
other competent
authority;
- VAT paid on the acquisition and importation of capital goods and
computer equipment
by corporate taxpayers;
- VAT paid on capital goods acquired under leasing contracts, if the
option of
purchase was agreed in the contract;
- VAT paid on the acquisition of machinery by certain industries.
NON-TAXABLE INCOME
- Earnings of public sector companies providing household services
of water supplies,
sewerage and complementary activities, and those of public or mixed
economy
refuse collection and sanitation companies, are not taxable until the
year 2001, if capitalized or appropriated as reserves for repair, expansion
and
replacement of their systems.
- Earnings of companies dedicated to transmission or distribution of
electricity for
residential use, are also tax-exempt until the year 2001.
- Income from power generation, and the provision of household gas
supplies,
local and mobile rural telephony, earned by public or mixed - economy
utility
companies, are exempt until the year 2002, if capitalized or reserved
for
repair, extension and replacement of systems. The exempt percentage
of total
net earnings falls from 100% in 1996 by 10% a year to the year 2000
and then by
20% until 2003, such that from 2003 onwards they will be fully taxed.
- Earnings of companies formed to generate power in steam coal plants
or by solar
energy as the primary fuel, are tax-exempt for 20 years, from 1994.
- The same exemption is applicable for existing generating companies
or those
restructuring or incorporated to sell power generated by hydro plants
smaller than
25mw .
- Free trade zones and their corporate users.
INCOME TAX ON DIVIDENDS AND OTHER CAPITAL YIELDS
Foreign companies not domiciled in Colombia and foreign individuals
not resident in
Colombia pay income tax on dividends and other capital yields received,
at 7%1 . The
tax is withheld at the time of payment or credit to account.
However, if dividends or other capital yields are reinvested in Colombia,
the tax is
deferred while the investment is maintained and after five years is
exempted altogether.
DEDUCTIBLE EXPENSES
Expenses causally related to the generation of taxable income may be
deducted provided
that:
- They are necessary and proportional, in normal commercial terms;
and
- They accrue or are paid in the tax year in question.
DEDUCTIONS INCLUDE:
- Taxes paid during the year, such as turnover tax, road tax, registration
fees and
stamp duty, where related to the income generated.
- Depreciation of fixed assets, following one of several fixed systems.
The depreciation
of assets acquired after 1989 is calculated on cost adjusted for inflation.
1 The special rate for branches of foreign companies engaged in oil
and gas exploration and
production
12% ___________________ 1996
10% ___________________ 1997
7% ____________________ 1998 onwards
- Amortization of investments. This includes items such as feasibility
studies, startup
costs, organization expenses, research and development, premiums on
the
disposal of business and the purchase of intangibles.
- New investments in forestry programs and plantations of olives, cocoa,
coco
nut, palm oil, rubber and fruit trees, irrigation and drainage of lands,
deep wells
and silos, up to 20% of the taxpayer's net income.
- Investment in scientific and technological research and in control
or improvement
of the environment, up to 20% of the taxpayer's net income.
SPECIAL STABILITY REGIME RATE
The standard rate of income tax is 35%
DESCRIPTION
Companies wishing to subscribe to the special regime sign a ten-year
contract in which
they undertake to pay 2% more than the standard rate for income and
complementary
taxes, but will then be exempt from any subsequent new tax of levy
imposed during
the life of the contract, and from any increase in the standard rate
of income tax.
If the standard rate is reduced during the life of the contract, the
applicable rate will be
the new rate of tax plus 2%.
2. Occasional Capital Gains Tax Rate:
The standard rate is 35%
INCOME CLASSIFIED AS OCCASIONAL CAPITAL GAINS
Income from: - non-operating gains on sales of assets;
- profits generated from the liquidation of companies;
- gains from inheritances and donations; and
- winnings in lotteries, raffles, betting, etc.
3. Remittance Tax:
Remittance tax is payable by colombian companies with foreign investment
on transfers
of income and capital gains abroad. The branches of foreign companies
have to pay
this tax on all the profits obtained.
RATE
The standard rate is 7%
TAXABLE BASE
The tax is applied to the profits earned in Colombia by companies with
foreign investment
or foreign companies, including the dividends or other capital yields
obtained
in the year.
For commissions, fees, royalties, rentals, remuneration for professional
services, use
of industrial property or know-how, technical services and technical
consultancy, the
base is the net amount payable after income tax withholdings.
EXCEPTIONS
- Dividends and other capital yields;
- Interest on foreign loans;
- Payments for technical services and technical assistance provided
from outside
Colombia;
- Royalties, up to 3% of total sales/production of the company.
B. Value Added Tax (VAT):
This is a national tax on services and on the sale and importation of
goods.
The general rate is 16%, but it varies, depending on the class of goods.
Some activities
pay less, and others are excluded altogether.
VAT paid can be deducted from income tax in cases already mentioned.
C. Other Taxes:
1. Stamp Duty:
Stamp duty is payable on documents containing contracts written or to
be executed in
Colombia, in excess of a minimum amount. For 1997, the minimum is COP$36,000,000
(about US$ 36,000)
The general rate is 0.5% of the total value of the contract. There are
special rates and
exemptions to this general rule.
2. Registration Tax:
This tax is payable on the registration of acts, contracts and business
documents in
which private individuals are parties or beneficiaries and which law
requires to be
registered at public records offices or the Chamber of Commerce.
The rates of this tax are set by departmental (provincial ) assemblies,
within the following
ranges:
a) Acts, contracts or legal business with value, and required to be
registered at a
public records office: 0.5-1%
b) Acts, contracts or legal business with value, and required to be
registered at a
Chamber of Commerce: 0.3-0.7%
c) Acts, contracts or legal business with no value, and required to
be registered at
a public records office or a Chamber of Commerce, such as the appointment
of
legal representatives, statutory auditors, amendment to articles not
involving
the transfer of rights or capital increases, classificatory deeds:
2-4 national mini-mum
daily salaries (1997 minimum daily salary: COP$5,735.00, about US$
6).
In acts, contracts or legal business subject to the tax in which public
and private interests
are involved , the taxable base is 50% of the document's value, or
the proportion
of the private interest in subscribed capital.
If a document is subject to registration tax, it is relieved of stamp
duty.
3. Levies On The Extractive Industries:
The “war tax” on production of crude oil and free/associated gas, and
on exports of
coal and nickel, will remain in force until December 1997 for projects
which started
production between June 30, 1992 and December 31, 1994. Reserves and
fields discovered
after June 30, 1992 and prior to January 1, 1995, and which started
produc-tion
after December 31, 1994 will pay the levy until December 31, 2000.
Discoveries
made after January 1, 1995 will not pay the levy.
The rates for the levy are as follows:
a) crude oil: the levy is based on the FOB export value of total monthly
production.
- light crudes: 7.0%
- heavy crudes (api <15º): 3.5%
b) associate/free gas: 3.5% of monthly production (excluding gas sold
for thermal
power generation and house hold consumption)
c) coal: 0.6% of FOB value of monthly exports
d) nickel: 1.6% of FOB value of monthly exports.
As of January 1, 1998, the rates will change, as follows:
1998 1999 2000 2001
Light crude 5.5% 4.0% 2.5% 0
Heavy crude 3.0% 2.0% 1.0% 0
Associated/free gas 3.0% 2.0% 1.0% 0
D. Regional Taxes:
1. Industry And Commerce Tax:
This is a municipal tax collected from industry, trade or services provided
with the
municipality. Exports do not pay this tax.
The administrative authority responsible for the tax is the local treasury.
For industry, the tax base is gross sales, less exports, returns, sales
of fixed assets,
subsidies and taxes collected. The municipality which collects the
tax is that in which
the plant is located.
For trade and services, the tax base is average monthly earnings for
the preceding
year, also excluding the items deducted by industry.
The municipality sets the rates applicable, within bands set by the
law:
Industry : 2-7 per thousand monthly
Trade and services : 2-10 per thousand monthly
2. Property Tax:
This is a municipal tax on property. The municipality is the competent
collecting
authority and sets the rates within a band of 1-16 per thousand of
the officially rated
value of the property.
II. TAXATION FOR FOREIGN INVESTORS
A. Colombian Companies With Foreign Shareholders And Branches Of
Foreign Companies:
1. Income Tax:
Companies with foreign capital or shareholders pay income tax on local
and foreign
earnings at the standard rate of 35%.
Branches of foreign companies pay tax only on the earnings they generate
in Colombia,
also at 35%.
Tax-deductible expenses
Filials, branches, agencies and subsidiaries may deduct payments for
administrative
overhead abroad and royalties and the acquisition or use of intangibles.
Expenses incurred abroad and related to income generated in Colombia
are also deductible,
provided that withholdings have been effected where the payment is
taxable
income for the payee in Colombia. There is a ceiling of 15% of net
earnings for this
type of expense.
2. Occasional Capital Gains:
Companies and branches pay occasional capital gains tax at the standard
rate of 35%.
3. Remittance Tax:
If a Colombian company with foreign capital or shareholders makes profits
remittances
abroad, a tax withholding of 7% will be made. In the case of branches,
it is
assumed that profits are remitted and the tax is automatically due.
However, if profits are reinvested in Colombia, the tax is deferred
while the reinvestment
remains, and after five years is exempted altogether.
B. Aliens:
1. Non-Resident Aliens:
a. Income tax
The investor pays tax on income generated in Colombia at the standard
rate of 35%,
and withholdings are effected where the payment is made.
b. Occasional Capital gains
Tax is payable at the standard rate of 35%.
c. Remittance tax
Profits remittances are subject to a 7% remittance tax.
2. Resident Aliens:
a. Income tax
Resident aliens, i.e, those spending a total of six months or more
of the year in Colombia,
pay tax on their income generated in Colombia. After five years, they
must also
pay income tax on income generated outside Colombia.
Personal income tax is payable on a sliding scale, with a top rate
of 35%, which in
1997 applies to those earning COP$50,200,000 (about US$50,000) or more.
b. Occasional capital gains tax
Local capital gains are subject to a tax of 35%.
III. INTERNATIONAL AGREEMENTS
Colombia is a signatory to a number of international and binational
double-taxation
agreements, in particular the following:
- With the U.S.A., Argentina, Germany, Chile, Brazil and Italy, for
matters related
with air and sea transport.
- With Venezuela, for State investment and international transport.
- With the Andean Pact members (Bolivia, Colombia, Ecuador, Peru, Venezuela)
for multilateral investments. Within the pact, the agreement covers
income and
assets tax (Colombia has no assets tax), for all the people domiciled
in a member
country.
IV. SPECIAL REGIME FOR CAUCA AND HUILA
A. Tax Benefits:
There is a special regime (law 218/95 )giving a ten-year tax holiday
to new enterprises
in crop farming, cattle breeding, industry, trade, tourism, mining
(except oil
and gas), exports, and small businesses, and those already existing
on July 21, 1994,
showing substantial increases in the creation of jobs, already located
or setting up in
certain municipalities in Cauca and Huila.
The tax holiday works as follows:
- Existing companies and those incorporated up to June 20, 1999: 100%
- Companies set up between then and June 20, 2001: 50%
- Companies set up between June 21, 2001 and June 20, 2003: 25%
The investments in the Cauca and Huila region made by companies established
in
Colombia, are treated as deductible expenses from income tax. They
are also remittance
tax exempts.
A 15% bonus can be granted in cases of overdue output.
B. Customs Benefits:
Machinery, equipment, raw materials and new spares will be exempt from
all taxes,
levies and rates, provided that the import license has been approved
by the Foreign
Trade Ministry before December 31, 2003.
All these tax exempt items must be installed, used, transformed, produced
or used
with the jurisdictions of the municipalities to which the benefits
apply. Raw materials
must be subjected to some industrial process before being sold by the
importer.
If capital goods not produced in the Andean Region are imported for
the primary,
secondary or tertiary sectors, they are duty free for five years.
C. Loans:
The government will create special credit lines to support new enterprises
or reactivate
existing ones in the municipalities included in the special regime.
Loans will be
for 6-8 years with 18 months’ grace, at interest of the local 90-day
deposit rate (DTF)
plus 1%.
Copyright© 1998 COINVERTIR
(Reproduced With Permission)
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