On December 29, 2016, Congress approved Law 1819 of 2016, by which a structural tax reform is adopted, the mechanisms to combat tax evasion and tax avoidance are strengthened and, in general, provisions are issued which modify the tax system for individuals and legal entities, businesses and contracts, and foreign investors.
Below is a summary of the major modifications introduced by the mentioned Law:
Elimination of the Alternative Minimum Tax- IMAN and the Simple Alternative Minimum Tax- IMAS and creation of a schedular income tax system.
The schedular income tax system is designed to determine the tax independently for each type of revenue, in order to ensure that items of revenue not constituting income, costs and deductions apply only with respect to those revenues with which they have a causal relationship.
Tax benefits may only be deducted in schedules with revenues. The same exempt income or deduction may not be assigned to more than one schedule. The net income shall be determined independently for the following types of revenues:
Dividends and Participating Interests. The revenues in this schedule are those received by way of dividends and participating interests in distributions obtained from domestic and foreign companies. Capital Gains. Those corresponding to interest, financial yields, rent, royalties and working of intellectual property. In order to establish the net schedular income, all revenues not constituting income, costs and expenses attributable to this schedule will first be subtracted; then, exempt income and deductions will be subtracted, provided they do not exceed 10% of the previous balance or of a sum equivalent to 1000 Tax Value Units (hereinafter "UVTs") (Today: COP $31,859,000). Earned Income. In order to establish the net schedular income in earned income, revenues not constituting income attributable to earned revenues will be subtracted. Any exempt earned income and deductions, not exceeding 40% of the revenues received or 5040 UVTs (today COP $160,569,360), may be subtracted from the balance. Pensions. The exemption for retirement, disability, old age, survivors and occupational risk pensions, not exceeding 1000 UVTs (today COP $31,859,000) per month, is maintained. Pension Substitution Indemnifications or refunds of pension savings balances will be subject to the same treatment. Unearned Income. Revenues from unearned income are considered to include all those that cannot be classified under any of...