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Colombian Tax Environment

Author:Mr Ericinda Rodríguez
Profession:TMF Group

Latin America countries are looking to attract business to their country and Colombia is not an exception but it is one of the most complex countries for accounting and tax compliance in Latin America.

With constant legislation changes, companies are challenged when it comes to understanding new legislation, confusing processes as well as possibly penalties for non-compliance when operating in Colombia. The country ranks 6th out of 94 countries as surveyed in TMF's annual Financial Complexity Index 2018, making it one of the most complex countries in the world when it comes to accounting and tax.

Business taxes

There are many taxes that companies doing business in Colombia may be subjected to. The main taxes are corporate income tax, presumptive tax which is the same as corporate income tax (CIT) and it is calculated over the equity from prior period when there is no liquid CIT, value added tax (VAT), financial transactions tax, registration tax, real estate tax, municipal industry and trade tax and consumption tax. The country has a complex tax system and has made several tax reforms in the last few years. Additionally, the wording of the tax rules allows for different interpretations, which increases their complexity.

Tax Reform

The latest tax reform, Law 1819 of 2016, introduces a new withholding tax on dividends, increases the general corporate income tax rate, and eliminates the income tax for equality and the related CREE surcharge. The law also adds measures intended to combat tax evasion and tax avoidance. The local Colombian GAAP was transitioned to IFRS in 2016, however for tax purposes there are still some differences between accounting books and tax books.

The application of international accounting standards now allows multinational companies to have a general standard and consistency in their financial statements. Declarations to be submitted from 2017 onwards have been reduced. For example, the CREE equity income declaration was eliminated as of January 2017, and the frequency of VAT declarations reduced (from annual, bi-monthly or four-monthly) to four-monthly and bi-monthly.

Corporate Income Tax

The rate for CIT in Colombia is 33% which is levied on all Colombian firms and branches or permanent establishments of foreign companies in Colombia. Companies operating in the free zones have a special 20% corporate income tax rate.

Tax Collection

Taxation is regulated by the Tax Code and the taxes are collected by the DIAN...

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