Volume 4, Number 32, Page 1

Colombia's Newest Tax Reforms

Last January, in the midst of an economic crisis, the Colombian government instituted significant tax reform measures. On July 9, the government formally converted many of these measures into law. The most important modifications instituted by Law No. 383 are summarized below.

Stamp Tax

The stamp tax was increased from 0.5% to 1%. For contracts of an undetermined value that have been executed from this law’s enforceability date, the tax will be assessed over each payment derived from and for the duration of the contract.

Income Tax

Invoices complying with all the requirements established in the Tax Code must be presented for the application of income tax costs and deductions as well as sales tax discounts.

The term for taxpayers and withholding agents to amend their tax returns, when the intent is to reduce payable taxes or to increase the balance in favor of the taxpayer, has been reduced from two years to one, starting from the filing deadline.

In the case of securities donations, the prices will be estimated according to the procedure established by the Securities Superintendency. When other assets are donated, their value will be estimated according to their acquisition cost, plus the infla tion adjustments made up to the date of the donation, minus the accumulated depreciation (until the same date).

Tax discounts may not exceed the value of the basic income tax. The determination of the tax after the discounts cannot be less than 75% of the tax determined by the presumptive income system over the net estate, before any tax discount. This rule does not apply to exempted incomes or investments covered by Law 218 of 1995 (Río Páez Law).

Payments made for technical and technical assistance services rendered by foreign non-residents are subject to source withholding at a unique tariff of 10% for income and remittance taxes. When these services are rendered within the Colombian territory by non-residents, the 35% tariff will be the only applicable income tax. Payments made for technical and technical assistance services provided in connection with public or private infrastructure projects initiated by the end of this calendar year in fur therance of the National Development Plan are excluded from these taxes and are not considered part of the basis to calculate the Value Added Tax.

With respect to the Río Páez Law, discounts of 40% (rather than 100% as previously permitted) will be allowed for investments undertaken in the Río Páez area. Also, 115% of the value of the investments made by these companie s may be deducted for income tax purposes. These benefits are mutually exclusive.

Value Added Tax and Withholding

Failure by a withholding agent to deposit the respective sums within two months following the corresponding period constitutes embezzlement. Failure by a responsible party to deposit the VAT tax during the month following the end of the respective bime ster also constitutes embezzlement. In cases involving legal entities, the individual in charge of making the payments or the legal representative will be held responsible.

If the VAT is applicable, the services will be rendered in the domicile of the renderer with the following exceptions. Real estate services will be rendered in the place where the assets are located. Cultural and artistic services, as well as loading a nd unloading services, will be rendered where they are physically performed. Finally, some services will be construed as rendered in the domicile of the recipient: consulting, advising, and audit services; insurance, reinsurance and joint insurance servic es; rental, licensing, and exploitation services for incorporeal assets which have national production; and those services rendered with respect to movable goods.

General

The federal government is authorized to implement the use of a tax card as a technical means to combat tax evasion.

The National Office of Taxes and Customs (DIAN) may order the search or registration of offices, commercial businesses, industries, service establishments, and all other business establishments of the taxpayer or of depository third parties, including their accounting documents or files, if such places are not the same as their residence.

Importing goods without complying with the declaration obligation or upon declaring a value which is more than 25% less than the customs value of such merchandise constitutes a foreign exchange violation.

An individual who imports or exports goods without declaring or presenting them through the customs authority, or does so through an unauthorized place or without the documents supporting the foreign trade transaction, will incur prison penalties rangi ng from three to six years, and a fine of 200% of the CIF price of the involved goods when their complete or fractional value is greater than 100 minimum monthly salaries. This provision is without prejudice to the eventual coincidence of multiple crimina l offenses that may arise.

Finally, an individual who transports, stores, distributes or transfers merchandise that has been imported into the national territory as contraband and is valued at an amount exceeding 100 minimum monthly salaries will incur a prison penalty ranging f rom six to 24 months and a fine of 100 to 500 minimum monthly salaries.

Gomez Pinzon & Asociados is located in Bogotá, Colombia. Practice areas include international finance and investment and corporate law.