Volume 6, Number 16, Page 4

Taxes Applicable to Corporations In Colombia

By Gómez, Pinzón and Associados

Income tax

All legal entities operating in Colombia are subject to income tax at a 35 percent rate over the regular income earned, once they have deducted costs and expenses that have a causal relationship with the activity producing the income, among other requirements.

For dividends distributed to a Colombian shareholder, the tax rate is zero if such dividends correspond to profits which have been taxed at the company’s level. If the dividends correspond to profits which have not been taxed at the company level, a flat rate of 35 percent would be applied over those dividends, once they have been distributed.

Dividends or profits distributed to foreign shareholders by a Colombian company are subject to income tax (in practice it operates as a real remittance tax) at a seven percent rate. However, if the dividends are capitalized in the company or in any other Colombian company for five years or more, the tax rate is zero. If the dividends are remitted abroad before five years have elapsed, the seven percent income tax will be payable in the year in which the distribution is made. If such dividends correspond to profits which have not been taxed at the company level, a flat rate of 35 percent would be applied over those dividends. In that case, the 7 percent tax rate would be applied over the dividends, once the 35 percent tax has been subtracted. It would not apply if the dividends are capitalized for a five year period as mentioned before.

Value Added Tax

It is a tax imposed to the value added to goods and services through out the productive and commercial process. The general rule is that all the goods and services are subject to this tax at a general rate of 16 percent , although there are some exceptions expressly stated in the law. The new government has announced a gradual reduction of the tax rate and an elimination of VAT exemptions.

Industry and commerce tax

It is a local turnover tax (“impuesto de industria y comercio”) imposed by each municipality to the income generated by industrial, commercial and service activities which are carried out in that municipality. Municipalities are free to set the rate to be applied, within the following ranges provided by Law 14 of 1983:

• Industry: between 2 and 7 per thousand.
• Commerce and services: between 2 and 10 per thousand.
• Stamp tax : It is a national tax accrued on public instruments and private documents, including negotiable instruments, that are issued or accepted in Colombia or abroad but with legal effects in Colombia at the rate of 1percent of the value of the transaction.

Editorial Board members Gómez, Pinzon and Associados is a law firm with offices in Bogotá, Colombia. They may be contacted at gpa@gomezpinzon.com