Among the great changes introduced by the recent tax reform (Law 1819 of 2016), is the one related to the elimination of the benefits of progressivity of article 4 of law 1429 of 2010. Article 4 of Law 1429 established for small businesses that meet certain requirements, two benefits:
1. The graduality in the percentage of the general rate that by Income Tax had to pay; Starting with 0% in the first taxable years (counted from the year of its constitution), then 25%, then 50% and finally 75%. From the sixth or eleventh taxable year (as the case may be), 100% of the general rate should be paid.
2. The non-practice of retention at source by the payer (retainer) during the period of progressivity (5/10 first years); in other words, at the time of payment, the customer should not retain any value in the source, thus giving, among other things, cash flow to the small business owner and preventing the generation of balances in favor.
Summing up, with the tax reform of Law 1819 of 2016 the tax benefit of law 1429 was as follows:
- It does not continue to receive the benefits of Law 1429 as of the entry into force of this Law (1819 of 2016) for new companies.
- Taxpayers who have agreed to the benefit and who during that time have incurred tax losses and obtained net income must pay the tax applying the table of paragraph 5 of paragraph 3 of article 240 of the E.T. In accordance with the number of years counted from the date of commencement of operations in which they have not incurred in tax losses.
- Taxpayers who have agreed to the benefit and who during that time have incurred only tax losses must pay the tax applying the table in number 5 from the taxable year in which they obtain taxable net income, which in any case may not exceed 5 years.
In addition, it is understood that at the time of the entry into force of this Law 1819 of 2016, the non-practice of withholding at source by the payer during a period of progressivity is eliminated.