Colombia is at a turning point. About a year and a half into the government of Ivan Duque, the country’s economy has been a constant example of growth in recent years, marked by stability in macroeconomic terms amidst a climate of instability in neighboring countries.

In this context, the President of the Republic recently signed the 2010 Law of December 27, 2019, called the “Law for Economic Growth”, after its approval by the Congress. This reform was discussed and promulgated as a result of the declaration of unconstitutionality of the Financing Law of 2018. The new Law maintains a large majority of the benefits from latter, but also adds other items of interest.

Main updates to be remarked would be:

Income tax

Taxpayers hiring workers under 28 years of age in their first job, may deduct 120 % of the payments they make for their salary expense, with the limit of 115 Units of Tax Value per month.

The rate to determine the presumptive income is reduced for the fiscal year 2020, for which the rate will be 0.5 % (being reduced from 1.5 %). By 2021 the rate will be 0 %.

The benefit for the development of the Colombian countryside is maintained, but now its principal domicile may be outside the municipalities in which they make investments that increase the productivity of the agricultural sector. They must also comply with a minimum of direct jobs and an investment of 1,500 UVT.

Regarding the Mega Investment Regime (subject to a diminished income tax of 27 %), they must now employ 400 people at least. The taxpayer will have 5 years to make the investment, which will be counted from the approval of the project. The projects may be developed in Free Trade Zones, and the possibility for projects dedicated to the evaluation, exploration and exploitation of non-renewable natural resources has been limited.

Tax Credit was eliminated for investments in research, technological development and innovation projects or linking high-level human capital.

The rate applicable to dividends distributed as non-taxed is increased from 7.5 % to 10 % when paid to national companies, foreign companies, and non-resident individuals.

Value Added Tax

Providers of services from abroad, not domiciled fiscally in Colombia, should not be required to issue an invoice for the provision of electronic or digital services, however, the Tax Administration reserves the right to establish the obligation to invoice electronically or Support operations in an electronic document.

A mechanism for refunding sales tax for certain sectors of the population is established.

For three days a year and for the sale of certain goods a sales tax exemption is created.

Other relevant items

The statute of limitation of the income tax returns and complementary of those taxpayers who determine or compensate tax losses, or that are subject to the Transfer Pricing Regime is reduced to 5 years.

In case of an increase in taxable income of 30% with respect to the previous year, for fiscal years 2020 and 2021, the statute of limitation of the returns would be six (6) months and in the case of a 20% increase year will be close at month twelve (12).

With these measures, which come into force at a time of internal debate and conversation about their real outcome, the Government seeks to accelerate growth through tax reform, with the clear objective of economic development, reducing unemployment and, in general terms, improving the country’s welfare.

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Fernando Martínez Colmenares

Fernando Martínez Colmenares
Country Manager Colombia

All information contained in this publication is up to date on 2020. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.