With the conciliation process complete, the Colombian Congress is ready to vote on the final text of the tax reform proposed by the new government, which has already completed one hundred days in office.
Around 18 articles have been discussed and reconciled, and stand out changes include new taxes on the hydrocarbons sector, changes in the financial sector income tax rate, taxes on churches, and new so-called “healthy taxes”. The government’s original goal was to collect 25 billion pesos with these reforms. After conciliation, that figure dropped slightly to 20 billion.
Articles that stand out as being changed under discussion also include:
Tax on dividends: including the tax on dividends received by natural persons residing in the country. The adopted text approved in the Chamber taxes them 15%, less than the 20% endorsed in the Senate. Article 4 also contains changes to this tax, but for foreign companies, foreign entities and non-resident natural persons. For these taxpayers, the text approved in the Senate was accepted – meaning a 20% tax will be charged, not the 15% proposed and approved in the House of Representatives.
Income tax on legal entities: The income tax rate for legal entities will be maintained at 35% and it is definitively established that financial institutions, insurance and reinsurance entities, stock exchange brokerage companies, among others must settle five (5) additional points to income tax and complementary during the taxable periods 2023–2027, making the total rate forty percent (40%).
The reform also states that hydroelectric plants will have a temporary surcharge of three points from 2023–2026, making the rate 38%.
For oil and mining companies, the reconciled text contains a surcharge on income varies with the international price of oil in the last 10 years, making the rate for these companies progressive – starting at 5% and reaching a final 15%. The non-deduction of royalties was also reconciled.
Likewise, special rates are modified, except for those applicable to industrial and commercial enterprises of the State, mixed economy companies of the departmental, municipal and district orders with State participation greater than 90% that exploit monopolies of games of chance and chance, liquors and alcohols – for example, those of hotel services. This means that companies that were taxed at the 9% rate are to be taxed at the 15% rate.
The rules for companies established in free zones will also change. Companies that qualify, are authorized or approved from the year 2025 must subscribe their internationalisation plan and annual sales for each of the taxable years to comply with the first paragraph of the article that determines a rate of 20% income tax – basically seeking to ensure that the income of the vast majority of users of free zones comes from exports.
Wealth Tax: Progressivity established in the proposal appears in the reconciled text, which states a tax of 0.5% on patrimonies of more than 3 billion pesos, with 1% to those that exceed 5 billion pesos, and 1.5% to the patrimonies of more than 10 billion pesos.
As these reforms will directly impact companies and investors, the plans have come under criticism from several sectors, and are still generating uncertainty.
The ANDI (National Association of Businessmen of Colombia), the ACP (Colombian Association of Oil and Gas), and the Colombian American Chamber of Commerce have made strong criticisms of the reforms. They argue, for example, that increasing the income tax for companies from 30% to 35% would hit investment. There is also controversy on establishing the non-deductibility of taxes through royalties.
If you have any concerns or would like to discuss how you’ll be affected by these changes, please contact our team in Bogotá.