On December 28th, 2018, the Congress of the Republic of Colombia approved Law No. 1943, which established rules on “Finance for rebalancing the budget,” and other provisions. This law enacts important changes in Colombian taxation, including tax benefits for different categories of taxpayers and for activities carried out in certain sectors.
Besides focusing on some of these benefits, we are going to briefly point out changes related to the income tax rate.
Income Tax rate
The corporate Income Tax rate will gradually decrease, beginning in 2020. The current rate in 2018 and 2019 is 33%, which will progressively decrease from 2020 onwards. In 2020, it will be 32%, in the 2021 fiscal year it will fall to 31%, and finally, in 2022, it will reach 30%.
Tax incentives for companies in the orange economy sector
Orange sector economies, according to the Inter-American Development Bank (IDB), are understood as the “chain of set activities that allow ideas to be transformed into cultural goods and services, whose value is determined by their intellectual property content.¨ These activities, expressly defined by the Law, include software and information technology (IT), graphic communication, gastronomy, and clothing and performing arts, among others.
The Finance Law provides that those industries dedicated to technological and creative added value, benefit from an exemption from the Income Tax during a period of seven years, provided companies meet the following requirements:
- Not having income above eighty thousand (80,000) UVT, which amounts to approximately $900,000 USD, during each of the years in which they benefit from the tax advantage.
- Must have their main domicile within the Colombian territory
- They are dedicated exclusively to the technological value-added development industry or to creative industries.
- They must be constituted and begin with their economic activity before December 31st, 2021.
- They must have at least three employees.
- They must have a minimum investment, to be executed within three years, of 4,400 Units of Tax Value (UVT) which, in currant values, represents an investment of approximately $50,000 USD.
The activities that could be the object of these benefits are:
- Editing of computer programs.
- Computer systems development (planning, analysis, design, programming and testing).
- Computer consultancy activities and computer facilities management activities.
- Architectural, engineering and other related technical consultancy activities.
- Production and Postproduction of Cinematographic films, programs, videos, commercials and television commercials.
- Film and video exhibition and distribution.
- Cultural Tourism.
The tax exemption approval referred to in this point is the responsibility of the Orange Economy Committee of the Ministry of Culture, which will evaluate the investment project submitted to it, considering, among other factors, the economic viability of the project.
Another activity with exemption benefits is the sale of electricity that companies generate from wind, biomass or agricultural, solar, geothermal or sea waste. This exemption could be extended up to 15 years, and up to 10 years when income from investments that increase productivity in the agricultural sector is related. In both cases they will be subject to the approval of the respective regulatory entities and to some specific requirements.
The goal of these and other benefits is to achieve greater investment from foreign and Colombian economic sectors, so as to maintain the country as one of the fastest growing economies in the region.