Colombian President, Ivan Duque, previously proposed an ambitious tax reform in an effort to battle pandemic spending and raise Colombia’s credit ratings. The proposal led to anti-government protests earlier this year, and was withdrawn in May. A revised proposal has now passed both the Colombian House (124-8) and Senate (76-1) and will come into force in 2022.

Reuters reports that, before the vote began, Finance Minister Jose Manuel Restrepo said “Our projections remain: 15.2 trillion in total collection, derived from cost-cutting efforts of 1.9 trillion, 2.7 trillion from (tax) formalization efforts and the fight against (tax) evasion, and 10.6 trillion in solidarity contributions from the business sector.”

The revisions affecting corporate taxation include:

  • Under the new legislation, businesses will see their taxes rise by 5 percentage points to 35% next year. An additional surcharge of 3% has been added to businesses in the financial sector, where corporation tax will be 38% from next year.
  • Colombian businesses affected by the pandemic will continue to receive salary subsidies from the government, rates of which will increase if firms employ women or workers aged 18 to 28.
  • The ICA benefit which can be deducted from the income tax for companies remains at 50%.
  • With the aim of reactivating consumption and trade, the three VAT-free days will be held, possibly in November and December.
  • Restaurants and bars under the Simple Regime will be exempt from VAT and Consumption Tax for 2022.
  • Increase to the threshold to join the Simple Regime, from 80,000 to 100,000 UVT.
  • Extended period for the transitional sales tax exemption (VAT), with respect to hotel and tourism services provided to residents of Colombia, until December 31, 2022. This exemption covers those who have active registration in the National Tourism Registry (RNT) and provide their services that correspond by Law to tourism service providers

The new law also limits Colombia’s debt to 71% of GDP, with the goal of reducing it to 55% of GDP in the next few years. (Colombia’s debt was 63% of GDP in June 2021).

Measures left out of these reforms include the initiative that sought to introduce new taxes on sugar-sweetened beverages.

This reform has important consequences for companies operating in Colombia, especially multinationals. For further information on this reform or any other Colombian tax issues, don’t hesitate to contact our tax experts in Colombia.

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