By María Helena Padilla, Partner at Pinilla, González y Prieto Abogados, Bogotá, Colombia
On September 9, the Colombian Congress approved the social investment law with tax measures intended to collect revenues to fund new social programs and public spending to face the economic and social effects resulting from Covid 19.
The changes will apply for the fiscal year that begins in 2022, although the law was approved and will be sanctioned in 2021. Constitutionally in Colombia, the modifications implemented by law will only apply from the following period, therefore the modifications will not modify the regulations in effect in 2021.
Income taxes
The corporate tax rate will be increased from 30% to 35% in 2022. This rate applies for national companies, abroad with or without tax residence in the country, permanent establishments, and branches.
The corporate tax rate in the case of financial entities will be temporarily 38% (35% income tax plus a supplemental 3% rate until 2025). The 3% rate will be settled and paid with an advance of 100% in the year immediately preceding.
The rates for the special tax regime and free zones remain unchanged at 20%.
The income discount for amounts incurred and paid in the year for 50% of the municipal tax on industry and commerce has been maintained. Therefore, the rule that this discount would be increased to 100% beginning in 2022 was repealed.
The income exemption for the “orange economy,” with respect to situations of acquired rights, will decrease from seven to five years. The minimum investment requirement is eliminated, and the exemption will cover companies that start activities before July 30, 2022 (extending the previous deadline of December 31, 2021).
As of January 1, 2022, 100% of costs or expenses, such as deductible taxes, must be borne in an electronic invoice, equivalent document, or similar support established for that purpose by the DIAN.
The law also modifies and unifies the definition of final beneficiary (effective), currently contemplated in different provisions, extending it to structures without legal status, establishes the single registry of final beneficiaries, and reiterates the obligation to report.
Simplified taxation regime
The law introduces a simplified taxation regime into the income tax system that is applicable for certain taxpayers of income tax: resident individuals or companies whose shareholders are Colombian individuals/tax residents. The simplified regime unifies the declaration and payment of three taxes: income tax, restaurant and bar consumption tax, and industry and commerce tax.
The simplified tax regime is intended for small industries and entrepreneurs to facilitate their formalization and payment of taxes. The reform modifies the income cap, increasing it to USD 939,000, so that more independent and small companies opt for the simplified regime. For taxpayers registered in this regime that carry out food and beverage sales activities, it is contemplated that by 2022 they will not be responsible for associated VAT or national consumption tax.
The deadline for registration will expire on the last business day of February of the respective year.
Value-added tax (VAT)
The law maintains until December 31, 2022, the VAT exemption for the provision of hotel and tourism services to residents of Colombia, including tourism for meetings, congresses, conventions and exhibitions, and entertainment, for those who have an active registration in the National Tourism Registry.
In the postal traffic of merchandise, the existing exemption will be maintained for imports of goods subject to postal traffic, urgent shipments, or fast delivery shipments whose value does not exceed USD 200, if they come from countries with which Colombia has subscribed to a free trade agreement that expressly provides for this exemption. The exemption will not apply to imports of this type for commercial purposes.
The benefit of three days without VAT per year is permanently extended for products included in the category of wardrobe, wardrobe accessories, electrical appliances, sports equipment, sporting goods, school supplies, games, toys, and inputs from the agricultural sector, acquired online or in-person by the end consumer, whose payments are made by electronic or effective means.
For service providers of restaurants and bars subject to VAT that do not have a simple tax regime, the VAT and consumption tax exemption ends on December 31, 2021.
Conclusion
The reform has adopted numerous changes to the Colombian tax laws, and this article has highlighted just some of the main income tax and VAT changes. In addition to these measures, the law has also introduced various reforms directed at tackling tax avoidance and implementing various changes to tax procedures.
The great topics of debate on VAT reform to flatten and tax many activities that are currently excluded – such as the elimination of distorting tax benefits from the Colombian tax system, direct taxation of the digital economy, reform of the industry and commerce tax, and subnational/territorial taxation in general – is a pending task that will not wait, and this will be the task of the next government to face.
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