Global

Details

  • Service: Tax, Global Indirect Tax
  • Type: Business and industry issue
  • Date: 8/1/2012

Colombian government VAT incentive in tax reform package 

Colombian government

The government is currently working on a tax reform project including a VAT incentive aimed at stimulating the capitalization of companies. According to the current draft, taxpayers meeting certain conditions would be allowed to deduct input VAT incurred on purchasing capital goods, a deduction not allowed by current legislation.

A distinction is made between taxpayers (business or individuals) liable to pay the VAT, and those not liable to pay.

Companies or individuals classed as taxpayers for VAT purposes

According to the tax reform project, companies or individuals liable for VAT for importing or purchasing fixed assets that might be considered capital goods would be able to deduct part of the VAT as follows:

  • 27 percent of the VAT paid in 2013
  • 40 percent of the VAT paid in 2014
  • 50 percent of the VAT paid in 2015.

The remaining amount cannot be treated as input VAT and therefore would be included in the value of the goods. For example, if a taxpayer incurred 100 Colombian pesos (COP) of VAT on the acquisition of capital goods in January and February 2013, it would be able to treat COP27 as input VAT. The remaining COP73 would be considered as part of the value of the good, depreciated for income tax purpose.

Companies or individuals not classed as taxpayers for VAT purposes

Companies or individuals that do not pay VAT (e.g. because they carry out activities excluded from the scope of VAT) would also benefit when importing/acquiring fixed assets that might be considered capital goods. However, the benefit would relate to income tax. Accordingly, VAT incurred by taxpayers on the import or acquisitions of fixed assets might be considered as a tax credit for income tax purposes. The percentage that might be treated as a tax credit would be as follows:

  • 27 percent of the VAT paid in 2013
  • 40 percent of the VAT paid in 2014
  • 50 percent of the VAT paid in 2015.

The remaining amount cannot be treated as tax credit and therefore would constitute a higher value of the good. For example, if the income tax corresponding to tax year 2013 was COP200 and the VAT paid by the taxpayer on the acquisition of fixed goods was COP150, the income taxpayer could treat COP40.50 as tax credit. Therefore, the taxpayer would only have to pay COP159.50 as income tax in 2013.


The value of the goods, including the VAT not treated as tax credit, would be subject to depreciation, for income tax purposes. The above incentive should also be available for financial leasing purchases, provided that an irrevocable option of purchase is agreed in the contract. According to the proposed tax reform, the following goods would qualify for the incentive: machinery and equipment, fixed assets for the production or extraction of consumption goods, or the production of other capital goods. Transport companies would also have right to discount input VAT incurred when purchasing or nationalizing cargo transport equipment. Finally, if the capital goods which have generated the right to the benefit are sold or transferred or before the end of their useful life, the discount granted must be returned. The proportion returned must correspond to the shortfall in the likely useful life.

 

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