Global

Details

  • Service: Tax, Global Mobility Services
  • Type: Business and industry issue, Regulatory update
  • Date: 1/1/2014

 

Colombia 

In Colombia, beginning in fiscal year 2014, a foreign individual is generally liable for tax on income and property sourced or situated in Colombia, only to the extent that the individual is not considered as resident for tax purposes (remain in the country less than 183 days). For foreign taxpayers who are resident for fiscal matters, tax is levied on net income and applied at progressive rates. For foreign non-resident taxpayers, income tax is levied on net income at a flat rate of 33 percent. Net income is calculated by subtracting allowable deductions from total assessable income.


Key message

Extended business travelers are likely to be taxed on employment income earned during their time working in Colombia.


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Income tax

Liability for income tax

A person’s liability to Colombian tax is determined by the source of income and the situation of the person’s property. The tax rates are dependent on whether a person is a resident for fiscal matters of Colombia, or a non-resident.


Resident


Colombian law sets out that a person is considered resident for fiscal matters in Colombia if the individual remains in the country, whether or not the stay is continuous, for a period of more than 183 days during a 12 month period or if, within the fiscal year, the 183 days are completed.


A resident also includes a Colombian national whose family, assets or business remains in the country even though the Colombian national resides in a foreign country.


Non-resident


A person who does not meet the criteria of a resident is considered to be a non-resident for fiscal matters.


A person who spends less than 183 days in Colombia during a fiscal year is therefore a non-resident for fiscal matters.


A Colombian national or a foreign individual who is resident for fiscal matters in the country is liable for tax in Colombia on worldwide income.


Colombian nationals and foreign taxpayers who are considered non-resident for fiscal matters, are liable for tax in Colombia only on income derived directly or indirectly from a Colombian source.

Definition of source

Employment income is generally treated as Colombian-sourced compensation where the individual performs the services while physically located in Colombia.

Tax trigger points

There is no threshold/minimum number of days that exempts the employee from the requirements to file and pay tax in Colombia.


To the extent that the individual qualifies for relief in terms of the dependent personal services article of the applicable double tax treaty, there may be no tax liability.


For 2014, residents are not taxable on the first 29,959,000 Colombian pesos (COP) of taxable income.

Types of taxable income

All remuneration, fees, and allowances paid under an employment contract or as an independent worker are treated as taxable income to the extent they are received in return for services provided in Colombia. For this reason, all payments received in cash or in kind by an employee are taxable, regardless of where the compensation is paid.


  Taxable income Issues to take into account

Colombian national non-resident for fiscal matters

Rents and occasional gains from a national source are taxable. In the case of residents, taxable income also includes rents and occasional gains from a foreign source.

Wages paid in Colombia for work performed outside the country are not considered to be income of national source. Therefore, non-residents would not be taxed on this income, nor would this income be subject to withholding tax.

Foreign nationals on assignment in Colombia

Rents and occasional gains from a national source are taxable. In the case of residents, taxable income also includes rents and occasional gains from a foreign source.

Where an individual is paid overseas for services performed in Colombia, the amount of income that is considered as Colombian source income is calculated based on the number of days the expatriate provides the service in Colombia.


During the period prior of the 184 days remained in Colombia, any income will be subject to a withholding tax at 33 percent.


Regardless of where payment is made for services provided in Colombia, the income will be taxable.

Source: KPMG in Colombia, 2014

Tax rates

The net income of a person resident in Colombia is liable for tax at progressive rates from 0 percent to 33 percent. Non-residents are liable for income tax at a flat rate of 33 percent. This is currently the maximum tax rate for residents and is applied on income earned over COP112,689,000 for the 2014 tax year.


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Social security liability

Employer and employee


Any person employed in Colombia must make contributions to the social security system. The system consists of a general contribution scheme and a special contribution scheme. Social security contributions are calculated based on an employee’s earnings.


A voluntary regime is also available to self-employed and unemployed individuals. Participants in this regime are subject to a special quota.


Paid by
Type of insurance Employer percent Employee percent Total percent
Pension plan 12.0% 4.0% 16.0%
Medical plan 8.5% 4.0% 12.5%
Family welfare fund 9.0% 0.0% 9.0%
Total percent 29.5% 8.0% 37.5%

Source: KPMG in Colombia, 2013


The social security system provides benefits to the participant or the participant’s dependants for events such as occupational accidents, sickness, retirement, pension, and death.


The employer must make the following social security contributions for 2014.


  • pension plan: 12 percent of monthly payroll
  • medical plan: 8.5 percent of monthly payroll
  • family welfare fund: 9 percent of monthly payroll.

It is important to consider whether the employee is contributing to a pension fund or health plan in the their home country that covers the contingencies the employee could suffer during their stay in Colombia, in which case participation in the pension scheme in Colombia is voluntary. If the employee has a labor agreement with a Colombian company, however, participation in the health plan is obligatory.


When an employee earns a salary between 4 and 15 times the minimum legal monthly salary (SMLM for 2014 is COP 616.000), the employee must contribute an additional 1 percent to the pension fund. Likewise, employees earning 16 SMLMs or more must make additional contributions as follows:


SMLM Additional percentage Total contribution percentage
16–17 0.2% 17.2%
17–18 0.2% 17.4%
18–19 0.2% 17.6%
19–20 0.2% 17.8%
20 or more 0.2% 18.0%

Source: KPMG in Colombia, 2014


The employee should assume these payments.


Colombia has entered into social security totalization agreements with 20 other Iberoamerican Organization countries in order to prevent double taxation and allow cooperation when enforcing their respective tax laws.


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Compliance obligations

Employee compliance obligations

The filing date for tax returns is generally between August and September, after the end of the tax year (31 December). The tax authorities publish a schedule each year setting out the filing dates. The filing date for an individual is based on the last two digits of the individual’s tax identification number (NIT). Foreign nationals are required to obtain an NIT to be used in all their tax affairs.


In general, an individual who have received income and/or own property after 31 December in any tax year must submit a tax return if the income/value of their property is above a certain amount. Failure to do so will result in a monthly penalty, payable in arrears, equal to 5 percent of the outstanding tax, capped at 100 percent of the amount payable.


Taxpayers who fulfill all the following conditions are exempt from the requirement to submit a tax return for FY2014.


  • Employees whose gross equity does not exceed COP123,683,000 for the year 2014 or the equivalent in US dollars (USD) (approximately USD62,000).
  • Employees who are not required to account for sales tax on non-salaried activity.
  • Employees whose earnings are less than COP38,479,000 for the year 2014 or the equivalent in USD (approximately USD19,000). (For FY13, the amount was COP 37,577,000)
  • Independent workers whose earnings were received net of withholding tax, providing the worker’s gross equity does not exceed COP123,683,000 for the year 2014 or the equivalent in USD (approximately USD62,000), and that the individual’s earnings do not exceed COP38,479,000 for the year 2014 or the equivalent in USD (approximately USD19,000).
  • Non-resident foreign nationals whose income is derived from dividends, partnership profits, interest, commissions, fees, royalties, rents, compensation for personal services or technical assistance, benefits, or royalties from copyrights or artistic or scientific property that have been subjected to withholding tax at 33 percent.

Regardless of the above exemptions, an income tax return must be filed for 2013 if an individual has exceeded the following:


  • credit card purchases in excess of COP76,958,000 (approximately USD39,000)
  • purchases in excess of COP76,958,000 (approximately USD39,000)
  • accumulated bank savings, deposits, or financial investments in excess of COP123,683,000 (approximately USD62,000).

Any outstanding tax must be paid at the time of filing the return. Failure to pay tax when due will result in a penalty and interest will accrue daily on any unpaid taxes at a rate of approximately 29,48 percent per annum (until 31 March 2014, for liabilities associated to FY2013). On 1 April 2014, the government will announce the applicable rate for the next quarter.

Employer reporting and withholding requirements

Employers are obliged to withhold tax from expatriates’ earnings every month as follows:


  • If the expatriate is a non-resident, 33 percent of total monthly compensation should be withheld.
  • If the expatriate is a resident he will be liable for tax at the progressive rates from 0 percent to 33 percent in accordance with the table determined by law.

Income that is contributed to a voluntary pension fund in Colombia or to a savings account destined to acquire real estate is considered to be non-taxable income and is excluded from the withholding tax base, providing the total of these contributions and the obligatory contributions do not exceed 30 percent of income, and limited to an annual cap of COP104,443,000 (approximately USD53,000). Those contributions that are withdrawn before a minimum term of 10 years will be included, however, as income in the year of withdrawal, with the exception of withdrawals made to acquire real estate.


Any tax withheld will be taken into account in the calculation of the final tax liability.


In addition, a deduction from salary is available for interest paid on loans taken out for the home. This, therefore, reduces the income tax and withholding tax bases. It is also important to take into account that 25 percent of labor payments are exempt from income tax, up to a monthly maximum of COP6,597,000 (approximately USD3,300) for the year 2014 and COP6,442,000 (approximately USD3,200) for the year 2013.


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Other issues

Work permit/visa requirements

A visa must be obtained before an individual can enter Colombia. The type of visa required will depend on the purpose of the individual’s entry into Colombia.

Double taxation treaties

In addition to Colombia’s domestic tax regulation, which provides relief for double taxation by giving a tax credit for taxes paid abroad for foreign-sourced income within the limits stated by the law, Colombia has entered into tax treaties to prevent double taxation with Spain, Chile, Switzerland and the countries of the Andean community (Peru, Bolivia, and Ecuador). A treaty to avoid double taxation with Mexico and Canada is about to come into force, and Colombia is negotiating treaties with, Europe, Korea, and Turkey, among others.

Permanent establishment implications

The tax bill issued by the Congress of the Republic introduced the concept of permanent establishment (PE) for individuals, as follows: “It also deemed that there is a permanent establishment in the country, when a person, other than an independent agent acting on behalf of a company foreign, has or exercises habitually powers in the country to conclude agreements or contracts that are binding on the company.


It is considered that such foreign company has a permanent establishment in the country with respect of any activities which that person undertakes for the foreign enterprise, unless the activities of such person are limited to those mentioned in the second paragraph of this article”.

Indirect taxes

The standard rate of value-added tax (VAT) is 16 percent.


VAT is due on the sale of moveable goods and the provision of services within Colombian territory, except those expressly excluded. The importation of moveable goods is also subject to VAT, except where expressly excluded. VAT is not applicable, however, to the sale of fixed assets.


Generally, services are assumed to be provided where the head office is situated, except in the following circumstances:


  • Telecommunication services are assumed to be provided where the beneficiary’s head office is located.
  • Building services are assumed to be provided where the building is located.
  • Services of a cultural and artistic nature, loading, unloading, trans-shipment, and storage services are assumed to be provided in the place where the service is materially carried out.
  • Where services are executed abroad but the users or consignees are located in Colombia, the services are assumed to be provided in Colombia. Consequently, the services are subject to VAT (i.e. licenses and authorizations for the use and exploitation of incorporeal or intangible assets; professional consulting, advisory, and audit services; rental of corporate movable assets; translation, correction, or text composition services; insurance, reinsurance, and coinsurance services; services carried out in respect of moveable corporate assets; satellite connection or access services; and satellite television service received in Colombia).

VAT is also applicable to the circulation, sale, and operation of games of chance (i.e. gambling) with the exception of lottery games.


Some transactions are deemed to constitute a sale, such as gifts of property and private use of business assets.


There are two VAT regimes in Colombia, a common regime and a simplified regime. Individuals and businesses that make VAT taxable transactions must register in the correct regime in accordance with the requirements stated below.


The simplified regime is relevant to individuals who are merchants or service providers as long as they comply with the following requirements for tax year 2014:


  • Gross income for the previous year must be less than COP106,696,000.
  • They must not have more than one establishment, office, bureau, shop, or stand in which the activity is carried out.
  • The activities in the establishment, office, bureau, shop, or stand must not include a franchise, concessions, royalties, or any kind of exploitation of intangible assets.
  • They must not be users of customs.
  • Agreements for the sale of goods or for the provision of services should not exceed COP88,025,000 for the previous year, nor COP88,575,000 for the current year.
  • Amounts deposited in banks or financial investments during the previous year should not exceed COP120,785,000, and COP123,683,000 for the current year.

The common regime is relevant to companies and individuals who do not fulfill the requirements for the simplified regime.


As an exception, overseas companies providing services that are subject to VAT in Colombia are not required to register for VAT. In these situations, the Colombian party should withhold 100 percent of the VAT applicable to the specific activity.

Transfer pricing

Colombia has a transfer pricing regime based upon the Organisation for Economic Co-operation and Development (OECD) transfer pricing guidelines. A transfer pricing issue may arise where an employee is being paid by an entity in one jurisdiction but performing services for the benefit of the entity in another jurisdiction, in other words, a cross-border benefit is being provided. The issue would also depend on the nature and complexity of the services being performed.


Law 1607 of 2012 introduced significant changes on the transfer pricing rules in Colombia. In some situations, it may be possible to negotiate advance pricing agreements with the local tax authority.

Exchange control

The flow of currency into and out of Colombia may be subject to the required use of authorized exchange markets.

Non-deductible costs for assignees

Non-deductible costs for assignees include contributions made by an employer to non-Colombian pension funds.

 

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Contact

Vicente Torres

Tax Lead Partner

KPMG in Colombia

+57 1 618 8000

Thinking Beyond Borders