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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 6/1/2013

Colombia: VAT essentials 

Essential information regarding VAT as it applies in Colombia.


Scope and Rates

What supplies are liable to VAT?


The Colombian value added tax (VAT) is a tax based on the value-added method.


VAT is due on:


  • the sale of movable tangible property located in Colombia, that is not expressly excluded
  • the supplies of services inside the Colombian territory (as an exception, the tax law establishes that some services performed from abroad and used by resident in Colombia, are regarded as rendered in Colombia and therefore subject to VAT)
  • the importation of movable tangible properties that are not expressly excluded and
  • the sale or running of gambling and gaming services (excluding lottery).

For VAT purposes, the concept of taxable “sale” includes:


  • all acts involving the transfer of ownership of movable tangible property
  • the incorporation of movable tangible property to immovable property or services not taxed, as well as the transformation of movable tangible
  • the removal of movable property by the owner for his personal use or consumption or in order to form part of the fixed assets of the company.

Under the VAT system, tax is levied at each stage of the manufacturing and distribution process on a non-cumulative basis. The accumulation of tax is avoided through the deduction of VAT invoiced to the entity. The entity should assess the VAT over the total amount invoiced in each bimonthly tax period, but it is entitled to recover the input VAT that was invoiced to the entity during the same period. If, in any tax period, the credit for input VAT is higher than the amount of VAT due on output, the entity is not entitled to a refund (unless the input VAT is related to exports, to exempt goods produced or is VAT withheld). Instead the excess of input VAT is credited against future VAT liabilities.


What is the standard rate of VAT?


The prevailing standard rate of VAT is 16 percent.


Are there any reduced rates, zero rates, or exemptions?


There is a reduced rate of 10 percent applicable to certain goods and services, e.g.:


  • roasted or decaffeinated coffee and some related products
  • corn and rice for industrial use
  • cereal flours
  • cocoa and some of its derivatives
  • prepaid medicine, surgery and hospitalization insurance services, health insurance services
  • accommodation services provided by hotels and similar establishments
  • storage of agricultural products by general storage of warehouses
  • rental of buildings other than those intended for housing and space for exhibitions
  • supply of national craft.

There is a reduced rate of 1.6 percent for certain services:


  • cleaning services
  • some security services
  • some temporary employment services

There is an increased rate of 20 percent for certain goods and services:


  • mobile phone service
  • some truck whose value FOB is less than USD 30,000
  • some recreational and sport boats

There is an increased rate of 25 percent for certain goods:


  • some vehicles whose value FOB is less than USD 30,000
  • motorcycles and motorbikes with more than 185 cc engine

There is an increased rate of 35 percent for certain goods:


  • some vehicles whose value FOB is equal to or greater than USD 30,000
  • private aerodynes.

Exempt services and goods:


The supply of the below goods and services is zero-rated but the VAT incurred on their purchase is recoverable:


  • exports of goods
  • domestic sales of movable tangible properties deemed to be exported, to international marketing companies as well as the intermediate production services provided to such companies
  • services that are provided locally based on a written agreement when they are used exclusively abroad by companies or persons without any business or activities in Colombia
  • some tourist services used in Colombian territory and rendered to non-residents
  • books and magazines of scientific and cultural nature as defined by the government
  • some type of school notebooks.

Exempted services and goods with no entitlement to input tax recovery


For example:


  • medical, dental, hospital, clinical and laboratory health services
  • public, terrestrial, fluvial and maritime transportation of people in national territory
  • public or private transport service national and international maritime, fluvial, terrestrial and air cargo
  • interest and financial yields under certain conditions
  • some fees earned through trust/fiduciary, stock exchange brokers, investment administrators
  • financial leasing
  • public services of energy, aqueduct and sewage, public cleaning, garbage collection and gas
  • education services
  • reinsurance brokerage services
  • some connection and internet access services
  • crude oil to be refined

What are the other local indirect taxes beside VAT?


Excise tax, financial tax (GMF in Spanish), and registry tax.

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Registration

Who is required to register for Colombian VAT?


  • Individuals and entities rendering taxable supplies of goods and or services
  • importers of goods
  • in the sale of aircrafts: the traders and the occasional sellers of such goods
  • individuals and entities that hired foreign companies or individuals providers of services or goods subject to tax.

Are there penalties for not registering or late registration?


The penalty due for not registering prior to the start of the activities is the closure of the business establishment, headquarters, local, business or office for a period of one day for every month or fraction of a month of delay in the registration. For those who do not have business locations, a fine equivalent to COP26,049 (in 2012) for each day of delay shall be imposed at the moment of the registration.


Is voluntary VAT registration possible for an overseas company?


VAT registration of overseas company is not necessary. Non-resident companies that sell goods from overseas or render services to local customers are not responsible for VAT. The VAT will be accrued by the local customer (purchaser) via a reverse charge mechanism.


If the foreign company establishes a branch in Colombia, such entity should register for VAT purposes if it carries out activities subject to VAT.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


VAT registration of overseas company is not necessary. Non-resident companies that sell goods from overseas or render services to local customers are not responsible for VAT.


Does an overseas company need to appoint a fiscal representative?


A foreign company selling goods from abroad or rendering taxable services from or in Colombia without a domicile is not required to appoint a fiscal representative.


Foreign entities that perform permanent activities (e.g. sale goods or rendered services) in Colombia should incorporate a branch office or a subsidiary company for such purpose, entities that will need to appoint a fiscal representative.

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VAT grouping

Is VAT grouping possible?


No.


Can an overseas company be included in a VAT group?


N/A.

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Returns

How frequently are VAT returns submitted?


Taxpayers are required to submit VAT returns on a bimonthly basis.


Are there any other returns that need to be submitted?


Yes, the VAT withholding return should be filed on a monthly basis.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


As a general rule, the payments stated in foreign currency (beside -exchange transactions) shall be paid in the Colombian pesos by applying the exchange rate valid on the transaction unless the parties have agreed on a different reference rate.

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VAT recovery

Can a business recover VAT if it is not registered?


No. The standard way to recover VAT is by offsetting the input VAT incurred on purchases against the output VAT levied on sales. To do so, taxpayers must be registered prior performing any operations subject to VAT.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


No.


Are there any items that businesses cannot recover VAT on?


  • the VAT paid on the acquisition of goods and services used in the production or marketing of exempt goods is not recoverable
  • the VAT paid on the purchase or importation of fixed assets
  • VAT incurred on the acquisitions goods and services used for taxable, zero-rated and exempt activities is recoverable based on an apportionment.

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International Supplies of Goods and Services

How are exports of goods and services treated?


Exports of goods are exempt from VAT (zero-rated). Therefore the VAT paid on the acquisition of goods used for such exports is deductible.


The exports of services are VAT exempt provided that certain requirements are fulfilled.


How are goods dealt with on importation?


When goods are imported into Colombian territory, the VAT due on the importation and the customs duties should be paid when the goods are released from the customs’ control.


How are services which are brought in from abroad treated for VAT purposes?


Some services explicitly referred to in the law, rendered from abroad in favor of users or recipients located in Colombia, are considered as rendered in Colombia and therefore trigger VAT.


In such cases, the local taxpayer must self-assess the VAT. The amount withheld must be included it in its withholding tax return and paid the tax to the tax authorities. This is known as the reverse charge mechanism. The Colombian company might deduct the VAT withheld as input VAT in the relevant bimonthly VAT return.

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Invoices

Is a business required to issue tax invoices?


Yes, except when providers are registered under the VAT simplified regime (applicable to individuals not entities).


What do businesses have to show on a tax invoice?


Layout of invoices is strictly regulated. The invoice must contain the following data:


  • date of issue
  • a sequential invoice number (authorized by the tax authority)
  • supplier taxpayer identification number (NIT per its acronym in Spanish)) and customer taxpayer identification number
  • supplier’s name
  • customer’s name
  • the quantity and nature of the goods/services supplied
  • unit price (without VAT)
  • the total amount price (including VAT).

Can businesses issue invoices electronically?


Yes. It is possible when requirements are fulfilled.


Is it possible to operate self-billing?


No, except for supplies of goods or services provided by an individual covered by the simplified regime (small entrepreneurs) where the recipient (company) must issue and keep a document equivalent to an invoice.


Can a business issue VAT invoices denominated in a foreign currency?


It is possible, because there is no rule which prohibit invoicing in a currency other than Colombian peso but in any case the values must be recorded and payment must be made in Colombian pesos.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Mergers or spin-off are not subject to tax. As far as the sale of a commercial establishment is concerned, VAT is due if the transfer process involves inventories.

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Options to Tax

Are there any options to tax transactions?


Individuals engaged in small business activities and whose gross income does not exceed a certain caps may be subject to a simplified regime (“régimen simplificado” – simplified regime) for VAT purposes.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


There are no special rules for VAT, since both are considered as different entities for VAT purposes.

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Bad Debt

Are businesses able to claim relief for bad debts?


No.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


The tax law establishes special anti-avoidance VAT rules, e.g.:


  • if a product is sold at a value lower than the fair market value or such product is granted free of charge, the tax basis for VAT will be the fair market value
  • when the invoice is not issued or if there is double invoicing, the penalty is the closure of the commercial establishment
  • if the invoice does not fulfill some requirements, in which is included the identification of the VAT, the tax triggered in such transaction cannot be deducted.

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Penalty Regime

What is the penalty and interest regime like?


There are certain penalties for late filing of the tax returns and accomplish formal obligations.


The percentages of the penalties might be in a range between 10 percent and 160 percent.


For the non-payment of the relevant tax, default interest should be paid for each day of delay based on the rate established by the government on a quarterly basis.

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Tax authorities

Tax audits


How often do tax audits take place?


They take place regularly and their frequency has increased in recent years due to the information sharing system implemented by the tax authorities.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


Not for the moment.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


No.


Are rulings and decisions issued by the tax authorities publicly available in your country?


The general rules are available. Particular decisions related to specific taxpayers are not available.  

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


Yes, the general rule indicates that the services physically rendered in Colombia are subject to VAT. Nevertheless, some exceptions are provided regarding services rendered from abroad by non residents to users or recipients located in Colombia, such as auditing, consulting, advisory and licensing of intangible goods, which are considered to be rendered in Colombia and therefore taxable.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


Yes, some of them are:


  • reduced tax rates for some goods and activities
  • the introduction of merchandise from overseas to a Free Trade Zone is not considered an import as long as it remains within such zone, therefore it is not subject to VAT
  • the sale of goods from the Colombian territory to an industrial user of services or goods established in a Free Trade Zone are zero-rated provided these goods are necessary for the development of the business objective of the industrial user
  • the services provided in the country during the development of a written contract to be used exclusively in abroad by companies or persons without business or activities in Colombia.
 

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