TAX LAWS IN COLOMBIA

The attractions for expanding into Colombia are clear as the country seeks to play a larger role in the global economy. The largely upper-middle-income population displays growing consumerism, with the Government encouraging entrepreneurism and private enterprise. The main traditional sectors are mining, oil and petrochemicals, coffee, textiles, agriculture, and steel with predicted growth in electronics, tourism and the services sector.

However, dealing with tax in Colombia while being overseas can be a tricky process and pose complications that would demand expert guidance for both individual and corporate taxes due to Colombia’s multi-layered personal tax regime. Foreign companies must establish a legal entity in Colombia in order to hire staff and run their payroll and typically choose to open a limited liability subsidiary, often as a small to medium-sized enterprise to gain a foothold in the region. In Colombia, this is a Sociedad de Responsabilidad Limitada, SRL, which needs two or more members or partners and is regulated by the Commercial Code.

Bradford Jacobs’ dedicated specialists remove the burdens of worrying about tax complications while you focus on building your business in a new territory. From locating the brightest talent to running your payroll, our Professional Employer Organisation (PEO) and Employer of Record (EOR) specialists will guide you every step of the way.

Overview of Tax in Colombia

Personal Income Tax (PIT):

Colombia’s progressive income tax system is organised into Tax Value Units (Unidad de Valor Tributario, UVT). The Colombian Tax and Customs National Authority (Dirección de Impuestos y Aduanas Nacionales, DIAN) set the UVT units at COP 38,004 (€9, US$9.60) for 2022.

Personal taxes are grouped into three ‘baskets’ for general employment, pension and dividends income. The tax-free allowance is up to UVT 1,090, with five other bands from UVT 1,700 at 19% up to 39% for income over UVT 31,000.

Social Insurance Taxes:

Employers contribute a total of 20.5% of payroll to the mandatory health, welfare and pension systems, with employees contributing a total of 8%. Caps apply.

Corporate Income Tax:

The headline rate is 35%. Financial companies with income exceeding 120,000 tax value units (UVT) (€342,036, US$364,838) are subject to a 3% surcharge paid in advance based on the previous tax year’s accounts. Qualifying businesses in Free Trade Zones pay CIT at 20%.

Value Added Tax (VAT):

The headline rate on goods and services is 19%. Categories such as foodstuffs and insurance premiums are rated at 5%, with zero-rated categories including more foodstuffs, books and magazines, and tourism packages for foreigners.

Withholding Tax (WHT):

Rates generally vary between 20% and 35% on payments made to non-residents for royalties and taxable interest.

Personal Income Tax in Colombia

Colombia has a progressive income tax system expressed in Tax Value Units (Unidad de Valor Tributario, UVT). For 2022 the Colombian Tax and Customs National Authority (Dirección de Impuestos y Aduanas Nacionales, DIAN) set the UVT units at COP 38,004 (EUR 9, USD 9.60).

Residents’ and Non-Residents’ Annual Personal Income Tax (PIT) 2022:

From Not Over Tax %
UVT 0
UVT 1,090 (EUR 9,810 - USD 10,464)
0%
UVT 1,090
UVT 1,700 (EUR 15,300 - USD 16,320)
19%
UVT 1,700
UVT 4,100 (EUR 36,900 - USD 39,360)
28%
UVT 4,100
UVT 8,670 (EUR 78,030 - USD 83,232)
33%
UVT 8,670
UVT 18,970 (EUR 170,730 - USD 182,112)
35%
UVT 18,970
UVT 31,000 (EUR 279,000 - USD 297,600)
37%
Over UVT 31,000
-
39%

*Above rates include pension income basket

Dividends Income Basket:

  • From UVT 0 to UVT 300 (EUR 2,700 – USD 2,880): 0%
  • Over UVT 300: 10%

Employee Social Insurance Taxes:

Contributions from gross salary to:

  • Health welfare system: 4%
  • Pension system: 4%

If earnings exceed four legal monthly minimum salaries of COP 4,000,000 (EUR 948, USD 1,016), employees must contribute an additional 1% to the pension solidarity fund. Those earning more than 16 minimum monthly salaries of COP 16,000,000 (EUR 3,790, USD 4,066) must make an extra contribution between 0.2% and 1% depending on salary.

Individual Tax Rules in Colombia

  • The tax year is from January 1 until December 31.
  • Colombia’s tax regime is assessed in Tax Value Units (Unidad de Valor Tributario, UVT). For 2022 the Colombian Tax and Customs National Authority (Dirección de Impuestos y Aduanas Nacionales, DIAN) set the UVT units at COP 38,004 (€9, US$9.60).
  • Salaried taxpayers must file a return if their assets exceed UVT 4,500; credit card charges are more than UVT 1,400; bank deposits and investments are above UVT 1,400; income is above the tax-free amount of UVT 1,090. If tax residents, these requirements include worldwide income.
  • Spouses must file separate returns, and filing usually starts in August, with the date determined by the official Decree issued the previous December.
  • Penalties for late filing begin at 5% of the tax due for each month delayed, increasing to 10%. Taxpayers who fail to respond to a request from DIAN are also liable for interest, plus a 10% penalty on additional taxes due.
  • The tax system asses income in three ‘baskets’ – employment and capital income, income from pensions, dividend income.
  • Those residing in Colombia for a total of 183 days (not necessarily continuous) within 365 consecutive days are tax residents. If the 183 days cover two different calendar years, the individual is a tax resident for both calendar tax years.
  • Tax residency applies if the individual’s spouse or dependents exceed the 183-day rule, 50% or more of direct or indirect income is earned in Colombia, and 50% or more of assets are managed or physically located in Colombia considerations.
  • Tax residents (nationals and foreign) are taxed on worldwide income, and non-residents on revenue sourced in Colombia.

Employer's Social Insurance and Statutory Contributions in Colombia

Employers contribute to the mandatory health, welfare and pension systems. The contribution is 8.5% towards the health program and 12% towards pensions. Contributions are capped at 25 times the national minimum wage, which in 2022 was COP 1,000,000 (€236, US$253) per month.

Employer contributions to the health system apply only to employees with legal salaries below ten minimum monthly wages – COP 10,000,000 (€2,370, US$2,528).

Employers contribute 9% to monthly payroll tax, 3% to the Institute for Family Welfare (ICBF), 2% to the National Apprenticeship Service (SENA), and 4% to the Family Subsidy Fund. Employers do not contribute to ICBF or SENA for employees earning less than ten times the national minimum wage of one million pesos (€236, US$253).

LOOKING TO EXPAND INTO COLOMBIA?

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