A Brief Overview of Columbian Taxation
This article provides a brief summary as to how individual and corporate taxes are determined in Colombia.
How Individuals are Taxed in Columbia
Colombia taxes its nationals and aliens as follows.
- Residents are taxed on Colombian-source income.
- Nonresidents or aliens are only taxed on Colombian-source income.
For Columbian tax purposes, individuals become a tax resident when they remain in Colombia for more than six months continuously or discontinuously within a year or when they complete this time period in the calendar year.
Colombian sourced income refers to income from activities carried out on Colombian soil and certain activities from abroad. Applicable law refers to these as the provision of services inside Colombian territory, the transfer of assets located in Colombian territory at the time the transfer takes place and the exploitation of tangible or intangible assets located inside the country.
Individual Income Tax
A resident of Columbia is taxed on his or her salary in Columbia for services provided regardless where the payment is made. Salary for Columbian tax purposes includes bonuses, living allowances, housing allowances, tax reimbursements, and a number of payments made under Colombian labor law.
Capital Gains Tax
Colombia has a favorable capital gains tax rate. If an asset is held for two or more years, the gain will be taxed at a flat 15%. Assets held for less than two years are taxed at ordinary capital gains rate which can be as high as 39%.
Inheritance Tax
Columbia has an inheritance tax. The inheritance tax is a tax imposed on beneficiaries who inherit assets from an estate. The rate of inheritance tax varies depending on the relationship between the deceased and the beneficiary.
Columbia Withholding Taxes
The Colombian tax system provides for withholding tax as a general mechanism to advance tax collection of Colombian-source income received by nonresidents. As a general rule, all Colombian entities are required to collect or withhold taxes from payments made to third parties that are not residents of Columbia. These “withholding agents” are required to collect the applicable withholding tax amounts and deposit the tax with the local taxing agency. Presumably, a withholding agent who fails to withhold is liable for the uncollected tax. Non-resident foreign corporations and entities are subject to withholding tax (without deduction or credit) on its Columbian source income. Generally, the full tax liability accruing on payments made to foreign non-resident persons is satisfied via collection of the applicable withholding tax. The withholding rate on payments made to foreign non-resident persons for royalties and taxable interest is 20%, while administrative expenses are taxed at 33%. On payments made for consulting, technical assistance, and technical services, the withholding rate is 20%. On payments made for software licenses, the withholding rate is 20%. Domestic income earned by non-resident entities that is not attributable to branches and permanent establishments will be taxed at 35%.
Anthony Diosdi is one of several tax attorneys and international tax attorneys at Diosdi & Liu, LLP. Anthony focuses his practice on providing tax planning domestic and international tax planning for multinational companies, closely held businesses, and individuals. In addition to providing tax planning advice, Anthony Diosdi frequently represents taxpayers nationally in controversies before the Internal Revenue Service, United States Tax Court, United States Court of Federal Claims, Federal District Courts, and the Circuit Courts of Appeal. In addition, Anthony Diosdi has written numerous articles on international tax planning and frequently provides continuing educational programs to tax professionals. Anthony Diosdi is a member of the California and Florida bars. He can be reached at 415-318-3990 or adiosdi@sftaxcounsel.com.
This article is not legal or tax advice. If you are in need of legal or tax advice, you should immediately consult a licensed attorney.
Written By Anthony Diosdi
Anthony Diosdi focuses his practice on international inbound and outbound tax planning for high net worth individuals, multinational companies, and a number of Fortune 500 companies.