By María Helena Padilla, Partner at Pinilla, González y Prieto Abogados, Bogotá, Colombia
On September 9, the Colombian Congress approved the Social Investment Law with tax measures intended to collect revenue to finance new social programs and public spending to deal with the economic and social effects resulting from Covid 19.
The changes will apply for the fiscal year that begins in 2022, although the law has been approved and will be assented to in 2021. Constitutionally in Colombia, the changes implemented by the law will only apply from the period following, therefore the modifications will not modify the regulations in force in 2021.
The corporate tax rate will drop from 30% to 35% in 2022. This rate applies to domestic companies, abroad with or without tax residency in the country, permanent establishments and branches.
The corporate tax rate for financial entities will temporarily be 38% (35% income tax plus an additional 3% rate until 2025). The 3% rate will be settled and paid with an advance of 100% in the immediately preceding year.
The rates of the special tax regime and the free zones remain unchanged at 20%.
The income rebate of sums incurred and paid during the year for 50% of the municipal tax on industry and commerce has been maintained. As a result, the rule that this discount would be increased to 100% from 2022 has been repealed.
The exemption of income from the “orange economy”, under acquired rights situations, will be increased from seven to five years. The minimum investment requirement is removed and the exemption will cover companies that start their activities before July 30, 2022 (extension of the previous deadline of December 31, 2021).
As of January 1, 2022, 100% of costs or expenses, such as deductible taxes, must be borne in an electronic invoice, an equivalent document or a similar medium established for this purpose by the DIAN.
The law also modifies and unifies the definition of final (beneficial) beneficiary, currently envisaged in various provisions, extending it to structures without legal status, establishes the single register of final beneficiaries and reiterates the obligation to declare.
Simplified tax regime
The law introduces a simplified tax regime in the income tax system that applies to certain taxpayers of income tax: natural persons or resident companies whose shareholders are natural persons / Colombian tax residents. The simplified regime unifies the declaration and payment of three taxes: the income tax, the consumption tax in restaurants and bars and the tax on industry and commerce.
The simplified tax regime is intended for small industries and entrepreneurs to facilitate their formalization and the payment of taxes. The reform changes the income limit to USD 939,000 so that more independent and small businesses opt for the simplified scheme. For taxpayers registered in this regime who engage in food and beverage sales activities, it is expected that by 2022 they will not be liable for the associated VAT or national consumption tax.
The registration deadline will expire on the last working day of February of the year concerned.
Value added tax (VAT)
The law maintains until December 31, 2022, the exemption from VAT for the provision of hotel and tourist services to residents of Colombia, including tourism for meetings, congresses, conventions and exhibitions, and entertainment, for those who have an active registration in the National Tourism Registration.
In the postal traffic of goods, the existing exemption will be maintained for imports of goods subject to postal traffic, urgent shipments or fast delivery items whose value does not exceed 200 USD, if they come from countries with which Colombia has entered into a trade agreement which expressly provides for this exemption. The exemption will not apply to imports of this type for commercial purposes.
The benefit of three days before tax per year is permanently extended for products falling under the wardrobe category, wardrobe accessories, electrical appliances, sports equipment, sporting goods, school supplies, games, toys and supplies. agricultural sector, acquired online or in person by the end consumer, whose payments are made by electronic or efficient means.
For restaurant and bar service providers subject to VAT who do not have a simple tax regime, the exemption from VAT and consumption tax ends on December 31, 2021.
The reform brought many changes to Colombian tax laws, and this article has highlighted only a few of the main changes to income tax and VAT. In addition to these measures, the law also introduced various reforms aimed at combating tax evasion and implementing various changes in tax procedures.
The big topics of debate on the reform of the VAT to iron out and tax many activities currently excluded – such as the elimination of the distorting tax advantages of the Colombian tax system, the direct taxation of the digital economy, the reform of the tax on industry and commerce, and territorial taxation in general – is an unresolved task that will not wait, and it will be the task of the next government to face.