On December 27th, 2019, the Colombian Congress passed the Law 2010 of 2019 (Economic Growth Law) in order to introduce tax changes for 2020.
In this document the most significant changes for our clients will be outlined.
1. Alternate minimum income tax (“presumptive tax”)
The tax base of the alternative minimum tax will be gradually reduced down to 0% starting in the year 2021: (i) for 2020 the rate is of 0.5% of last years equity and (ii) for 2021 of 0%. Taxpayers applying to use the “simple tax regime” are not subject to the alternative minimum tax.
2. Dividends Income tax on taxable dividends distributed to foreign entities, foreign individuals and permanent establishments in Colombia of foreign companies has been increased from 7.5% to 10%. Dividends paid to Colombian individuals, already taxed at a corporate level, are now taxable for income tax at a 10% rate (previously 15%), starting from 300 UVT.
3. Indirect transfer of legal entities and assets located in Colombia by means of share deals The regime applicable to the indirect transfer of legal entities and assets located in Colombia by means of share deals, as introduced by Law 1943 of 2018, is maintained, however with the new law any future share deal shall have a fiscal cost proportionally paid for for the shares or participation of the foreign entity owner of the Colombian assets. Additionally, in the case of international mergers and acquisitions, involving indirect transfer of Colombian assets, rules set out in Art. 319-8 of the Colombian tax code are also applicable.
4. Simple income tax regime The principles set out by Law 1493 of 2018 regarding the simple tax regime are maintained, however, taxpayers registered in this regime are now obliged to implement electronic invoicing within two (2) months following their registration.
5. Mega investments The tax regime applicable to mega investments is maintained but conditioned to the generation of 400 new jobs (previously 250). The taxpayer will also have up to 5 years to complete the investment counted since the date of approval of the project. Mega investments can now also be in Free Trade Zones (Zonas Francas).
6. Deduction for first employment A deduction is created for the taxpayer generating opportunities for first employment of individuals (under 28 years), allowing a deduction of 120% of all salary payments, and limited to 115 UVT.
7. Incentive for the development of the Colombian countryside With the previous law the companies were required to be domiciled in the corresponding municipality where the investment was made, now the tax incentive is not conditioned to this particular requirement.
8. Consumption tax Consumption tax has been eliminated over the sale of real estate.
9. VAT on the import of goods produced abroad or in a free trade zone The tax base on the import of goods produced abroad or in a free trade zone with Colombian components, can now be reduced with the incorporated value raw materials and services in respect of which VAT has already been paid.
10. Income tax on individuals providing professional independent services Contractors (individuals) obtaining income from fees or any sort of compensation for personal services are now entitled to subtract the costs and expenses incurred. Before this possibility was exclusive to individuals who obtained income from capital income and non-labor income.