Taxes on Corporations in Colombia
Information on taxes applied to corporate income and corporate capital gains
Corporate income tax. Domestic corporations are taxed on worldwide income. Domestic corporations are corporations organized under Colombian law. Branches of foreign corporations are taxed on Colombian-source income only.
Corporate income tax rates. The general tax rate for domestic corporations and branches of foreign corporations is 33%.
A special reduced income tax rate of 15% applies to legal entities qualified as Industrial Users or Service Users in a free-trade zone. Commercial Users in a free-trade zone are subject to the general income tax rate.
Reduced and gradually increasing income tax rates are available for small businesses (as defined by Law 1429, December 2011) beginning their activities on or after 1 January 2011. Zero percent of the rate applies for the first two years, 25% of the rate applies for the following three years, and the regular corporate income tax rate of 33% applies beginning in the sixth year.
Certain tax credits are available (see Foreign tax relief).
Capital gains. The following gains are considered capital gains, which are subject to the regular corporate income tax rate of 33%:
- Gains on the transfer of fixed assets owned for more than two years
- Gains resulting from the receipt of liquidation proceeds of corporations in excess of capital contributed if the corporation existed for at least two years
Administration. The tax year is the calendar year.
During the last week of each December, the Colombian government sets the due dates for the filing of income tax returns and payment of taxes due. Tax payments are made in five installments between February and October for Larger Taxpayers (large corporations, according to conditions set by the tax authorities) and in two installments between April and June for other legal entities. Advance payments for the current tax year, which generally represent 75% of the income tax payable for the prior tax year after withholdings, must be made with these installments.
Interest on the late payment of taxes is accrued at the effective rate of usury certified by the Superintendency of Finance for the corresponding month of delay. A penalty for late filing is levied on the amount of tax assessed in the corresponding tax return at a rate of 5% or 10% for each month or a fraction thereof. The penalty for late filing cannot exceed 100% or 200% of the difference of the tax to be paid or the balance in favor, depending on the timing of the filing. The penalty for amending a return may be 10% or 20% of the difference between the amount shown on the original tax return and the correct amount, depending on the timing of the amendment.
Dividends. Dividends paid to nonresidents are not subject to tax if the dividends are paid out of profits that were taxed at the corporate level (temporal differences can affect this calculation). If the dividends were not taxed at the corporate level, dividends paid to nonresidents are subject to withholding tax at the regular corporate income tax rate of 33%. A 7% dividend tax applies to dividends declared in the 2006 and prior tax years that were reinvested in Colombia if they are remitted to nonresidents within five years after the date of reinvestment. If such dividends are reinvested for a period of five years or more, the 7% dividend tax does not apply. Dividends paid between domestic corporations are not subject to tax if the company generating the profits out of which the dividends are paid is taxed on these profits in Colombia. Otherwise, the dividends are included in the income tax return of the recipient of the dividends and taxed at the regular corporate income tax rate of 33%. A 20% withholding tax is imposed on dividends paid to residents out of profits not taxed at the corporate level if the taxpayer is required to file an income tax return; otherwise, the withholding tax rate is 33%.
Any excess paid over the par value for shares (a share premium) is taxable to a company in the year in which the share premium is distributed as a dividend.
Foreign tax relief. For domestic corporations, a credit for foreign taxes paid on foreign-source income is granted, up to the amount of Colombian tax payable on the foreign-source income.
An indirect tax credit is granted for foreign taxes paid on income at the level of the foreign company that is distributing corresponding dividends to Colombian shareholders or quota holders. This tax credit equals the amount resulting from the application of the income tax rate of the foreign company to the amount of distributed dividends. Effective from 2011, if the foreign company distributing the dividends has received dividends from other companies domiciled in the same or other jurisdictions, the tax credit equals the amount resulting from the application of the income tax rate of the foreign company to the amount of the dividends received by the Colombian taxpayer. The sum of the tax credit and indirect tax credit may not exceed the income tax payable in Colombia on such dividends.
To be entitled to the indirect tax credit, the domestic taxpayer must have direct and indirect ownership of at least 15% of the voting shares of the foreign company. In addition, to claim the direct and indirect tax credit, the domestic taxpayer must prove the effective payment of the corresponding tax in each relevant jurisdiction.
The tax credit must be claimed in the tax year in which the foreign tax is paid or in any of the following four years.