Colombia Tax Reform Taxes Wealth and Corporate Profits | KPMG | CA

Colombia Tax Reform Taxes Wealth and Corporate Profits

Colombia Tax Reform Taxes Wealth and Corporate Profits

Colombia implemented a new wealth tax that affects taxpayers with a net equity equal to or greater than approximately US$430,000.

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Colombia recently implemented a new wealth tax that affects taxpayers with a net equity as of January 1, 2015 equal to or greater than COP $1 billion (approximately US$430,000). This change could be of interest to Canadian clients with investments in the country. In particular, taxpayers subject to the tax include:

  • Non-resident individuals who own assets (wealth) directly in Colombia or assets owned indirectly through permanent establishments (PE) within Colombia
  • Foreign corporations and entities with wealth owned directly within the country and with wealth owned indirectly through branches or PEs within Colombia.

Wealth tax procedures

For individuals, the wealth tax accrues on net equity as of January 1, 2015, 2016, 2017 and 2018.

For foreign entities, the wealth tax accrues on net equity as of January 1, 2015, 2016, and 2017.

Foreign corporations and entities must file a wealth tax return (regardless of wealth tax liability) if their net equity in Colombia is equal to or greater than COP$1 billion, including:

  • Investments in shares and rights in national entities
  • Possession of tangible or intangible property located or to be exploited in Colombia
  • Credit rights owned by foreign financial institutions
  • Other credit rights when the debtor is located in Colombia, such as loans from non-financial institutions or accounts receivables related to the provision of services
  • Loans that originate from imports of goods, provided that as of January 1, 2015, such are considered to be long-term loans (i.e., exceeding a 24-month loan term)
  • International leasing operations.

The first wealth tax payment date and filing deadline is expected in May 2015.

Determining the wealth tax base

In calculating the taxable base, the net worth value of the following assets can be excluded:

  • Shares and ownership interests in national corporations
  • The value of active credit transactions made with Colombian residents or national companies as well as interest associated with such transactions, and the value of international leasing transactions entered into with Colombian residents or national companies on assets located within Colombia (for foreign financial entities)
  • Foreigners who are resident in Colombia for less than five years with equity possessed abroad.

For non-resident individuals and foreign entities with PEs or branches within Colombia, the taxable base will correspond to the equity attributed to the PE or branch.

Effect on other taxes

The tax reform also includes provisions that:

  • Increase the rate of the income tax for Colombia-source income of foreign corporations and entities not attributable to a PE or branch in Colombia as follows:
    • 39% in 2015
    • 40% in 2016
    • 42% in 2017
    • 43% in 2018
    • 34% in 2019 and later
  • Increase the rate of the fairness income tax (CREE) to 9%
  • Impose a new CREE surtax for corporations and entities whose net income in fiscal years 2015 to 2018 is equal or greater than COP $800 million (approximately US$400,000), with the CREE surtax rate imposed at a rate of 5% for 2015, 6% for 2016, 8% for 2017 and 9% for 2018
  • Establish that individuals will not be considered residents of Colombia for tax purposes if 50% or more of their annual income is obtained in the jurisdiction where they have their domicile, or if 50% or more of their assets are located within the jurisdiction where they have their domicile
  • Establish an income tax deduction equal to two percentage points of the value added tax (VAT) paid on the acquisition or importation of "capital assets"
  • Establish that the amount of VAT accrued and paid on the acquisition or importation of heavy machinery for "basic industries" will be deductible from income tax
  • Extend a deduction available for investments made in certain research and development projects.

For more information, contact your KPMG adviser.

Disclaimer

Information is current to January 20, 2015. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

For more information, contact KPMG's National Tax Centre at 416.777.8500

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