Colombia – New Tax Reform Introduces Wealth Tax for Individuals

Colombia – New Tax Reform Introduces Wealth Tax...

A new tax reform in Colombia introduces, among other modifications, a wealth tax for individuals, for fiscal years 2015, 2016, 2017, and 2018. The wealth tax will apply to individuals subject to income tax (both tax residents and non-tax residents of Colombia) whose net worth, at January 1st of each year, exceeds COP 1 billion

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A tax reform has been approved by the Congress of the Republic of Colombia.1 It introduces, among other modifications, a wealth tax for individuals, for fiscal years 2015, 2016, 2017, and 2018.  The wealth tax will apply to individuals subject to income tax whose net worth, at January 1st of each year, exceeds COP 1 billion (USD 420,000, approx.).

WHY THIS MATTERS

The wealth tax will apply for both tax residents and non-tax residents of Colombia.  However, non-tax residents will be taxed only upon assets owned in Colombia (directly or through a permanent establishment) and foreign individuals who have resided in Colombia for less than five years can exclude their wealth owned abroad.

International assignment program managers will need to decide if their assignees who are liable to this tax in Colombia will be subject to the company’s tax reimbursement and tax services policies with respect to this tax or if they will leave each assignee to meet his or her own liability and compliance obligations.

The tax rate applied to the wealth tax base is progressive and starts at 0.125 percent rising to 1.5 percent.

Scope of the Tax

The wealth tax will apply to residents and nonresidents for tax purposes.  Tax residents will have to include assets owned in Colombia and abroad and non-tax residents will only have to include assets owned in Colombia.

The wealth tax will apply for individuals whose net worth is higher than COP 1 billion.  This is calculated by including the value at January 1st of all assets owned (real estate, investments, motor vehicles, financial products and accounts, etc.) and subtracting liabilities and debts.

A taxpayer’s base is equal to the net worth minus the value of the taxpayer’s home (capped to USD 135,000) and minus the effective equity value of stocks owned in Colombian entities (entities listed on Colombian stock market).  Effective equity value is the value of the asset multiplied by the percentage obtained after dividing the net equity by the gross equity of stocks owned in Colombian entities (e.g., gross equity: COP 2 billion; debts and liabilities: COP 1.2 billion; Net equity: COP 800 million.  Percentage of net equity value is 40 percent.  Thus, if the amount owned in stocks is COP 300 million, the effective equity value deductible for wealth tax purposes is COP 300 million multiplied by 40 percent that is COP 120 million.)

Foreign individuals who are considered tax residents and have resided in Colombia for less than five years are able to subtract the net amount of their assets owned abroad from the taxable base.     

The progressive tax rates are as follows: 0.125 percent for taxable base between COP 0 and COP 2 billion; 0.35 percent, between COP 2 billion and COP 3 billion; 0.75 percent, between COP 3 billion and COP 5 billion; and 1.5 percent, for net equity higher than COP 5 billion.

Finally, please note that the deadline to pay the first instalment of the tax is between May and June (depending on the last two digits of the taxpayer’s identity number); the second instalment is due in September.

KPMG NOTE

It is important to highlight that although foreign individuals who are considered residents for tax purposes have to include their assets owned abroad in the base of the wealth tax, if they have resided in Colombia for less than five years they can subtract the net value of such assets owned abroad and exclude them from the taxable base.

Finally, the formal process for filing the wealth tax return and paying the wealth tax has not yet been detailed by the authorities.  We expect that this regulation will be issued within the next few weeks.  The KPMG International member firm in Colombia will endeavor to keep readers informed of any further developments.

FOOTNOTE

1  Ley 1739 del 23 de diciembre de 2014.

COP 1 = USD 0.000425

COP 1 = EUR 0.000365

COP 1 = GBP 0.000280 

COP 1 = PAB 0.000425 

CONTACTS

For additional information or assistance, please contact your local GMS or People Services professional or one of the following professionals with KPMG Tax & Legal in Colombia:

María Consuelo Torres

Tel. +57 (1) 618 8000

mctorries@kpmg.com

 

Carlos Enrique Neira Recamán

Tel +57 (1) 618 8000 ext. 1511

ceneira@kpmg.com

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The information contained in this newsletter was submitted by the KPMG International member firm in Colombia. 

© 2016 KPMG Impuestos y Servicios Legales Ltda, a Colombian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor 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 on such information without appropriate professional advice after a thorough examination of the particular situation.

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