Colombia: Proposal for major tax reform | KPMG | GLOBAL

Colombia: Proposal for major tax reform

Colombia: Proposal for major tax reform

The government of Colombia on 19 October 2016 presented to Congress a bill that would introduce tax reform changes that are intended to balance the budget and preserve the country´s BBB investment-grade credit rating.

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The government intends for Congress to vote on the bill before the end of the calendar year so that the measures would be enacted by 1 January 2017.

Overview

Given the significant loss of revenue from the oil sector (due in part to low international oil prices), the pending legislation includes measures intended to raise revenue by:

  • Increasing the rate of the value added tax (VAT) 
  • Reinforcing collection under certain excise taxes (including excise taxes on sugar-sweetened beverages and fuels)

The bill also includes provisions that would adjust Colombia’s income tax system—with some measures reflecting the OECD’s base erosion and profit shifting (BEPS) project recommendations. Along these lines, the bill includes what are viewed as ambitious and complex structural changes to the existing tax law. The bill includes 311 articles targeting the following objectives:   

  • Counter tax evasion
  • Provide relief and simplify the tax regime for corporations
  • Simplify and increase the progressivity of the tax regime for individuals
  • Simplify the tax regime for small enterprises
  • Raise revenue by increasing indirect taxation
  • Enact “green” taxes on fuels
  • Increase taxation on sugar-sweetened beverages and cigarettes to reduce consumption
  • Strengthen municipal taxation

Details of certain provisions

Some of the proposed legislative changes, possibly affecting investors in Colombia, would be the following measures. 

  • Counter tax evasion. The bill would address tax evasion by: (1) increasing the exchange of financial and tax information with other countries; (2) including anti-tax haven measures; (3) creating a specific criminal offense in instances when there is an omission of assets or the inclusion of false liabilities in tax returns; and (4) providing for mandatory disclosure of “aggressive tax planning” by both companies and their advisors.
  • Simplification of the corporate income tax. Both the “CREE” tax (the CREE is the Spanish acronym for the “fairness tax”) imposed on corporations and the tax imposed on net worth (Impuesto a la Riqueza) would be repealed. The remaining corporate income tax would be imposed according to the following income tax rate schedule (to be imposed beyond a limited profit threshold)—39% in 2017, 36% in 2018, and 32% in 2019. Companies operating under the “free zone” regime would be subject to the following income tax rate schedule—24% in 2017, 23% in 2018, and 22% in 2019.
  • Certain deductions, tax credits, and exemptions for corporations would be eliminated in an effort to refine the corporate tax base. Additionally, the tax on deemed income from the valuation of net worth held by taxpayers would be increased from 3% to 4%. The bill also proposes to impose tax accounting standards based on IFRS rules.
  • There would be a new 10% withholding tax on dividends distributed to non-resident shareholders.
  • The rate of tax on long-term capital gains would remain at 10% for both corporations and non-residents. 
  • A general 15% withholding tax rate would apply for income accrued by non-residents (accounts payable or actual payment).
  • Non-profit organizations would be subject to a new tax regime in order to prevent abuse and evasion of the corporate income tax. 
  • The VAT rate would be increased from 16% to 19%, and VAT would apply to a list of digital services supplied from outside Colombia via a withholding mechanism that would impose tax on intangible goods. 
  • The bill includes a measure to increase the excise tax on sugar-sweetened beverages and introduce a “green” tax regime for fuels and other oil-derived energy products.

 

Read an October 2016 report (Spanish) [PDF 499 KB] prepared by the KPMG member firm in Colombia

 

For more information, contact a tax professional with KPMG’s Latin America Markets practice or with the KPMG member firm in Colombia:

Devon Bodoh | +1 (202) 533 5681 | dbodoh@kpmg.com

Alfonso A-Pallete | +1 (305) 913 2789 | apallete@kpmg.com

Eric Thompson | +57 (1) 618 8122 | ericthompson@kpmg.com

Vincente Torres | +57 (1) 618 8000 | vjtorres@kpmg.com

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