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Colombia: VAT registration proposed for non-resident service providers, digital services

Colombia: VAT registration, digital services

The Colombian tax authorities (DIAN) have proposed regulations concerning rules for value added tax (VAT) registration and compliance by non-resident service providers—including providers of digital services.

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DIAN published Resolution 000000 08-06-2018 (8 June 2018) as a proposal to provide registration and compliance requirements for administering VAT with respect to non-residents providing cross-border services in Colombia. The resolution proposes additional guidance on VAT withholding mechanisms established in the 2016 Colombian tax reform law as well as guidance on how the new “simplified registration and compliance system” would apply to non-resident cross-border service providers.  

Although currently in a draft or proposal form, the new rules are scheduled to be effective 1 July 2018. Taxpayers can provide comments about the draft rules through 24 June 2018.  

General scope of the proposed rules

The resolution primarily addresses a new simplified registration and compliance system under which a non-resident service provider must register as a VAT-payer and must also comply with other information requirements.  

The resolution also provides guidance on how the VAT withholding mechanisms would apply to non-resident service providers. The resolution, however, does not provide guidance to identify whether a service is provided within Colombia (and subject to VAT) or not provided within Colombia (and thus not subject to VAT). Rather, the resolution simply reiterates the “recipient’s location rule” as provided by law, under which a provided service is subject to VAT if the recipient or user has its tax residence, domicile, permanent establishment or site of economic activity in Colombia.

Interaction with VAT withholding mechanisms

The 2016 tax reform law in Colombia included two VAT withholding mechanisms.  

  • Under the “common regime,” Colombian entities that are registered for VAT purposes (e.g., because they provide services subject to VAT) must withhold VAT from non-resident service providers. The resolution proposes to exempt from this registration requirement any non-resident service provider that supplies services subject to VAT to Colombian customers that are not registered under the “common regime.” In this situation, the non-resident service provider is subject to the simplified registration and compliance system (described below).  
  • The second withholding mechanism is administered through financial institutions issuing electronic means of payment (for example, credit or debit cards and prepaid cards) and applies only to certain digital services (for instance, audiovisual services, online publicity). This withholding mechanism is not addressed in the resolution.

Simplified registration and compliance system

The resolution proposes to create a simplified registration and compliance system for non-resident service providers that are not subject to the withholding mechanisms (described above). The new system would apply to all non-residents providing services in Colombia, regardless of the value of such services. 

Under the simplified registration and compliance system, non-resident service providers would register online with the DIAN and would receive a taxpayer identification number (TIN). Once registered, non-resident service providers would submit bi-monthly tax returns if they conduct any transactions subject to VAT during a two-month period. The first bi-monthly period is July-August 2018.   

Taxpayers would have access to VAT forms online, and the DIAN will provide filing numbers and dates for purposes of submitting the return. VAT payments are to be submitted to an international bank account of the Colombian Treasury; however, the resolution does not provide specific guidance on how to execute or register payments.  

Additionally, non-resident VAT-payers are required to provide customers with supporting documentation that includes, inter alia, the following information:  

  • Name of the service supplier and the TIN of the jurisdiction of residence
  • Name and identification of the recipient or user of the service in Colombia
  • Specific description of the supplied service
  • Total value of the transaction (in Colombian pesos)
  • Inclusion of VAT paid (in Colombian pesos) 

In addition, services provided to Colombian customers must include VAT (generally, the VAT rate is 19%).   

 

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

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

Eric Thompson | + (571) 618-8100/ Ext. 1322 | ericthompson@kpmg.com

Maria Consuelo Torres | + (571) 618-8100/ Ext. 1271 | mctorres@kpmg.com

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