Colombian government presents tax reform bill

August 2022

In brief

The leader of the left-wing coalition ‘Pacto Histórico,’ Gustavo Petro, took office as the 61st Colombian president on August 7.

Within a day of inauguration, the executive branch presented a new tax reform bill (the tax reform bill), which has the intended goals of making the Colombian tax system more egalitarian, progressive, and efficient. The government hopes to meet these goals through provisions focused on taxing high-net-worth taxpayers, preventing tax evasion and avoidance, and promoting the improvement of the public health system and the environment. 

The government’s expectation is for the bill to be passed before year-end. If this happens, then most of the bill’s provisions would become effective January 1, 2023. 

Observation: Colombia is proposing significant changes to its tax legislation as part of President Petro’s agenda. Although the opposition party does not currently represent more than 20% of the Colombian Congress, the president’s party on its own does not have a majority in Congress. Given the current political environment, the bill is expected to be subject to debate, from both technical and political standpoints. Accordingly, certain provisions of the proposed bill may change during the discussion in Congress.

Action item: Taxpayers should monitor the progress of the bill through the legislative process. 

Selected aspects of the tax reform bill

The Tax Reform Bill includes key corporate tax measures, some of which are outlined below:  

Corporate income tax (CIT)

  • Increase of the capital gains tax rate to 30% from the 10% rate currently applicable to, among other transactions, the transfer of fixed assets held for at least two years. 
  • A limit on the amount of certain nontaxable income items, special deductions, and tax credits to 3% of the taxpayer's net income.
  • The following items, which currently are nontaxable, would become taxable:
    • Profits from the sale of Colombian-listed shares (currently exempt when the shares are held by a single individual and do not represent more than 10% of the total outstanding shares).
    • Profits from the trading of financial derivatives, the underlying assets of which are listed shares, index funds, or collective portfolios.
    • Dividends distributed in shares or capitalization of the revaluation account.
    • Distributions in shares or capitalization of profits that exceed the threshold of nontaxable income as set out in Sections 48 and 49 of the Colombian Tax Code.
    • Yields from security bonds.
  • Replacement of the current 50% partial credit for Industry and Trade Tax (ICA per its initials in Spanish) with a deduction.
  • The temporary 3% CIT surcharge currently applicable to certain financial entities would become permanent.
  • Introduction of a minimum annual exportation requirement to qualify for the reduced 20% CIT rate applicable to qualified Free Trade Zone (FTZ) users.
  • Increase of the CIT rate applicable to single-company FTZ’s from 20% to 35%.
  • Increase of the CIT rate for the hotel industry from 9% to 35%.
  • Repeal of a preferential tax regime applicable to taxpayers making substantial investments in Colombia, known as the mega-investment regime.

International taxation

  • Broadening the concept of effective place of management to include day-to-day activities in Colombia, as opposed to testing only the place where key decisions are made. Under the proposed new rules, the effective place of management of a company would be the place where the necessary commercial and managerial decisions are materially made in order to carry out the activities of the company on a day-to-day basis.
  • Adoption of a new form of tax presence for nonresidents with a significant economic presence. According to the proposed new rules, a significant economic presence would be triggered whenever the nonresident surpasses certain thresholds related to the amount of income from transactions involving goods or services with Colombian entities, the use of a Colombian website or .co domain, or the maintenance of a certain number of customers in the country. 

Dividend taxation 

  • Increase of the withholding tax rate applicable to dividend payments to nonresidents from 10% to 20%.

Wealth tax

  • Re-introduction of the wealth tax. In addition to resident and nonresident individuals, this tax would apply to nonresident entities that do not file CIT returns and have Colombian assets (other than shares, accounts receivables, portfolio investments and certain other assets) with a net equity exceeding 72,000 Value Tax Units (approx. US $700,000). 
  • The wealth tax would apply at progressive rates ranging between 0.5% and 1% and would not be deductible for CIT purposes.

Oil, gas, and mining taxation

  • Elimination of the current deduction of exploitation rights (so-called ‘royalties’) paid on the production of oil, gas, and mining activities.
  • Repeal of the reimbursement tax certificate (CERT) for oil, gas, and mining companies.
  • Repeal of the transitional five-year straight-line amortization allowance for the oil and mining industry.
  • Broadening of the carbon tax scope to include the sale, importation, and withdrawal of thermal coal (exportations would remain exempt). There would be a progressive increase of the tax rate up to COP $52,215 /ton (approximately US $12.5/ton) by FY 2028.
  • Introduction of a new monthly 10% export tax applicable to exports of crude oil, carbon, and gold, subject to certain thresholds.

‘Green’ and corrective taxes

  • Introduction of a tax on single-use plastic products for packaging. The taxable base would be the weight in grams of the single-use plastic container or packaging.
  • Introduction of a tax on the consumption of ultra-processed sweetened beverages. The applicable rate depends on the sugar content per 100 ml of beverage up to $35 Colombian Pesos of tax per product. 
  • Introduction of a tax on the consumption of ultra-processed food products with a high content of added sugars.

Grandfather rules

  • Adoption of grandfathering rules applicable to taxpayers enjoying tax incentives or benefits that phase out under the proposed legislation.

Contact us

Maria Bel

Director and International Tax Services, PwC US

Follow us