COLOMBIA Law and Practice Contributed by: Jaime Trujillo, Juan David Velasco, Natalia Ponce de León and Angelica Navarro, Baker McKenzie S.A.S.
Withholding Tax (WHT) The WHT system is a general mechanism of advance tax collection. All corporate entities are required to collect or withhold taxes from payments made to third parties. The WHT collection agents must collect the applicable WHT amounts, and every month must deposit the withheld amounts to the tax authority, file monthly WHT returns and issue WHT certificates to the withheld third parties. The withheld third parties, who are also subject to CIT declaration/payment, may credit the withheld taxes in their annual CIT return. The WHT rates vary depending on the nature of the payment. The general WHT rate on payments made to foreign non-residents is 20%. Value Added Tax (VAT) The standard VAT rate in Colombia is 19% of the invoiced amount. This tax is applicable to: • the sale of movable assets; • the provision of services in Colombia or from abroad (if the beneficiary is located in Colombia); and • the importation of assets or goods that have not been expressly excluded – certain services are exempt from VAT, such as medical services, educa - tional services, internet connectivity, and in some cases energy, gas and water utilities. Industry and Commerce Tax This is a municipal tax applicable to all individuals, legal entities and de facto companies who carry out industrial, commercial or service activities within the jurisdiction of the relevant municipality. The rates vary from 0.2% to 0.7% calculated over the gross income for industrial activities and 0.2% to 1.6% calculated over the gross income for commercial and services activities. National Stamp Tax This is an indirect levy triggered by the execution of certain legal acts, documents and contracts that gen - erate legal effects in the country. As a general rule, any private agreement may be subject to this tax, even if does not require the involvement of a notary or public authority. Dormant since 2010 (when its rate was reduced to 0%), the tax was temporarily reacti - vated by the government at a 1% rate by Decree 175
Employers are required to withhold the applicable income tax when the salary is paid to the correspond - ing employee. Both the employee and employer must make contribu - tions to the social security system. For the healthcare system, a contribution of 12.5% of the employee’s base salary must be made, of which the employee contributes 4% and the employer 8.5%. For the pen - sions system, a contribution of 16% of the employee’s salary must be made, of which the employee contrib - utes 4% and the employer contributes 12%. Employers must also make mandatory contributions to certain private and public entities that provide ser - vices to the community related to welfare, education and children’s rights (locally referred as parafiscales ), which collectively amount to 9% of the employee’s salary. 5.2 Taxes Applicable to Businesses The main taxes applicable to companies, and the cur - rent applicable rates, are as follows. Corporate Income Tax (CIT) The general CIT rate for 2026 is 35%. This tax is imposed on the total income (generated or not in Colombia) of the Colombian company (ie, compa - nies incorporated in Colombia, domiciled in Colom - bia or having their place of effective management in Colombia) and on the income of foreign non-resident companies generated in Colombia. An additional surcharge ranging from 5% to 15% is applicable to companies in the hydrocarbons and mining sectors. Industrial users of a free trade zone (FTZ) are subject to a special CIT rate of 20%. Since the 2023 fiscal year, local companies are subject to a minimum effec - tive tax rate of 15% of accounting profits. If the tax liability calculated on net taxable income results in an effective tax rate of lower than 15% of accounting profits, the taxpayer must increase the tax liability until it reaches the minimum. Capital Gains Tax In Colombia, a company must pay capital gains tax when it sells fixed assets held for two years or more or upon liquidation if the company was incorporated for a term of two years or longer, at a rate of 15%.
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