COLOMBIA Law and Practice Contributed by: Rodrigo Castillo Cottin, Ana María López and Alejandra Becerra, Rimon, P.C.
Dividends paid out of profits taxed at the corporate level will be subject to a 20% tax rate. In the event dividends are paid out of profits that were not taxed at the corporate level, these will be subject first to the general tax rate applicable to local entities and then to the 20% dividends tax indicated above. The lat - ter is applied once the general income tax has been reduced. Colombian entities The general income tax rate applicable to Colombian entities is 35%. Dividends paid to Colombian entities out of profits already taxed are subject to a 10% income tax rate. In the event dividends are paid out of untaxed prof - its, these will be subject first to the general tax rate applicable to local entities and then to the dividend tax of 10% indicated above, which applies to the net dividend amount once the general income tax rate has been applied. The estimated effective tax rate for dividends derived from untaxed profits is 41.5% for FY 2025 onwards. Foreign entities As in the case of non-resident individuals, income tax derived from foreign entities is generally collected through a tax withholding mechanism, the filing of an income tax return or by a combination of both. The general income tax rate applicable to foreign entities liable to file an income tax return in Colombia is the same as that applicable to Colombian entities (35%). In the case of dividends, the rules described for non- resident individuals are also applicable to foreign enti - ties. Determination of taxable income (special rules) Basket system applicable to resident individuals Resident individuals are subject to a basket system, where income is characterised in different baskets with the following determination rules. General basket – this includes labour income, capital income and non-labour income. The following exemp -
tions, reliefs or deductions are available for determin - ing taxable income in this basket: • Revenues deemed as non-taxable income: (a) mandatory social security contributions; and (b) voluntary contributions to the individual’s pen - sion saving scheme without exceeding 25% of the individual’s annual income, limited to 2,500 Tax Units (approximately USD29,810). • Deductions: (a) 10% of labour payments made to individuals with dependants not exceeding 32 Tax Units (approximately USD382) per month or 72 Tax Units (approximately USD859) per dependant up to a maximum of four dependants; and (b) prepaid health insurance payments not ex - ceeding 16 Tax Units (approximately USD191). • Exempted income: (a) 25% of the total amount of labour income, not exceeding 790 Tax Units per year (approxi - mately USD9,420); and (b) voluntary pension funds and AFC accounts (income exclusively used for housing purchas - es) contributions not exceeding 30% of the individual’s annual income, limited to 3,800 Tax Units (approximately USD45,311). The above-mentioned tax benefits are applicable if they do not exceed 40% of the individual’s annual income limited to 1,340 Tax Units (approximately USD15,978). Pensions basket – pensions not exceeding 1,000 Tax Units (approximately USD11,924) are exempted. Any amount exceeding this amount will be subject to income tax at the general progressive tax rates. Dividends basket – dividends are taxed at the general progressive income tax rates. For dividends paid out of untaxed profits at the corporate level, these will be subject to the general tax rate applicable to local enti - ties, depending on the period in which they are paid or accrued. The progressive income tax rates will apply once the entity’s income tax rate is reduced. In addition, the following special tax withholding rules must be observed:
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