COLOMBIA Law and Practice Contributed by: Rodrigo Castillo Cottin, Ana María López and Alejandra Becerra, Rimon, P.C.
• dividends not exceeding an amount of 1,090 Tax Units (approximately USD12,997) are subject to tax withholding at a 0% rate; and • dividends exceeding 1,090 Tax Units (approxi - mately USD12,997) are subject to tax withholding at a 15% rate. Individuals are also able to apply a 19% marginal tax credit upon their dividends’ taxable income exceed - ing 1,090 Tax Units (approximately USD12,997) within their annual income tax return. Tax withholding mechanism applicable to non- resident individuals and foreign entities Payments to foreign entities and/or non-resident individuals are generally subject to tax withholdings according to their nature, as follows. • Direction or management fees paid directly or indi - rectly to parent companies or home offices: 33%. • Technical services, technical assistance or con - sulting services, rendered in Colombia and from abroad: 20%. • Interest, fees, rental income, royalties, exploitation of software, services and, in general, all personal service compensation deemed as Colombian source income: 20%. • Interest when loans are granted for one year or more: 15%. • Capital gains: 15%. • Dividends: 20%, subject to the rules described above in connection to dividends paid out of taxed and untaxed profits. • Payments made to non-resident individuals and foreign entities with a significant economic pres - ence in Colombia: 10%. If Colombian-sourced payments are not subject to income tax withholdings, the foreign entity or indi - vidual will be required to file an income tax return in Colombia. However, if income tax withholdings are applied in their entirety, this will be the final tax liability. Tax treatment of payments made abroad may change if a double taxation treaty applies. Therefore, analysis should be carried out on a case-by-case basis.
Currently, Colombia has 14 enforceable double taxa - tion treaties: with the Andean Community of Nations (Bolivia, Ecuador and Peru), Canada, Czech Republic, Chile, Spain, South Korea, Switzerland, India, Portu - gal, Mexico, the United Kingdom, Italy, Japan and France. Controlled foreign corporations – CFC Regime Colombian income taxpayers are required to report, within their income tax returns, passive income earned through controlled foreign corporations (CFCs). Any entity being controlled by one or more tax resi - dents in Colombia (subordinated or related parties) and not being deemed as domiciled or resident in Colombia, may be deemed to be a CFC for tax pur - poses. In order to determine the existence of con - trol, the definition of subordinate entities and foreign related parties applicable for transfer pricing purposes must be observed. Note that there is a presumption of control when the entity is in a tax haven. Once the entity is deemed to be a CFC, any individual or entity with a direct or indirect participation of 10% or more in the capital stock or results of the CFC must include in their income tax return the income, minus costs and expenses related to the passive activi - ties carried out by the CFC, and pay tax on it. If the CFC’s passive income represents 80% or more of the entity’s income, it is presumed that all income, costs and deductions would be considered as passive and therefore would be subject to the CFC regime. Con - versely, if the CFC’s active income represents 80% or more of the entity’s income, it is presumed that all income, costs and deductions would be considered as active and therefore would not be subject to the CFC regime. Passive income is considered as income derived from: • dividends, interest or financial income; • the transfer or exploitation of intangible assets, disposals or assignment of rights over assets that generate passive income; • the sale or lease of real estate, the purchase or sale of tangible assets acquired or alienated from, for or on behalf of a related party, that are produced
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