COLOMBIA Law and Practice Contributed by: Rodrigo Castillo Cottin, Ana María López and Alejandra Becerra, Rimon, P.C.
Net Worth Tax Law 2277 of 2022 re-introduced a net worth tax appli - cable as of FY 2023 to individuals with large/high- value estates. Net worth tax is levied mainly on resident individuals but also on non-resident individuals with respect to the equity they own in Colombia, as well as non-resident entities, in respect to assets located in Colombia such as real estate, yachts, boats, art, aircraft or mining or oil rights (other than shares, accounts receivables, portfolio investments, and/or financial leasing con - tracts with entities or persons resident in Colombia). Net worth tax rate is 0.5% for the portion of the taxa - ble equity exceeding 72,000 Tax Units (approximately USD858,528) and 1% for the portion that exceeds 122,000 Tax Units (approximately USD1.45 million). A temporary additional tax rate of 1.5% applies during FY 2023 to 2026 upon the amount exceeding 239,000 Tax Units (approximately USD2.8 million). For the determination of this tax, the cost basis of the taxpayer’s primary residence could be excluded from the taxable base up to 12,000 Tax Units (approxi - mately USD143,088). Other Taxes The following taxes are also relevant to individual cli - ents, estates and foundations. Value-added tax – VAT VAT is triggered on the import of goods into the coun - try and rendering services when the direct user or recipient is located in Colombia. Certain goods (live - stock, certain fruits and vegetables, seeds and others) and services (catering services for companies, food preparation services or bar services) are excluded from VAT. The general rate is 19%, but certain goods and services are subject to a 5% rate (coffee, corn for industrial use, agricultural machinery, prepaid medi - cine plans, security services and temporal services). Industry and commerce tax A municipal tax is triggered on revenues derived from the performance of industrial, service and commer - cial activities within a Colombian municipality at an applicable rate of 0.7% to 1%. The tax is triggered
and used in a jurisdiction other than than where the CFC is domiciled; and • the provision of technical services, technical assistance, administrative, engineering, architec - tural, scientific, qualified, industrial and commercial services, for or on behalf of related parties in a jurisdiction other than where the CFC is domiciled. A CFC’s net profits from passive income must be rec - ognised in proportions equivalent to the taxpayer’s participation in the CFC’s capital or profits on an accrual basis and not a cash basis. Capital Gains Capital gains are defined as extraordinary income that is not related to the activities typically carried out by the taxpayer. The activities that trigger capital gains are specifically listed in the Colombian Tax Code (CTC) as follows: • gains from the direct or indirect sale of fixed assets that have been held by the taxpayer for two years or more; • profits obtained in the liquidation of legal entities, which do not correspond to undistributed profits or reserves; • gains resulting from inheritances, legacies and donations (gifts); and • prizes, awards, lotteries and gambling earnings. Life insurance indemnities are taxed as capital gains, but only on the amount that exceeds 3,250 Tax Units (approximately USD38,753). Distributions made by foreign trustees, private interest foundations or other similar fiduciary arrangements to Colombian tax residents are considered as gifts subject to capital gains tax. The tax rate applicable to capital gains is 15%. As an exception, gains from lotteries, draws and gambling are subject to a flat rate of 20%. Generally, the taxable base is the registered value of the assets or rights as of 31 December of the previ - ous year.
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