COLOMBIA Law and Practice Contributed by: Rodrigo Castillo Cottin, Ana María López and Alejandra Becerra, Rimon, P.C.
have to report in their income tax any passive income of the CFC, as if it was directly received by them. 3.4 Exercising Control Over Irrevocable Planning Vehicles In Colombia, there are no civil or commercial regu - lations regarding the establishment of irrevocable foreign trusts, private foundations and/or similar enti - ties. However, foreign entities have been recognised by Colombian tax authorities and may be used as structures to administer private wealth and circumvent forced heirship rules in Colombia. Over the last decade, Colombia has implemented various anti-abuse rules forcing settlors and ben - eficiaries to report any irrevocable structures due to the exchange of tax information with more than 65 jurisdictions, ultimate beneficiary reporting rules, PEM rules, CFC rules and the recognition of low-taxation jurisdictions. Concerning irrevocable trusts, foundations or similar entities, the most recent tax reforms (Law 2010 of 2019, Law 2155 of 2021 and Law 2277 of 2022) have included reporting tax regulations. As a result, if the underlying assets of an irrevocable and discretionary foundation cannot be attributed to the beneficiaries, the settlor, contributor or originator must report the latter. But, if a settlor cannot be identified or deter - mined, the reporting obligation falls on the beneficiar - ies, irrespective of whether they are conditioned or have control over the assets and income of the struc - ture. This is the case, without any consideration of the structure’s irrevocable and discretionary character. When implementing irrevocable trusts, foundations or similar entities, anti-abuse rules should be observed. This means that both the irrevocability and discretion - ary character of the structure should be real and easily provable to the CTO.
individual’s personal estate, providing asset protec - tion from third parties or creditors. Individuals may also place assets held in their own names into a local trust in order to designate them or their proceeds to a specific purpose or persons. The assets placed into a properly structured local trust form an estate separate from the assets of the settlor. In structuring asset transfers, whether or not gratui - tously made, attention should be paid to Colombia’s creditor protection laws. The Colombian Commercial and Civil Codes include specific rules on the enforce - ment of a revocation action ( acción revocatoria ) against the unjustified actions performed by debtors prior to the request of a treaty process, a mandatory liquidation process or a restructuring process. Further asset protection can be obtained through an enforceable investment agreement with the following jurisdictions: • bilateral investment treaties – China, Spain, Swit - zerland, Peru, India and the United Kingdom and Northern Ireland; and • free trade agreements (investment chapters) – Can - ada, Chile, the European Free Trade Association (Switzerland, Liechtenstein, Iceland and Norway), Costa Rica, the EU, Mexico, the North Triangle (Guatemala, El Salvador and Honduras), the Pacific Alliance (Chile, Mexico and Peru), South Korea, the USA, Israel and the recently signed treaty with the United Kingdom. 4.2 Succession Planning In Colombia, a testator only has an unlimited right of disposal over the half of their estate that corre - sponds to the freely disposable portion. The testator may decide the beneficiary of the assets comprising the remaining half of the estate, but must respect the compulsory portion that corresponds to their heirs. Certain corporate arrangements (national or foreign), involving life insurance policies and the use of foreign or national legal entities/structures, may be imple - mented when forced heirship rules do not meet the wishes or needs of the testator or their family. These arrangements can be achieved by legally allowing
4. Family Business Planning 4.1 Asset Protection
The most popular method for asset protection plan - ning is the incorporation of a separate vehicle from the
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