On 27 December 2019, Colombia has enacted tax reform law (Law 2010), which replaces the previous tax reform (Law 1943). The previous Law was held to be unconstitutional by the Constitutional Court on 16 October 2019 but was allowed to be in force until the end of 2019. The new tax reform has introduced certain changes and new provisions which are generally applicable from 2020. Key measures of the tax reform law are as follows:

Corporate Tax

The tax reform reduces corporate tax rate to 32% for 2020, it will decrease up to 30% in 2022 in a progressive way (31% for 2021).

The corporate tax rate for the financial institutions (taxable income exceeding approximately US$1.2 million) is reduced to 36% including 4% surtax for the fiscal year 2020, 34% including 3% surtax for the fiscal year 2021 and 33% including 3% surtax for the fiscal year 2022.

Presumptive income tax rate is reduced to 0.5% from 1% for the fiscal year 2020 and from 2021 with a rate 0%.

Withholding Tax

The tax reform increases the dividend withholding tax rate applicable to foreign non-residents individuals and companies to 10% from 7.5%. On the other hand the rate for resident individuals is reduced to 10% from 15%.

Normalization Tax

The tax reform introduces a new normalization tax with a 15% rate for year 2020. A reduced 7.5% rate may apply in certain cases.

Incentives

The tax reform creates new provisions to generate new job. A company must create 400 new jobs to qualify for mega investment benefits from.  Mega investment projects may occur in free trade zones, but investors involved in the evaluation, exploration and exploitation of nonrenewable natural resources are not eligible for the regime. The tax reform also introduces a deduction equivalent to 120% of salaries paid to employees for new employers conducting their first hiring of employees, provided certain conditions are met. The minimum investment amount is reduced from 25,000 UVT to 1,500 UVT.

Others

  • The tax reform extends the audit benefit to tax year 2021;
  • Amendment to the criminal law provisions related to tax matters ;
  • Eliminates the consumption tax applicable to the sale of immovable property;
  • Penalties for late filing of the return of overseas assets are reduced;
  • Creates an expert commission to study existing tax benefits;
  • VAT exemption on specific product.