On 26 June 2019, the Government of Colombia published a Decree 1146 of 2019, concerning the new thin capitalization rules which amended the previous law 1943 of 2018. The new Decree 1146 of 2019 includes the following measures:
- The thin capitalization rules apply on specific related terms such as guarantee, back to back, transactions where related parties act are creditors, public services infrastructure, and transportation service infrastructure;
- In order to determine whether a company is a related party, taxpayers must, in accordance with Decree 1146, apply the related party definitions in the Colombian Transfer Pricing Rules.
- In addition, Decree 1146 contains the method of calculating whether a non-deductible and / or capitalizable interest rate exists. This methodology generally follows the methodology given in the previous regulations.
- If, due to the application of the restriction in the thin capitalization rule, interest cannot be capitalized, these are also non-deductible. In addition, the interest cannot be treated as an expense in any subsequent tax year.
- The decree also establishes the requirements and content of certification, which must be issued by the creditor in order to establish that the loan is not a debt of a related party. If the certificate is issued abroad, it must be apostilled. If it is not in Spanish, it must be officially translated by the Ministry of Foreign Affairs or an official translator.
- The certificate must be issued before the due date for filing the income tax return in which the taxpayer applies for interest deduction. The creditor may issue the certificate only once. If the loan is changed, a new certificate must be issued and the previous one retained.
The new law effective from 1 January 2019.
