Simple Tax Guide for Americans in Colombia
US Expat Taxes - Colombia
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Colombia for over 5 years. Our clients hail from all parts of the country - Bogota and Cali, Medellin and Barranquilla, Cartagena and Cucuta.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Colombia and know how to integrate your U.S. taxes into the local income taxes you pay. Any Colombian income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Colombia for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Colombian Tax System for the American Expatriates.
Colombia income tax rates are progressive up to 39%. Non-residents are liable for income tax at a flat rate of 35 percent. This is currently the maximum tax rate for residents and is applied on income earned over COP1,062,370,000 for the 2019 tax year.
Tax Basis – Individuals are subject to personal income tax at a top rate of 39%.
Tax Residence – An individual is resident for tax purposes if he/she is present in Colombia for more than 6 months in the tax year (continuous or otherwise) or, if outside Colombia, the individual's family is in Colombia (this does not apply to foreigners).
Resident individuals are taxed on worldwide income, while nonresidents are taxed only on their Colombia-source income.
Tax Filing status – Residents in Colombia are required to file income tax returns unless their income or total net assets do not exceed a limit imposed annually by the government. For employees who do not file returns, taxes are deducted at source by the employer.
Taxable income – Most income is subject to taxation, including capital gains (see below).
Pension fund contributions are not taxed and 25% of all labour income is exempt.
Capital gains – Capital gains (such as inheritances, gifts and proceeds from the sale of real estate) are subject to tax. However, proceeds from the sale of shares through a stock exchange are not considered occasional earnings and are thus tax exempt.
Tax Deductions and allowances – Colombia provides deductions and allowances related to education and health expenditure and the purchase (and related interest) of a residence. Health allowances are solely available for workers earning less than COP 96 million, while deductible mortgage interest is limited to COP 25 million.
Other taxes on individuals:
Capital duty – No (but see discussion on registration tax under "Other" in the corporate tax section).
Stamp duty – The stamp duty is 0% in 2019.
Capital acquisitions tax – Capital gains derived from an inheritance or a gift are treated as ordinary taxable income.
Real property tax – Real estate is subject to municipal taxation, which is usually levied at rates within a band of 1 to 16 per thousand based on the value of property without regard to the number of owners or the taxpayer's personal wealth.
Inheritance/estate tax – Gifts are treated as capital gains and subject to tax as ordinary income.
Net wealth/net worth tax – A presumptive minimum income is calculated annually at the rate of 3% on the taxpayer's net worth held in the year immediately preceding the taxable year at issue. Certain assets may be excluded from this calculation, such as shares in Colombian companies and the individual's residence (up to a certain maximum value). Taxpayers with assets valued at more than COP 3 billion also are assessed a 1.2% assets tax.
Social security – The employee amounts are 3.875% and 4% of salary for pension and health contributions, respectively.
Administration and compliance:
Tax year – Calendar year
Filing and payment – Tax on wages is withheld by the employer and remitted to the tax authorities. The individual must file a tax return depending on gross income (labour or other income) and/or gross assets.
Tax Penalties – The penalty for late filing amounts to 5% per month of delay up to 100% of the tax or withholding tax due. The penalty imposed increases to 10% per month with a 200% ceiling in the case of late filing and a summons by the tax authorities.
Interest for late payment also is charged. The penalty for amendments is 10% of the additional tax per month.
Colombia Corporate Tax Rates
Colombia corporate tax rate is 33% for FY 2019, it will decrease up to 30% in 2022 in a progressive way (32% for FY 2020 and 31% for FY 2021). This rate is applied upon taxable income.
Residence – A corporation is resident if it is organised under Colombian law or has its main domicile in Colombia.
Basis – Colombia taxes resident companies on worldwide income. Foreign companies and entities and branches of foreign companies are taxed only on their Colombiasource income.
Taxable income – Taxable income is defined as gross income less returns, rebates, discounts, all ordinary costs incurred in obtaining net income and all allowable deductions. Corporate taxpayers may deduct costs that are "necessary and proportionate to the activities performed" in computing taxable income.
Taxation of dividends – Dividends are taxed at the 33% corporate rate if the profits from which the dividends are paid were not subject to tax at the corporate level. Otherwise, the dividends are exempt.
Capital gains – Capital gains derived from the sale of assets held for 2 years or more are subject to capital gains tax. Otherwise, gains are treated as ordinary income.
Losses – Losses may be carried forward without limitation. No carryback is allowed.
Tax Rate –33%
Surtax – No Surtax.
Alternative minimum tax – A presumptive minimum income is calculated annually at a rate of 3% on the taxpayer's net worth held in the year immediately preceding the taxable year. Certain assets, such as shares in Colombian companies, may be excluded from this calculation.
Foreign tax credit –Taxpayers may credit foreign tax paid on foreign-source income, provided the foreign tax does not exceed the Colombian tax that would have been due on the same income received from abroad. For the credit to apply, the taxpayer must be a company resident in Colombia, its foreign income must be taxable in Colombia and the income taxes paid abroad may not exceed the Colombian tax attributable to the income.
Participation exemption – See under "Taxation of dividends" for the treatment of domestic dividends. The participation exemption does not apply to foreign dividends - foreign dividends distributed or credited to a resident company are includible in the recipient's taxable income.
Holding company regime – No
Incentives – Incentives include a special free trade zone regime with a corporate income tax rate of 15%; a 40% tax deduction for investments in fixed assets; the availability of legal stability agreements; and deductions for environmental and scientific investment.
Dividends –Dividends paid to foreign companies or entities not domiciled in Colombia may be remitted abroad free of tax if the profits from which the dividends are paid have been taxed at the corporate level. Otherwise, tax is imposed at the 33% corporate tax rate.
Interest – Interest paid to nonresidents is subject to a final withholding tax of 33%.
However, interest derived from the following is exempt: short-term import credits and overdrafts; credits to finance or pre-finance exports; credits obtained by financial corporations and authorised banks; credit for trade transactions obtained through financial corporations or authorised banks; and credits obtained by foreign, mixed or domestic companies whose activities are considered beneficial to national economic development under guidelines set by the National Council on Economic and Social Policy.
Royalties – Royalty payments made to nonresident companies are subject to a final withholding tax of 33%. Royalties derived from the exploitation of software are subject to the 33% tax, but only on 80% of their amount.
Branch remittance tax – No Branch remittance tax
Other taxes on corporations:
Capital duty – No (but see discussion on registration tax under "Other" section).
Payroll tax – Employers must contribute 4% of their monthly payroll to a family subsidy and 3% to the Institute of Family Welfare, together with an additional 2% contribution to the National Apprenticeship Service. The contribution is deductible and may be reduced for companies that have their own training program.
Real property tax – Real estate is subject to municipal taxation, usually levied at rates within a band of 1 to 16 per thousand based on the value of property without regard to the number of owners or the taxpayer's personal wealth.
Social security – The employer's contribution for pay-related social insurance is 8.5% of salary for health insurance, 11.625% for the general pension scheme and a percentage (which varies by job type) for work accident insurance. The employer also must withhold and remit the employee's share of social security contributions.
Stamp duty – The stamp duty is 0%.
Transfer tax – See under "Stamp duty".
Other – Registration tax applies to documents (e.g. legal acts, bylaws, etc.) registered with the Chamber of Commerce (0.3% to 0.7%) or the Registry of Public Deeds (0.5% to 1%), calculated on items such as subscribed capital, transaction amounts stated in the document to be registered or the appraisal value of immovable property. Relief is provided if a document or act is subject to both registration tax and stamp duty (although stamp duty will not be levied) or to registration in both the Chamber of Commerce and the Registry of Public Deeds (in which case the public deeds levy is imposed).
A municipal Industry and Trade Tax ranging from 0.2% to 1% is levied on gross receipts derived from the carrying out of industrial, commercial and service activities within a municipal territory; taxpayers with assets valued above COP 3 billion are assessed a 1.2% assets tax.
A 0.4% financial transactions tax is imposed on withdrawals from checking and savings accounts, including accounts with the Central Bank.
Transfer pricing – Colombia's transfer pricing regime is based on the OECD transfer pricing guidelines, with the arm's length principle applying in setting base prices and profit margins on transactions with foreign related parties. Advance pricing agreements may be negotiated with the local tax authorities. Taxpayers engaged in related party transactions must file an annual return and, as a general rule, prepare a study (however, there is no filing requirement).
Thin capitalisation – No
Controlled foreign companies – No
Other – No
Disclosure requirements – No
Administration and compliance:
Tax year – Tax year in Colombia is the calendar year
Consolidated returns – Consolidated returns generally are not allowed, except for transfer pricing returns where more than 1 entity in a group of companies must file a transfer pricing return.
Filing requirements –A self-assessment system applies, under which all companies must complete a tax return and compute their own liability. Returns must be filed by deadlines, which are specified annually (generally April-May) and vary depending on the type of taxpayer and the last digit of the taxpayer's tax ID number.
Tax Penalties – Penalties for late filing amount to 5% per month of delay up to 100% of the tax or withholding tax due. The penalty imposed increases to 10% per month with a 200% ceiling for late filing and a summons by the tax authorities. Interest for late payment also is charged. The penalty for amendments is 10% of the additional tax per month.
Rulings – Rulings are available on direct taxes and APAs may be negotiated under the transfer pricing rules.
Colombia Value Added Tax (VAT) Rates
The standard rate of VAT in Colombia is 19%. The general VAT rate for the importation of goods is 19%, and the customs duties range between 0% and 20%.
Colombia Value Added Tax is levied on taxable supplies of goods and services by a taxable person within Colombia and on the importation of goods into Colombia by any person. Exports (and some specific items) are zero rated.
Reduced VAT rates: certain sales of new real estate; cotton; timber; certain foodstuffs; agricultural supplies; agricultural insurance; medical insurance; electric and hybrid vehicles; cleaning; coffee
Zero: Exports; livestock; meat; certain foodstuffs; sales of tourism packages to foreign visitors; certain books and magazines; some military and police equipment; sales to Colombian free trade zones