TAX REFORM IN COLOMBIA MAJOR CHANGES IN 2020

Last December 27, 2019, the Colombian Congress approved Law 2010 of 2019 (Economic Growth Law) in order to introduce tax changes for the year 2020.
This document will outline the most significant changes for our clients.

1. Alternative minimum income tax (“presumptive tax”)
   The taxable base of the alternative minimum tax will be gradually reduced to 0% starting in 2021: (i) for 2020 the rate is 0.5% of the last year’s net worth and (ii) for 2021 the rate is 0%. Taxpayers applying for the “simple tax regime” will not be subject to the alternative minimum tax.
2. Dividends Income tax on taxable dividends distributed to foreign entities, foreign individuals and permanent establishments in Colombia of foreign companies has been increased from 7.5% to 10%. Dividends paid to Colombian individuals, already taxed at the corporate level, are now taxable for income tax purposes at a rate of 10% (previously 15%), starting at 300 UVT.

3. Indirect transfer of legal entities and assets located in Colombia through purchase and sale of shares The regime applicable to the indirect transfer of legal entities and assets located in Colombia through purchase and sale of shares, introduced by Law 1943 of 2018, is maintained, however with the new law any future purchase and sale of shares will have a tax cost proportionally paid for the shares or participation of the foreign entity owning the Colombian assets. Additionally, in the case of international mergers and acquisitions, which involve indirect transfer of Colombian assets, the rules established in Art. 319-8 of the Colombian Tax Statute will apply.

4. Simple income tax regime The principles established by Law 1493 of 2018 in relation to the simple tax regime are maintained, however, taxpayers enrolled in this regime are now required to implement electronic invoicing within two (2) months following their enrollment.

5. Mega investments The tax regime applicable to mega investments is maintained but conditioned to the generation of 400 new jobs (previously 250). In addition, the taxpayer will have up to 5 years to complete the investment counted from the date of approval of the project. Mega investments may now also be in Free Trade Zones.

6. Deduction for first employment A deduction is created for the opportunity generator taxpayer for first employment of natural persons (under 28 years of age), allowing a deduction of 120% of all salary payments, and limited to 115 UVT.

7. Incentive for the development of the Colombian countryside Under the previous law, companies were required to be domiciled in the corresponding municipality where the investment was made; now the tax incentive is not conditioned to this particular requirement.

8. Excise tax Excise tax on the sale of real estate is eliminated.

9. VAT on the importation of goods produced abroad or in free trade zones The taxable base on the importation of goods produced abroad or in free trade zones with Colombian components may now be reduced by the incorporated value of raw materials and services on which VAT has already been paid.

10. Income tax of individuals providing independent professional services Contractors (individuals) who obtain income from fees or any type of compensation for personal services are now entitled to subtract the costs and expenses incurred. Previously, this possibility was exclusive to individuals who obtained income from capital and non-labor income.