New tax rules for non-profit entities in Colombia, 2018
According to the recently adopted Law 1819 of 2016 in Colombia (tax reform) and its regulatory decrees important changes were included for non-profit entities such as associations, corporations, foundations or NGOs in order to give the tax authority DIAN more control rights.
Now non-profit entities are subject to more and new requirements under the control of DIAN. Basically they are considered as “public utility institutions” with “public benefit intention” and only these entities will have the tax benefits. By complying with the requirements of the DIAN the non-profit entities can continue to have the status of “Special Tax Regime” which before was decided and registered by each entity but now must be accepted by the DIAN. The new requirements for the DIAN are:
- Be legally registered, existing and organized
- The corporate purpose must be of general interest and the community must have access to its activities.
- That neither its contributions nor its surpluses are distributed directly or indirectly during its existence, nor at the time of its dissolution or liquidation.
As a first step the nonprofit entity must update its RUT before January 31, 2018 if it was incorporated during 2017 and before April 30, 2018 if it was incorporated before 2017.
The nonprofit entity must submit an annual evaluation and annual control report to the DIAN if the requirements are still met. Entities with annual income over 160,000 UVT (approx COP 5,097,440,000) must submit an Economic Report to the Statutory Auditor Division,
von Bila de la Pava Bertoletti–ABOGADOS
including management, a statement from the legal representative and the statutory auditor
on compliance with the RTE requirements, a copy of the income tax return and the
update of the information in the transparency platform.
Non-profit entities may continue to be incorporated in traditional fields such as health activities
sports, formal education, culture, technology, ecology, environmental protection or social development.
social.
Donations from private third parties continue to have the same tax benefits as before. If the increase in income cannot be referred to outside donations, they will be taxed at the normal tax rates (for transparency purposes).
The profits of the nonprofit entity will be exempt from taxation if they are directly or indirectly allocated, in the fiscal year following the year in which they are obtained, to programs that pursue the
corporate purpose and activity of the nonprofit entity. Otherwise, the IRPF tax rate on the excess profit will be 20%.
Payments for services, fees, rents, commissions, extraordinary bonuses or other concepts to legal representatives, legal representatives and administrators must be made at average market prices and the contracts that originate such payments must be registered before the DIAN Tax Directorate, so that this entity may determine if it is an indirect distribution of surpluses.
The aforementioned payments may be made below average market prices, provided that the transactions are intended for the performance and development of the entity’s own activities.
When the non-profit entity has an annual gross income of more than 3500 UVT (approx. 111,506,500), the budget destined to remunerate, compensate or finance any expense, through payroll, hiring or commission, to natural persons who hold directive and managerial positions, may not exceed 30% of the total annual expense of the respective entity.
If the rules of the tax legislation are ignored or violated, the organization may be excluded from the “Special Regime” with the consequent loss of tax benefits. The non-profit organization may apply for readmission to the “Special Regime” only after 3 years from its exclusion.
