How to choose the ideal tax regime for your company in Colombia

Starting a business in Colombia is an exciting step full of opportunities, but it also involves making key decisions that will directly affect the direction of your business. One of the most important—and one that often generates many questions—is choosing the appropriate tax regime. This choice not only determines how much tax you’ll pay, but also how you file your returns, your administrative burden, and, in many cases, the long-term financial viability of your business.

In this article we will explain to you in a clear and simple way. What are the tax regimes available in Colombia, who they apply to, and how to choose the one that best suits your business. If you are in the process of How to register a company in Colombia, this information will help you make more strategic decisions from the start.

What is a tax regime and why is it so important?

The tax regime is the set of rules that determines how a company should declare and pay its taxes. In Colombia, there are different regimes, designed to adapt to the size of the business, its economic activity, and income level. Choosing the right regime. It can save you money, time and a lot of headaches..

It’s not just about paying less tax, but about paying the right amount, complying with the law, and maintaining a healthy financial operation that allows you to grow sustainably.

Main tax regimes in Colombia

Ordinary Regime

It is the most common regime for medium-sized and large companies, or for those that exceed certain income levels.

Key Features:

● It applies primarily to legal entities or individuals with income exceeding 100,000 UVT (Tax Value Units) per year.

● Requires keeping complete accounting records.

● It is subject to income tax rates of 35% for legal entities (according to Law 2277 of 2022).

● You must declare VAT, withholding tax, and submit complete financial statements.

Example: If you have a technology company with annual revenues exceeding $5 billion pesos, you should probably be included in the Ordinary Regime, since you are required to maintain formal accounting and comply with all traditional tax responsibilities.

Simple Taxation Regime (RST)

Created as an alternative to simplify tax compliance for small and medium-sized businesses, the RST has gained popularity since its implementation.

Advantages:

● Consolidate several taxes into a single payment: income tax, VAT, ICA, and others.

● Reduction of administrative burdens.

● Progressive rates between 1.8% and 14.5%, depending on economic activity and income level.

● You are not required to withhold at source.

Apply for:

● Natural or legal persons with income up to 100,000 UVT per year.

● Companies that provide services, sell products or carry out commercial activities.

Example: A restaurant with annual revenue of $300 million could qualify for the RST, benefiting from a reduced fee and reduced administrative burden.

Other special regimes

In addition to the Ordinary Regime and the RST, there are other specific tax figures for certain sectors or conditions:

● Special Income Tax Regime: For non-profit organizations, foundations and associations.

● Not responsible for VAT: Small businesses or entrepreneurs with incomes of less than 3,500 UVT per year.

● Free Trade Zones: Companies located in areas with special tax benefits, subject to reduced income tax rates.

How do you know which regime is best for your company?

Key factors to consider

1. Income level: Does your company invoice more or less than 100,000 UVT per year?

2. Type of economic activity: Not all activities apply to the RST.

3. Legal nature: Are you a natural person with a business or have you formed a company?

4. Administrative capacity: Do you have an accountant or accounting software that allows you to keep detailed records?

Quick comparison

Frequently asked questions about tax regimes in Colombia

Can I change my tax regime after starting my business?

Yes, in Colombia it is possible to change tax regimes, but there are certain requirements and deadlines you must follow. The change can be made at the beginning of each fiscal year, within a period determined by the DIAN. If your income or your company’s activity changes, you can choose to change the regime to better adjust to your new conditions. However, the process is not automatic, so you will need to submit a formal application before the DIAN and comply with the established formalities.

In addition, when changing tax regimes, you must be prepared to adjust your accounting and tax processes according to the new obligations corresponding to the regime you are adapting to. This process may require the assistance of a specialized accountant to guide the entire process and ensure the change is carried out correctly.

What happens if I choose the wrong regimen?

Choosing the wrong tax regime can lead to a series of problems that will affect not only your finances, but also your relationship with the DIAN. If you choose a regime that doesn’t correspond to your type of business, you could be paying more taxes than necessary, which would affect your cash flow and profitability. On the other hand, if you choose an inappropriate regime for a larger or more complex company, you could face penalties for non-compliance with tax regulations.

Additionally, if you fail to file or pay your taxes correctly, you could receive additional penalties and interest. For this reason, it is crucial. Carefully evaluate your economic activity, your income and the characteristics of your company to ensure that the regime you choose is the most appropriate. A tax advisor can help you avoid these problems and make the change when necessary.

Is the Simple Regime the best for all entrepreneurs?

Although the Simple Taxation Regime. While it is an attractive option due to its lower administrative burdens and progressive rates, it is not the right regime for all entrepreneurs. While it can be very beneficial for small and medium-sized businesses, especially those with annual revenues below 100,000 UVT, this regime is not applicable to all types of economic activities. Some activities, such as the provision of financial services or high-volume activities, are not eligible for this regime.

On the other hand, it is important to keep in mind that although the Simple Regime is simpler, it may not always offer you the best tax option. If your company has high profit margins or is growing, it’s advisable to consult with an expert to see if this regime fits your long-term projections and whether it will help you effectively optimize your tax burden.

What role does an accountant or tax advisor play?

An accountant or tax advisor plays a fundamental role when choosing the right tax regime. They help you evaluate your company’s tax situation and guide you through the process of complying with DIAN regulations. They will also assist you in the correct application of tax deductions and benefits available for your company depending on the tax regime you are subject to.

Accountants also help you to optimize your finances, making sure you don’t pay more taxes than you should, and keep all your accounting documents up to date, avoiding penalties and fines. Professional advice is vital for making informed decisions about your tax regime and fulfilling all your tax obligations without complications.

Conclusion: Get informed before you decide

Choosing the ideal tax regime. It is not a minor decision. It affects your taxes, your operations, and your company’s financial future. If you’re in the process of starting a business in Colombia, make sure you have all the information you need to make an informed and strategic decision.

Final advice: Consult with an expert who can guide you through the analysis of your financial and business situation. Don’t improvise with your tax regime: a well-made decision today can be the foundation for your business’s success tomorrow.