Corporate taxes: what are they and what type should the company pay?

The Ministry of Finance and Public Credit is the entity in charge of establishing the tax management processes. This time the summary will deal with corporate taxes, a critical issue for business creation in Colombia.

Corporate or business income tax

National companies established in Colombia under the applicable legislation, are obliged to file income tax. Non-resident foreigners are obligated only on the income they generate in the country. The current general rate for the tax is 31% in the current fiscal year 2021. This rate will be reduced to 30% in 2022 progressively. The rate is applied on the taxable amount.

Taxable income is generally defined as the remainder of operating and non-operating income after reduction of expenses and deductibles. The recurring costs and expenses of a business are normally considered acceptable and deductible expenses for income tax purposes. Provided that these expenses and deductibles are necessary, reasonable and have been exercised during the corresponding fiscal year under the accrual and cash method of accounting, as applicable.

The current general tax rate on capital gains is 10%.

Authorized businesses located in free trade zones enjoy a reduced rate of 20%, although it remains subject to cases in which the 10% capital income tax is applied.

International income accrued by non-resident entities that can be attributed to subsidiaries and permanent establishments will have a tax of 31% for fiscal year 2021 or 10%, depending on whether the income will be treated as ordinary income or capital income.

Presumptive income tax

Those obliged to pay income tax must pay a minimum amount of income tax until fiscal year 2020, which was determined using the estimated income method. Under this criterion, the income with estimated tax was determined as 0.5% of the net assets as of December 31 of the previous year, in accordance with the information presented by the taxpayer in the return of income tax for that year. However, for fiscal year 2021 its application will no longer be considered.

The nominal income tax rate will then be applied to the greater of regular taxable income (income minus deductible costs and expenses) or estimated taxable income (with exemption from certain business activities).

Income tax for equality

This tax was repealed in the tax reform of 2016, however, there are still minimum surpluses of that base (taxable income of the tax minus the minimum base of the same) that must be adjusted for fiscal years 2017 and following, with respect to the period of five years from the moment in which said surplus was generated.

Stability agreement regime

As of January 1, 2013, the legal and fiscal stability framework was repealed. Applications under consideration will be accepted and approved if they meet the applicable requirements. Any agreements already executed will continue to apply until their expiration.

Local income taxes

In addition to the income tax, there is a local municipal tax burden, which is called the industry and commerce tax.

While setting up companies, it is important to know the tax obligations the incorporated company will be subject to, if you have any questions, questions, doubts or require more information on the tax issue it is best to go to a tax advice.