Tax Guide: Know the Tax and Accounting Requirements in Colombia

If you are looking for a guide that allows you to know what the tax and accounting requirements are in Colombia for 2024, you are in the right article!

In this blog, we want to dive into the tax and accounting ecosystem in Colombia, highlighting the importance of understanding the various tax implications depending on the type of business entity established in the country.

From the frequency of tax returns to obligations related to pensions and health, we will guide you through the essential aspects that you must take into account if you want to set up a company in Colombia.

Overview of Accounting and Taxation in Colombia

The tax and accounting structure in Colombia is a fundamental pillar for the development and sustainability of companies within the country. This framework not only establishes the rules under which business entities and individuals operate, but also ensures equity and efficiency in tax collection, contributing significantly to the national economy.

The Colombian Tax and Accounting Structure

Colombia adopts an accounting system that is governed by International Financial Reporting Standards (IFRS), known globally by its acronym in English as IFRS. These standards provide transparency, consistency and comparability of financial information, thus facilitating commercial operations both locally and internationally.

In the fiscal field, the country has a complex tax system, which includes national taxes such as income tax, VAT (Value Added Tax), wealth tax, and municipal taxes, among others. This system seeks not only to generate income for the State but also to promote social justice and the redistribution of wealth.

Main Regulatory Entities and their Role in Colombian Taxation

Several entities play a crucial role in the regulation and supervision of accounting and taxation in Colombia. Among the most notable are:

1. The National Tax and Customs Directorate (DIAN): It is the body in charge of the administration of national taxes. The DIAN not only collects taxes but also combats tax and customs fraud, facilitating legitimate trade.

2. The Superintendence of Companies: Supervises corporate practices, ensuring that companies comply with accounting and auditing standards, thus contributing to transparency and trust in the market.

3. The Technical Council of Public Accounting (CTCP): Responsible for establishing accounting and auditing standards in Colombia, adapting IFRS to the local context and ensuring that accounting professionals maintain high ethical and technical standards.

Accounting Requirements in Colombia for 2024

It’s normal for the mention of accounting to immediately evoke thoughts about taxes. Regardless of whether you are a local resident or the leader of a multinational corporation operating in Colombia, it is essential to understand tax regulations to safeguard your financial interests.

Basic accounting ranges from the balance sheet and income statement to the cash flow statement, being fundamental for any entity.

Accounting Standards – NIFF/IFRS in Colombia:

To set up a company in Colombia, it is required that all of them adhere to the International Financial Reporting Standards (IFRS), known locally as NIFF. It is vital to ensure that the accountant hired is certified under this framework to avoid penalties that can range from $200 to $45,000.

Registration and Documentation

Remember that if you want to register a company in Colombia, you must also keep detailed records of all financial transactions, in accordance with generally accepted accounting principles in Colombia. These records must be clear, complete and capable of being audited.

Likewise, for each operation that affects the financial situation of the company, you must leave supporting documentation that justifies the transaction. This is vital not only for regulatory compliance but also to facilitate internal and external audits.

Presentation of Financial Statements

Companies must prepare and present annual financial statements, in addition to the periodic reports required by the Superintendency of Companies and other regulatory entities. These reports must accurately reflect the financial position, performance and cash flows of the company.

Adaptation to Regulatory Changes

It is essential that your company is aware of any changes in Colombian accounting and tax legislation and adapts its reporting practices accordingly.

¡Keep in mind! Important changes in Tax Legislation

As we mentioned in the previous section, it is crucial to know the significant modifications in tax policy derived from recent rulings of the Constitutional Court during the year 2023 in relation to the Law 2277. Below, we mention these updates so that you are aware and do not miss them.

1. Deductibility of Royalties in the Oil and Gas Sector: Previously, royalties were considered not deductible for income tax purposes. However, a recent decision has changed this criterion, now allowing the deduction of royalties for companies within the oil and gas sector.

2. Tax Regime of Free Zones: Previously, companies in free zones enjoyed a reduced tax rate of 20% on income tax. The legislation adjusted this rate to 35% for those companies that did not export.

However, a Court ruling has reaffirmed the importance of internationalization to access this lower rate. Consequently, the 20% rate is preserved exclusively for industrial users of port services that specialize in the refining of petroleum-derived fuels or biofuels and related logistics services.

Tax Obligations for Companies in 2024

The Colombian tax system is characterized by its diversity of taxes applicable to both natural and legal persons.

Among these, the most notable due to their impact on economic activity and tax collection are the Income Tax, the Value Added Tax (VAT) and the Wealth Tax. Each of these main taxes and how they work are detailed below.

1. Income Tax

Income Tax is one of the main taxes that both natural persons and legal entities residing in Colombia must pay on their net income obtained during the fiscal year.

This tax is calculated by applying a progressive rate that varies according to income level, with the aim of taxing more those who have a greater economic capacity.

2. Value Added Tax (VAT)

VAT is an indirect tax that taxes the consumption of most goods and services sold or provided in Colombia, with some specific exceptions. This tax is applied at each stage of the distribution chain of a product or service, but the cost is ultimately borne by the final consumer.

● General Rate: The standard VAT rate is 19%, although there are goods and services that are taxed with differential rates of 5% or 0%, as well as others that are exempt from the tax.

● Persons responsible for VAT: These are those subjects, whether natural or legal persons, who carry out activities taxed with VAT. These responsible parties must invoice the tax and remit it to the State.

3. Wealth Tax

This tax applies to individuals and illiquid estates that have gross assets with a value greater than a specific threshold established by law. It is calculated on the total value of the assets owned as of January 1 of each year.

● Rate: The Wealth Tax rate is 1.5% for those with assets greater than 72,000 UVT (Tax Value Units), which are approximately equivalent to more than $3,050 million Colombian pesos.

● Objective: This tax seeks to tax the wealth of people with greater economic capacity, contributing to the redistribution of wealth and social justice.

To not forget! Other relevant taxes that you should take into account

In addition to these main taxes, the Colombian tax system includes other specific taxes depending on the economic sector or the activity carried out, such as:

1. Industry and Commerce Tax (ICA): Taxes the carrying out of industrial, commercial and service activities in the municipalities.

2. Property Tax: It is a municipal tax that taxes the ownership or possession of real estate.

3. Consumption Taxes: Applicable to specific services and luxury goods, with rates that vary depending on the product or service.

4. Occasional earnings: This type of income is subject to a 15% tax.

5. Dividends: A 15% withholding fee is applied on dividends that exceed 1,090 UVT when received by Colombian residents. For non-residents, the withholding fee amounts to 20%.

Conclusion

Understanding and properly applying the tax and accounting rules in the country is vital to the success and legality of any company.

With regulations constantly evolving, the tax advisory in Colombia It is not only recommended, but necessary to navigate the complex Colombian tax landscape, thus guaranteeing the protection and sustained growth of your financial interests in the country.