2010 Colombian Corporate Taxation Overview1 (Part 2)

2. Value Added Tax ("VAT")

   2.1. Tax Rates

   VAT's general rate is 16%.106 There are reduced (10%)107 and increased rates for certain goods and services, e.g., motor vehicles rates range from 20% to 35%, depending on the vehicle type.108

   2.2. Taxable Transactions

   The sale and importation of movable tangible property, and services rendered in Colombia are subject to VAT.109 The sale of intangibles and seller's fixed assets is not subject to VAT.110 Certain public entities of the national and local territorial level are not subject to VAT.111

   Consulting, advising and auditing services, rendered outside of Colombian to a Colombian party are subject to VAT. In these cases the VAT does not affect the foreign party as the Colombian party must cover and pay directly to the tax authorities 100% of the accrued VAT.112

   Certain goods and services are exempted ("Zero-rated")113 or not taxable with VAT ("Excluded") goods.114 The lists of zero-rated and excluded goods are extensive and should be checked in detail on a case-by-case basis. In the case of Excluded goods and services, any VAT paid by the taxpayer to her goods and service suppliers has to be capitalized as part of the cost of the Excluded goods sold. In the case of Zero-rated goods and services, any VAT paid by the taxpayer to her goods and service suppliers generates a VAT credit (See §2.4. below).115 In certain cases VAT credits from Zero-rated transactions may result in a refundable VAT balance.

   2.3. Taxable Base

   As a general rule, the taxable base is the price or value of the consideration paid for the goods or services, which should correspond to their fair market value.116 There are certain cases117 where certain items must be either included or excluded from the taxable base and/or cases with either mandatory or optional taxable bases, which should be analyzed on a case-by-case basis.

   2.4. Creditable VAT

   Unless otherwise provided, all VAT paid to suppliers of goods and services that constitute a cost or expense of the taxpayer's income producing activity, is creditable towards the VAT collected by the taxpayer from her clients.118

   Unless otherwise allowed by law (See §2.5. below), VAT paid on the acquisition and importation of goods that become fixed assets for the buyer is neither creditable against VAT nor income tax.119 This VAT should be capitalized increasing the taxpayer's cost basis of the fixed asset.

   There are certain limitations on the VAT credits available for zero-rated transactions.

   2.5. Selected VAT Incentives

   The following are some of the statutory VAT incentives available:

   2.5.1. Temporary Importation of Heavy M&E

   Temporary importation of "heavy120" M&E not produced in Colombia effectively used in a "basic industry121"in Colombia, should not be subject to import VAT.122 Although it is not clear, it is likely that this treatment does not apply to goods imported for construction sites.

   2.5.2. Permanent Importation of Heavy M&E

   Permanent importation of heavy M&E (whether or not produced in Colombia) is subject to VAT. But if the M&E's is going to be used in a "basic industry" and it's CIF value exceeds USD$500K, payment of the VAT can be deferred (40% upon importation, and 30% in each of the following 2 years).123 In addition, in these cases the VAT paid can be credited against the taxpayer's income tax in the taxable year in which the VAT was paid or in the subsequent taxable years if the VAT paid cannot be initially credited in full.124

   2.5.3. Environmental Monitoring and Control Systems

   Any domestic or imported equipments or devices to be used in the construction of control and monitoring systems required by environmental law and standards in any activity, are not subject to VAT.125 Access to this exemption requires certification of the environmental authority qualifying the specific equipment or devices acquired.126

   2.6. Payment and Filing

   VAT has a bimonthly taxable period.127 The VAT return must be filed and paid in full on the filing dates scheduled by the government for these purposes, which are usually after the first week immediately following the end of the corresponding bimonthly period.128

   2.7. Andean Pact VAT Harmonization

   In addition to Andean Pact Directive 578 to Avoid Double Income Taxation (see §1.20. above), Andean Pact Directive 599 establishes the framework for the near future harmonization of the VAT regimes in member countries.129

3. Net-worth Tax

   From FY2007 through FY2010, taxpayers with a net-worth equal or greater than COP$ 3,000,000.00 are subject to a national level net-worth tax.130 Its taxable base is the taxpayers' net-worth as of January 1, 2007,131 i.e., assets minus liabilities, excluding stock held in Colombian corporations. The tax is computed and paid each of the four (4) taxable years on the same taxable base, using a 1.2% tax rate.132 Among others, Colombian companies and Colombian branches of foreign companies are subject to this tax.133

   The 2010 tax reform act134 introduces a new "temporary" net-worth tax payable in installments from 2011 through 2014. This tax is almost identical to its predecessor 1.2% net-worth tax currently in force through fiscal year 2010.

   Taxpayers subject to the newly adopted net-worth tax would have to assess the tax on their net-worth as of January 1st, 2011. If the taxpayer's net-worth as of January 1st, 2011 were $3,000,000,000 Colombian Pesos without exceeding $4,999,999,999.99 Colombian Pesos, the applicable rate would be 2.4%. If the taxpayer's net-worth exceeds $5,000,000,000 Colombian Pesos, the applicable rate would be 4.8%. If the taxpayer's net-worth does not exceed $2,999,999,999.99, the taxpayer would not be subject to the 2011 net-worth tax.

   Although taxpayers subject to the 2011 net-worth tax would need to...