Private Client Comparative Guide

• Published date: 15 July 2021
• Subject Matter: Family and Matrimonial, Wills/ Intestacy/ Estate Planning
• Law Firm: Baker & McKenzie Colombia S.A.S
• Author: Mr Ciro Meza and Hanspeter Misteli

1 Legislative framework

1.1 Which legislative provisions govern private client matters in your jurisdiction?

• The Colombian Tax Code (Law 2010/2019);
• Unique Tax Decree 1625/2016; and
• All enforceable double taxation treaties.

1.2 Do any special regimes apply to specific individuals (eg, foreign nationals; temporary residents)?

Foreign nationals or temporary residents are subject to income tax only on Colombian source income and are only required to report income or assets generated or located in Colombia. The applicable income tax rate for non-resident individuals is 35% (resident individuals are taxed at progressive rates ranging from 0% to 39%).

1.3 Which bilateral, multilateral and supranational instruments in effect in your jurisdiction are of relevance in the private client sphere?

Double tax treaties: Colombia has extended its treaty network in the past 10 years. Almost all of the tax treaties refer to double taxation and exchange of information. Decision 578 of the Andean Community also applies.

The double tax treaties are based on the Organisation for Economic Co-operation and Development guidelines. Those currently in force have been concluded with Canada, Chile, the Czech Republic, India, Mexico, Portugal, South Korea, Spain, Switzerland and the United Kingdom. Tax treaties with France, Japan, Italy and the United Arab Emirates have been signed and are undergoing approval procedures.

Exchange of information: Colombia has entered into several agreements that allow for the exchange of tax information, such as:

• the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in 2014; and
• the Common Reporting Standard in 2017.

Foreign Account Compliance Act (FATCA): Colombia and the US government have an enforceable Intergovernmental Agreement Model 1, implementing FATCA, which is mandatory for Colombian financial institutions and taxpayers.

Laundering Assets Risk Management and Terrorism System (SARLAFT): Colombian financial entities must identify and report to the Colombian Tax Office the ultimate beneficial owner in accordance with SARLAFT standards. These apply where a non-resident has direct or indirect ownership and control of more than 20% of a resident entity, and to local trusts and mutual funds.

2 Taxation

2.1 On what basis are individuals subject to tax in your jurisdiction (eg, residence/domicile/nationality)? How is this determined?

Individuals become subject to income tax in Colombia by obtaining residence status or upon deriving Colombian source income.

Non-resident individuals: Non-resident individuals are subject to income tax only on source income and are required only to report income or assets generated or located in Colombia.

'Colombian source income' refers to income from activities undertaken within the Colombian territory and certain activities rendered from abroad. The applicable law refers to these as:

• the provision of services rendered in the Colombian territory;
• the transfer of assets inside the Colombian territory; and
• the exploitation of tangible or intangible assets located inside the country.

Resident individuals: Individuals obtain tax residence in Colombia if they remain for more than 183 days in the territory, whether continuously or otherwise, during a 365-day period.

Colombian citizens are still considered tax residents, even if not in Colombia, where:

• their close family (eg, spouse or children) are Colombian residents;
• in the case of companies:
• • 50% of their income is Colombian sourced; or
  • 50% or more of their assets are managed or located in Colombia.

However, they will not be considered tax residents if:

• 50% or more of the individual's revenue is sourced in the country of domicile; or
• 50% or more of the company's assets are managed or located in the country of domicile

2.2 When does the personal tax year start and end in your jurisdiction?

The personal tax year starts on 1 January and ends on 31 December each year.

2.3 With regard to income: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

Concerning income, individuals are subject to income tax in Colombia at different rates due to their residence status or upon deriving Colombian source income.

Non-resident individuals: Non-residents are subject to income tax on their Colombian source income and are required only to report any earnings or assets generated or located in Colombia. The applicable rate is 35% for those obliged to file an income tax return.

Dividends distributed to non-resident individuals are taxed as follows:

• Dividends paid out of profits that are taxed at the corporate level are subject to dividend tax at a rate of 10%.
• Dividends paid out of profits that are not taxed at the corporate level are taxed at the general income tax rate (33% for 2019, 32% for 2020, 31% for 2021 and 30% from 2022 onwards), in which case the dividend tax of 10% indicated above is applied once this tax has been reduced.

Resident individuals: Resident individuals are subject to income tax in Colombia on a worldwide basis. The applicable income tax rates are determined according to income baskets (labour income, pensions, capital income, non-labour income), with progressive rates ranging from 0% to 39%.

Dividends distributed to resident individuals are taxed as follow:

• Dividends paid out of profits that taxed at the corporate level are subject to dividend tax at a rate of 7.5%.
• Dividends paid out of profits that not taxed at the corporate level are taxed at the general income tax rate (33% for 2019, 32% for 2020, 31% for 2021 and 30% from 2022 onwards), in which case the dividend tax of 7.5% indicated above is applied once this tax has been reduced.

(b) How is the taxable base determined?

Non-resident individuals: The taxable base is determined on the total amount of income earned during the taxable year.

Resident individuals: The taxable base is calculated depending on the type of income basket (eg, labour income, pensions, capital income, non-labour income and dividends).

(c) What are the relevant tax return requirements?

Non-resident individuals: Payments that are made to foreign individuals are subject to income tax withholdings, which is their final tax liability in Colombia. For payments that are not subject to withholding, the individual must file an income tax return for the corresponding fiscal year. Also, non-resident individuals may be subject to income tax withholdings and the obligation to file a tax return. Income tax withholdings applied during the taxable year may be credited against the final income tax liability recorded in the annual income tax return.

Resident individuals: Resident individuals must file an income tax return on an annual basis. In this case, the individual must report income obtained on a worldwide basis. Any income tax withholding applied during the taxable year may be credited against the final income tax liability.

(d) What exemptions, deductions and other forms of relief are available?

Exemptions, reliefs and deductions are available for resident individuals depending on the type of basket, as set out below.

Labour income
Non-taxable income	Mandatory health and pension contributions made by employees.
	Contributions to voluntary pension saving schemes, provided that they do not exceed 2,500 tax units (approximately $26,000) or 25% of the annual income.
Deductions	Interest payments from loans secured for a housing purchase.
	Payment of pre-paid health services and health insurance payments.
	10% of all labour payments made to individuals who are dependent on the taxpayer - that is children who have not reached legal age; children who have reached legal age but are being financed in a recognised educational institution; and children over the age of 23 years who are dependent owing to physical or psychological incapability.
Exempt income	25% of the individual's income.
	Voluntary contributions to pension funds and savings accounts exclusively destined for the purchase of real estate ("Cuentas de Ahorro y Fomento a la Construcción - AFC for its acronym in Spanish-) not exceeding 30% of the individual's annual income.

Pension income
Exempt income	Pensions not exceeding 1,000 tax units (approximately $10,300) are exempt.

The tax benefits cannot exceed 40% of earned income or 5,040 tax units (approximately $52,300 for 2021).

2.4 With regard to capital gains: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?

(a) What taxes are levied and what are the applicable rates?

Capital gains are considered as any income obtained by a taxpayer from extraordinary activities. The activities that trigger capital gains are set out in the table below.

Type of income/activity	Applicable rate
Indirect or direct sale of fixed assets held for more than two years. Winding up of entities that are not classified as undistributed income or reserves. Gains resulting from estates, legacies and donations (gifts). Life insurance indemnities. Distributions made by foreign trusts, private interest foundations or similar entities.	10%
Prizes, awards, lotteries and gambling earnings.	20%

(b) How is the taxable base determined?

Regarding capital gains, the determination of the taxable base depends on the type of income received. Some examples are set out in the table below.

Type of income	Comments
Direct or indirect sale of fixed assets held for more than two years.	The taxable base is determined by calculating the difference between the acquisition price

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