Colombia has approved a tax reform bill that includes a lower corporate tax rate, a new tax rate for financial institutions, and a new wealth tax from 1 January 2019
One of the proposed changes will create a single form called the SIMPLE Taxation system for micro or small companies to use in order to settle their tax obligations. This will help to reduce costs. One of the goals of this reform is to create methods to reduce the high tax burden that is currently on companies. The hope is that the reduction will increase job creation and growth for the companies.
The new taxes will be higher on upper earners. People with an average monthly income greater than $40m, will have an income tax rate of 35%, income greater than $50m will have a rate of 37% and greater than $105m will have a rate of 39%.
The bill would reduce the corporate income tax rate from 33% to 30% and income from some activities would be subject to a corporate income tax rate of 10%. Another aspect of the bill allows for taxpayers to treat the taxes they pay as deductible expenses and they can use the turnover taxes to offset the corporate tax obligations.
The presumptive income tax is set to be eliminated over the course of the next three years. This is problematic because this tax has encouraged the productive use of goods and has helped to reduce tax evasion
The new wealth (equity) tax has been set at a rate of 1% for the years 2019, 2020, and 2021, for Colombian-resident individuals' worldwide net-worth, and for non-resident individuals on Colombian assets only, such as real estate, yachts, artwork, boats, planes, etc, where the net equity of the taxpayer is at least COP5 billion ($1.5m). The tax does not cover shares in Colombian companies, accounts receivable from Colombian debtors, certain portfolio investments, or financial lease agreements.
The tax base of a ‘permanent establishment' has been expanded to cover worldwide income, instead of Colombia-source only income, and expense deductions are allowed only under certain conditions.