New tax reform in Colombia, approved on December 2016
On December 2016, Congress approved the long-awaited tax reform that aims to bolster tax revenues and allow the country to retain its credit rating despite the collapse of revenues from the oil sector.
The main aspects of the Law 1819 of 2016 are:
- An increase in the general rate of the value-added tax (VAT) from 16% to 19%.excluding basic products, such as food and medications.
- A simplification of the tax regime for corporations: the income tax rate will be 33% for all corporations and the income surcharge paid by companies with profits of more than 800 million pesos (275.000 US$ approx), will be 6% for 2017 and 4% for 2018, to disappear in 2019.
- A special income tax of 9% for companies dedicated to the edition of scientific or cultural books or magazines. The services provided in new hotels that are built in municipalities of up to 200,000 inhabitants will have this special rate. This benefit will be maintained for 20 years and covers hotels that are built in the next 10 years.
- Special discounts in income tax for investments in control, conservation and improvement of the environment. Also for investments in research, technological development or innovation (25%).
- A new 5% withholding tax on dividends distributed to non-resident shareholders.
- An increase of income tax for companies operating under the “free trade zone” regime from 15% (current rate) to 20%.
- A general 15% withholding tax rate for income accrued by non-residents.
- A “green” tax regime for fuels and other oil-derived energy products.
- Finally, the law added new protocols to detect and punish tax evaders. For the first time, individuals can now face up to nine years in prison for evading taxes.
The reform is expected to improve tax revenue by 6.2 trillion pesos (US$2.07 billion) and to preserve Colombia's BBB investment grade credit rating.