[World Tax News] Colombia introduces Significant Economic Presence notion and more

Editorial Team – [2022] 145 taxmann.com 544 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. Colombia introduces new tax reforms

The Congress of Colombia has introduced new tax reforms vide Law 2277 of 2022. These tax measures include amendments to the taxes applicable to corporate entities, individuals, and international corporate entities. Key highlights of the new tax reforms are as follows:

(a) Introduction of Significant Economic Presence notion

The concept of Significant Economic Presence (SEP) notion has been introduced for non-resident individuals or entities to tax cross-border transactions involving e-commerce goods or services by non-residents to Colombian residents.

A non-resident will be considered to have a SEP when they maintain a deliberate and systematic interaction with the Colombian market and earn an income equivalent to 31,300 Units of Tax Value (approximately USD 2,75,000 in FY23) or more from transactions involving the sale of goods to clients or users in Colombia.

The income from these transactions will be subject to a 10% withholding tax.

However, the taxpayer has the option to pay a 3% tax on the income from the sale of goods or services to users in Colombia and file an income tax return. If the taxpayer chooses this option, the 10% withholding tax will not be applicable.

(b) Corporate Income Tax

The standard corporate tax rate is maintained at 35%. However, a new tax rate has been introduced, taxing Colombian companies at a minimum rate of 15%, wherein the companies will be required to pay a minimum effective tax of 15%.

(c) Corporate Tax surcharge

• Surcharge on Financial Institutions has been increased from 3% to 5% if the taxpayer´s tax base is equal to or more than USD 1 Million.
• A surcharge ranging from 5% to 15% will be levied on the taxpayers indulged in the natural resource extraction industry if the taxpayer’s tax base exceeds USD 4,40,000.
• Surcharge at the rate of 3% applies to taxpayers involved in energy generation if the tax base exceeds USD 2,60,000.

(d) Taxation on Dividends

If a Colombian company pays dividends to a non-resident company, entity, or individual, the withholding tax rate on the dividend will be increased from 10% to 20%. If the dividend is paid to a Colombian resident entity, the withholding tax rate will be increased from 7.5% to 10%.

(e) Other changes

• The capital gains tax rate has been increased from 10% to 15%.
• The Research & Development (R&D) tax credit has been increased from 25% to 30% of the value invested in the project.

Click Here To Read The Full Article