Colombia Personal Income Tax

Colombian residents are subject to tax on their worldwide income. Nonresidents are subject to Colombian tax on their Colombian-source income only. Foreign residents are sub­ject to tax on their worldwide income beginning with their first year of tax residence in Colombia.

Under Law 1607 of 2012, foreigners are considered residents for tax purposes if they remain in Colombia for more than 183 con­tinuous or discontinuous days during a consecutive 365-day period.

Colombian source income includes employment income attribut­able to services provided in Colombia, regardless of where the payments are made to the employee.

Income subject to tax. The taxation of various types of income is described below.

Employment income. Taxable employment income for individu­als consists of salaries, wages, bonuses, benefits in kind and any other income derived from a labor relationship. However, 25% of employment income is exempt from tax, limited to a monthly amount (see Exempt income) which is increased annually.

Self-employment and business income. Taxable self-employment and business income is income less allowable business expenses (see Business deductions).

Investment income. Dividends received by residents are subject to income tax. Interest received is also taxed together with any other income received by the individual at the rates described in Rates, but relief is available for inflation with respect to interest received from financial entities. Royalties and rental income are also con­sidered taxable income and are taxed at the regular rates.

Directors’ fees. In general, directors are treated as employees for tax purposes only. Consequently, they are subject to the rates and withholding procedures established by the Colombian law for workers hired through an employment agreement. This rule applies if the income received by the directors represents more than 80% of their total income.

Exempt income. Twenty-five percent of employment income is ex­empt from income tax, limited to a maximum monthly amount of COP7,141,000 for the 2016 tax year.

Capital gains. Capital gains are taxed at a fixed rate of 10%. This rate is applied separately from the ordinary income. In determin­ing the amount of capital gains, the acquisition costs of shares and real estate are calculated in Colombian pesos and adjusted for inflation, regardless of whether the asset is used in a trade or business. Also, see Estate and gift tax in Section B.

Capital losses may offset only capital gains. Real estate losses are not allowed.

Deductions

Deductible expenses. Employees who are required to file tax returns and individuals who are not required to file tax returns, but would like to reduce the impact of withholding taxes, may deduct specified expenses, which are those indicated in Personal deductions and allowances. These expenses reduce the withhold­ing tax base.

In addition, mandatory contributions to the pension system, vol­untary contributions deposited by the employee in a Colombian pension fund and deposits in AFC Accounts (for housing con­struction promotion) opened in local commercial banks and housing leasing payments are subtracted from employment income. However, the maximum total deduction for these pay­ments is 30% of employment income, including mandatory pen­sion contributions of up to COP113,061,000 (3,800 Tax Unit Value [Unidad de Valor Tributario, or UVT]; see Rates) annually.

Personal deductions and allowances. Interest and payments on loans for the acquisition of a taxpayer’s house are deductible, up to a limit set annually.

Taxpayers may take a monthly deduction for dependents of up to 10% of the employee’s gross income, limited to UVT32 (COP952,000).

Under Colombian law, the following are dependents:

  • Employee’s children under 18 years old
  • Employee’s children over 18 years old and under 23 years old who are studying in institutions certified by the appropriate official authority in Colombia or abroad, provided the employee pays the education fee
  • Employee’s children over 23 years old whose dependence is related to physical or psychological factors, as certified by the appropriate official authority in Colombia or abroad
  • Employee’s spouse and parents who depend on the employee financially and who receive income in an amount of less than UVT260 (COP7,736,000), as certified by a Colombian certi­fied public accountant
  • Employee’s spouse and parents whose dependence is related to physical or psychological factors, as certified by the appropri­ate official authority in Colombia or abroad

Prepaid health payments may be deducted by the taxpayer, spouse and up to two children, limited to UVT16 (COP476,000) for 2016.

Mortgage interest payments or personal home financial leasing interest payments made by an employee in the preceding year in Colombia are deductible, limited to UVT100 (COP2,975,000 per month for 2016).

Business deductions. Self-employed entrepreneurs and profes­sionals may deduct all legally acceptable expenses incurred in carrying out their business activities. For self-employed profes­sionals, deductible expenses may not exceed 50% of business income (90% for architects and engineers on construction con­tracts); how ever, this limitation does not apply if the taxpayer issues appropriate invoices for all his or her income and if such income is subject to withholding tax. The taxpayers must keep supporting documents (for example, invoices and agreements) for all expenses, but they are not required to maintain accounting books.

Rates. Law No. 1111 of 27 December 2006 created the Tax Unit Value (Unidad de Valor Tributario, or UVT) as a value measure­ment to adjust the amounts of taxes and other obligations con­tained in the laws administered by the Colombian tax authority (Dirección de Impuestos y Aduanas Nacionales, or DIAN). The value of the UVT is COP29,753 for 2016.

The following table sets forth the marginal withholding tax rates applicable to monthly employment income derived by residents in the 2016 tax year.

 

Income Marginal rate
Exceeding (UVT) Not exceeding (UVT) % Tax calculation
0 95 0 0
95 150 19 (Taxable employment
income expressed in UVT – UVT95) x 19%)
150 360 28 (Taxable employment
income expressed in UVT – UVT150) x 28% + UVT10
360 ________ 33 (Taxable employment
income expressed in UVT – 360 UVT) x 33% + UVT69

The base for applying withholding tax on employment income is 75% of such income after the subtraction of the mandatory and voluntary contributions to pension funds, deposits in AFC Accounts and deductions. However, this 25% exemption is lim­ited to a monthly amount of UVT240 (COP7,141,000).

The following are the progressive income tax rates applicable to the annual income of employees and self-employed individuals.

Income Marginal rate
Exceeding (UVT) Not exceeding (UVT) % Tax calculation
0 1090 0 0
1090 1700 19 (Taxable income and
taxable occasional gains translated into UVT – UVT1,090) x 19%
1700 4100 28 (Taxable income and
taxable occasional gains translated into UVT – UVT1,700) x 28% + UVT116
4100 ________ 33 (Taxable income and
taxable occasional gains translated into UVT – UVT4,100) x 33% + UVT788

In general, foreigners and nonresident nationals are subject to tax on all Colombian-source income at a marginal flat rate of 33% for the 2016 tax year.

Dividends distributed to residents who are required to file an income tax return are subject to withholding tax at a rate of 20%. This withholding tax is treated as a prepayment in the corre­sponding income tax return. Dividends are generally taxed at a rate of 33% if the recipient is not required to file an income tax return. However, if the amount paid is lower than UVT1,400 (COP41,654,000) for the 2016 tax year, the rate is 20%.

Dividends are taxed only if the distributed profits were not taxed at the corporate level in Colombia. In this case, the withholding tax rate may be up to 33%.

Relief for losses. Under Colombian tax law, employment income may not be reduced by any losses, regardless of the source.

Alternative income tax systems. An alternative income tax sys­tem (IMAN) and a voluntary alternative income tax system (IMAS) have been created. IMAN applies to tax-resident employees. IMAS applies to tax-resident employees and quali­fied independent workers. Neither IMAN nor IMAS applies to passive income holders.

The tax base for each category is revenues less limited deductible items defined by law. Individuals must compare calculations under the ordinary income tax system and IMAN and are subject to the higher liability under these two systems. The tax liability cannot be lower than the amount calculated under IMAN. IMAS applies only to individuals with an alternative income tax base that is lower than UVT2,800 (COP83,308,000) and whose net equity is lower than UVT12,000 (COP357,036,000). Under the alternative income tax systems, most of the deductions described above do not apply. The principal deductions for the alternative income tax calculations include, among others, the mandatory social security contributions made by the employee during the year.

Other taxes

Estate and gift tax. For the 2016 tax year, the first UVT1,200 (COP35,704,000) received as a gift or inheritance by spouses and legal heirs is exempt from tax. For inheritances or legacies received by persons other than the legitimate heirs and spouse, as well as for donations, the exempt amount of the “capital gain” is 20% of the value received, up to COP35,704,000 (for the 2016 tax year). A “capital gain” is unexpected income or profit from an extraordinary event, such as an extraordinary sale or winning a lottery or a raffle. An inheritance or legacy is deemed to be a “capital gain” if it is received by persons other than the legal inheritors.

Equity tax. All individuals and legal entities must pay equity tax if their tax equity was equal to or higher than COP1 billion as of 1 January 2015.

For individuals, the tax base is the net tax equity as of 1 January of each year. However, for 2016, 2017 and 2018, the tax base is increased or reduced up to the 2015 tax base multiplied by a percentage equal to 25% of the inflation of the prior year.

Social security

Employers and employees are subject to the following monthly social security contributions (calculated as percentages of salaries).

Contribution                            Employer (%)       Employee (%)

Health (a)                                                8.5                         4.0

Pensions (b)                                          12.0                         4.0

Additional contribution (c)                 —                            1 to 2 (d)

Labor risks                              0.348 to 8.7 (e)                 ­

  • Contributions to the health scheme are mandatory for all employees. Under Law 1607 of 2012, effective from 1 January 2014, companies that file income tax returns are exempted from paying the 8.5% health contribution for the employees who earn less than 10 monthly legal minimum salaries per month. One monthly legal minimum salary equals COP689,854 for 2016.
  • According to the second paragraph of Article 15 of Law 100 of 1993, the pen­sion system is voluntary for foreign employees if they remain covered under a pension scheme abroad.
  • An additional 1% contribution for pensions must be paid by employees who earn at least four monthly legal minimum salaries (COP2,757,816) per month.
  • Contributions to the Solidarity Pension Fund are at a rate of 1%, which is increased by 0.2%, 0.4%, 0.6%, 0.8% or 1%, depending on the total amount of the salary (from 16 to 25 monthly minimum legal salaries).
  • The contribution for labor risks ranges between 0.348% and 8.7% of the employee’s salary. It varies according to the insured risk, which is based on the type of activity.

The base on which these contributions are calculated is limited to the equivalent of 25 monthly legal minimum salaries (COP17,236,650) per month.

In addition to the above, employers must pay monthly payroll taxes equal to 9% of the salaries paid their employees. These taxes are distributed in the following percentages among the fol­lowing entities:

  • Family Compensation Funds: 4%
  • Colombian Family Welfare Institute (ICBF): 3%
  • National Learning Service (SENA): 2%

The base for the 9% contribution is not limited to 25 times the monthly legal minimum salaries.

For payroll tax calculation purposes, employers must take into account only the payments for salary and paid rest and exclude extralegal benefits, aids and fringe benefits.

Law 1607 of 2012 introduced a tax known as “CREE” (Impuesto de Renta para la Equidad). Companies that file income tax returns must pay CREE annually. The tax rate for 2013, 2014 and 2015 is 9% of net income after deductions. Effective from 2016, the rate will be 8%.

Companies that are subject to CREE are exempted from paying the payroll taxes that are allocable to the ICBF and the SENA with respect to the payroll of employees who earn less than 10 monthly legal minimum salaries. This exemption entered into force on 1 May 2013. They continue to be obligated to pay pay­roll taxes designated to the Family Compensation Funds for these employees (4%).

For social security purposes, non-salary payments are excluded from social security contributions, up to 40% of the employee’s total remuneration if these non-salary payments exceed the 40% limit. The difference is subject to social security contributions (Law 1393 of 2010). This 40% limit does not apply for payroll taxes.

If the employee earns an integral salary (all-inclusive salary), social security contributions and payroll taxes are calculated on 70% of such salary, because the remaining 30% is deemed a social-benefit factor included in this type of salary and accord­ingly is not included in the base for the above-mentioned pay­ments. However, this labor rule does not apply to the calculation of the income tax withholding. For income tax withholding pur­poses, the base is 100% of the salary, regardless of the type of salary (ordinary or all-inclusive).

Tax filing and payment procedures: The tax year is the calendar year.

Each year, the Colombian government establishes deadlines for filing income tax returns through the issuance of an Official Decree. For the 2015 tax year, the tax-filing dates for individuals are between 9 August 2016 and 19 October 2016, according to the last two digits of the Colombian tax identification number.

Income tax liability on employment income is generally satisfied by employers’ withholding of tax based on gross salary. However, income tax returns for 2016 must be filed by employees or self-employed professionals if their gross assets exceed UVT4,500 (COP133,888,500) or if their annual gross income exceeds

UVT1,400 (COP41,654,200). Nonresidents do not need to file tax returns if tax is withheld from all income received during the year at nonresident tax rates (33%). If nonresidents receive income from which tax is not withheld, they must file tax returns and meet the filing deadlines.

Individuals who are required to file tax returns must calculate and pay advance tax for the following tax year in accordance with the applicable rules under specific circumstances.

Married persons are taxed separately, not jointly, on all types of income.

Report of assets held abroad. The report of assets held abroad is a new tax obligation for individuals that entered into force as of 2015. Individuals must submit a report listing assets held outside Colombia, the value of the assets and the jurisdictions in which they are located.

Double tax relief and tax treaties

Colombian national taxpayers who receive foreign-source income subject to income tax in the country of origin may apply a tax credit for the foreign tax paid to the Colombian income tax, up to the amount of Colombian tax payable on the same income. Foreigners may not claim the credit, unless they have one or more years of tax residence in Colombia.

Colombia has entered into double tax treaties with Canada, Chile, India, Korea (South), Mexico, Spain, Switzerland and the Andean Community member countries (Bolivia, Ecuador and Peru).

Entry visas

Effective from 26 May 2015, Decree 1067 of 2015 unifies all immigration rules in Colombia. Under this decree, foreigners who wish to work or carry on business in Colombia must apply for an appropriate visa. Resolution 5512 of 2015 establishes the immigration requirements for each type of visa.

The Ministry of Foreign Affairs or consular offices abroad may grant any type of visa. However, citizens of restricted jurisdic­tions (for example, Mainland China and India) must have a visa to enter Colombia. Visas can be requested personally, electroni­cally or through a representative.

Under Resolution 0439 of 2016, the following are the unrestrict­ed jurisdictions (nationalities).

Andorra Germany Paraguay
Antigua and Greece Peru
Barbuda Grenada Philippines
Argentina Guatemala Poland
Australia Guyana Portugal
Austria Honduras Romania
Azerbaijan Hungary Russian
Bahamas Iceland Federation
Barbados Indonesia St. Kitts and
Belgium Ireland Nevis
Belize Israel St. Lucia

 

Bhutan                         Italy                                 St. Vincent and

Bolivia                         Jamaica                            the Grenadines

Brazil                           Japan                               Samoa

Brunei                          Kazakhstan                      San Marino

Darussalam               Korea (South)                  Singapore

Bulgaria                       Latvia                              Slovak Republic

Canada                         Liechtenstein                   Slovenia

Chile                            Lithuania                         Solomon Islands

Costa Rica                    Luxembourg                    South Africa

Croatia                         Malaysia                          Spain

Cyprus                         Malta                               Suriname

Czech Republic            Marshall                          Sweden

Denmark                      Islands                             Switzerland

Dominica                     Mexico                            Trinidad and

Dominican                   Micronesia                      Tobago

Republic                    Monaco                           Turkey

Ecuador                        Netherlands                     United Arab

El Salvador                  New Zealand                   Emirates

Estonia                         Norway                           United Kingdom

Fiji                               Palau                               United States

Finland                         Panama                            Uruguay

France                          Papua New                      Vatican City

Georgia   Guinea     Venezuela

 

Although Cambodia, India, Mainland China, Myanmar, Thailand and Vietnam are restricted jurisdictions, their citizens may be authorized to enter Colombia without a Colombian visa if they hold an Entry Permit. A foreigner from one of the above coun­tries can obtain an Entry Permit if they satisfy one of the follow­ing conditions:

  • They hold a residence permit in a member state of the Schengen area or in the United States.
  • They hold Schengen visa of Type C or D, or a visa to the United States in any category other than Class C-1 transit.

The most common types of visas are discussed below. G. Business and temporary visas

Business visa. Under Decree 1067 of 2015, the business visas discussed below are available.

  • The NE-1 visa is granted to a foreigner who intends to enter Colombia to conduct trade and business, promote eco­nomic exchange, make investments and create business. This visa is valid for three years and allows multiple entries. An individual can request a visa for a shorter period if his or her activity in Colombia will be for a shorter period. A holder of an NE-1 visa can stay up to 180 continuous or discontinuous days per year in Colombia and cannot be domiciled in Colombia. The individual’s activities cannot generate the payment of wages in Colombia. The relatives of a holder of a NE-1 visa may not apply for a ben­eficiary visa.
  • The NE-2 visa is granted to a foreigner who intends to enter Colombia as a businessperson in the context of a current international instrument, including a free-trade agreement, an international partnership or the Pacific Alliance agreement (the Pacific Alliance is a mechanism of political communication,

economic cooperation and integration between Chile, Colombia, Mexico and Peru), and to perform the following activities in Colombia:

  • Advance business management activities
  • Promote the business
  • Develop investments
  • Establish the commercial presence of the individual’s company in Colombia
  • Promote trade in goods and services across borders
  • Perform activities that are defined in international instruments

This visa is granted for four years and allows multiple entries. An individual can request a visa for a shorter period if his or her activity in Colombia will be for a shorter period.

Under an NE-2 visa, a foreigner can stay in Colombia for up to two continuous or discontinuous years during the term of the visa and may establish domicile in Colombia. The activities carried out by the foreigner may generate the payment of wages in Colombia. The relatives of a holder of a NE-2 visa may apply for a beneficiary visa.

  • The NE-3 visa is granted to a foreigner who intends to enter Colombia as chief of a governmental foreign commercial representative office or an office that represents his or her com­pany for the promotion of economic and trade exchanges in or with Colombia. This visa is valid for four years and allows mul­tiple entries. The foreigner may remain for four continuous or discontinuous years during the term of the visa and may establish domicile in Colombia. The individual’s activities can generate the payment of wages in Colombia. The relatives of a holder of a NE-3 visa may apply for a beneficiary visa.
  • The NE-4 visa is granted to a foreigner who enters Colombia as president or senior executive of a multinational company with the intention of investing and generating business. This visa is granted for five years with multiple entries. The individual can request a visa for a shorter period if his or her activity in Colombia will be for a shorter period. The foreigner can stay up to 180 continuous or discontinuous days per year and cannot establish domicile in Colombia. The activities carried out by the foreigner cannot generate the payment of wages in Colombia. The relatives of a holder of a NE-4 visa may apply for a beneficiary visa.

Sponsoring company notification. Companies that sponsor any type of NE visa must notify the Special Administrative Unit Migration Colombia (Unidad Administrativa Especial Migración Colombia) of the initiation and termination of activities through the SIRE System within 15 calendar days after the beginning or termination of the activity.

Temporary working visa. Effective from 25 July 2013, new rules regarding temporary working visas apply. The TP-4 visa may be granted to a foreigner who intends to enter Colombia under an employment relationship or civil contract to provide services to an individual or corporation domiciled in Colombia or to arts, sports or cultural groups entering Colombia for the purpose of providing public performances.

For regulated professions (for example, engineering, accounting and business administration), foreigners must request special permits or licenses from the competent Professional Councils to exercise the professions in Colombia. To obtain these permits, they must provide their diplomas, legalized or apostilled with an official translation to Spanish.

Non-compliance with the requirement to obtain the special per­mits or licenses to develop regulated professions may result in the imposition of penalties by the Migracion Colombia office. Decree 834, 2013 (confirmed in Decree 1067 of 2015) elimi­nated the requirement of presenting the special permits or licenses to the Visas Office of The Ministry of Foreign Affairs in order to obtain the TP-4 visa. However, the permit or licenses must be submitted when the employer or contractor notifies the Migración Colombia office of the initiation of activities.

The TP-4 visa is granted for the entire term of the contractual relationship, but the duration of the visa cannot exceed three years. The TP-4 visa allows multiple entries and the engagement in study activities by the holder.

The visa is canceled if the foreigner leaves Colombia for more than 180 consecutive days. The foreigner can stay in Colombia for the entire term of the visa. The relatives of a holder of a TP-4 visa may apply for a beneficiary visa.

Contractors and employers of foreigners must notify the Unidad Administrativa Especial Migración Colombia of the initiation and the termination of activities through the SIRE system within 15 calendar days after the beginning or termination of the activity.

Resident visas

The Ministry of Foreign Affairs or the consular offices abroad issue resident visas to foreigners intending to become permanent residents of Colombia.

Effective from 25 July 2013, a resident visa is granted to the fol­lowing types of foreigners:

  • A foreigner who is a parent of a Colombian national
  • In accordance with Law 43 of 1993, an individual who was Colombian by adoption or by birth and who has been abroad and renounced his or her Colombian citizenship (the duration for the individual’s visa is undefined)
  • A foreigner who has been a holder of a TP-3, TP-4, TP-5, TP-7 or TP-9 visa for a minimum of five continuous and uninter­rupted years
  • A foreigner who has been a holder of a TP-10 visa for a mini­mum of three continuous and uninterrupted years
  • A foreigner who has been a holder of a TP-15 (Common Market of the South [Mercado Común del Sur, or MERCOSUR]) visa for a minimum of two continuous and uninterrupted years (for further details regarding this visa, see Section I)
  • An adult foreigner (more than 18 years old) who has been the beneficiary of a resident visa holder for at least five continuous and uninterrupted years
  • In the capacity of foreign investment investor, a foreigner who has registered with Colombia’s Central Bank an amount exceeding 650 monthly legal minimum wages

The resident visa for the persons described above is granted for five years.

A foreigner who holds a resident visa and leaves Colombia for two or more continuous years loses his or her visa. A foreigner can stay in Colombia for the entire term of the visa. A resident visa holder can perform any legal activity, including activities under an employment relationship or civil contract to provide services to an individual or corporation domiciled in Colombia. Beneficiaries of resident visa holders may obtain beneficiary visas.

TP-15 visa

The TP-15 (Common Market of the South [Mercado Común del Sur, or MERCOSUR]) visa is valid for two years. The holder of this visa can perform any legal activity in Colombia including activities under an employment relationship or civil contract to provide services to an individual or corporation domiciled in Colombia.

Based on the criteria of reciprocity, the only individuals who can apply for this visa are citizens of Argentina, Bolivia, Brazil, Chile, Ecuador, Paraguay, Peru and Uruguay. For regulated pro­fessions (for example, engineering, accounting and business administration), foreigners must request special permits or licenses from the competent Professional Council to exercise the professions in Colombia. To obtain the permits or licenses, the foreigners must provide their diplomas legalized or apostilled with an official translation to Spanish.

Family members

The Ministry of Foreign Affairs or consular offices abroad issue visas for family members to the applicant’s spouse, parents and children under 25 years old who depend economically on the holder of the visa. A son or daughter who is older than 25 years and has a disability may apply for the beneficiary visa. These visas have the same duration as the applicant’s visa. Visas for family members authorize the holders to carry out home and study activities only.