VAT, GST and Sales Tax in Colombia

Summary

Name of the tax Value-added tax (VAT)
Local name Impuesto sobre las ventas (IVA)
Date introduced 29-Dec-83
Trading bloc membership None
Administered by Dirección de Impuestos y Aduanas Nacionales (DIAN) (http://www.dian.gov.co)
VAT rates
Standard 19%
Reduced 5%
Other Zero-rated (exempt)
VAT number format Tax identification number (NIT)
VAT return periods Bimonthly/quarterly
Thresholds
Simplified regime Gross income in the previous year less than USD40,000 (based on an exchange rate of COP2.990 = USD1). Additional requirements apply
Recovery of VAT by non-established businesses No

Scope of the tax

  • The sale of movable tangible goods
  • The sale of immovable goods
  • The sale or assignment of rights over intangibles associated with industrial property
  • Services rendered in Colombia or from abroad (that is, services executed abroad that are used in Colombia if the recipient of the services is located, domiciled or resident in Colombia)
  • Importation of movable goods into Colombia
  • The operation of games of chance or the sale of tickets for games of chance (excluding lotteries and those games operated exclusively online)

In general, the tax base equals the total value of the sale, that is, the sale price of goods or services plus any reimbursed expenses. Effective discounts included in the correspondent invoice that are not subject to any condition and that are commonly used in the market are not part of the VAT tax base. However, for cleaning services, public infrastructure construction contracts signed prior to 2017, and some other services, the tax base equals the fee paid to the entity providing the services rather than the whole value of the service. In such cases, the creditable input VAT is the tax incurred by the constructor that is directly associated with its invoiced fee. The constructor is not entitled to credit for VAT paid on expenses that are associated with the construction.

Who is liable

Any individual or business entity that undertakes an activity sub­ject to VAT (see Section B) must register for VAT. The require­ment to register also applies to a permanent establishment (PE) of a foreign entity if the PE carries out taxable activities or busi­ness in Colombia. Taxpayers are basically classified according to turn over into two different VAT regimes, which are the common regime and the simplified regime.

All taxable persons that do not qualify for the simplified regime must register for VAT under the common regime.

Retailers, individuals engaged in agriculture and cattle farming activities, artisans and certain others rendering taxable services may be registered in the National Tax Registry (Registro Único Tributario, or RUT) as VAT simplified regime taxpayers if the following conditions are fulfilled:

  • The taxpayer’s gross income in the immediately preceding year was less than approximately USD40,000.
  • The taxpayer has a maximum of one commercial establishment, office, premises or business where it performs its activity.
  • The taxpayer does not use a franchise, concession agreement or royalty agreement with respect to the commercial establishment.
  • The taxpayer is not a permanent exporter or importer.
  • In the prior year, or in the current year, the taxpayer does not enter into sale agreements for goods or services exceeding approximately USD40,000.
  • During the prior year, or in the current year, bank deposits and financial investments made by the individual do not exceed approximately USD40,000.

Group registration. VAT grouping is not allowed under the Colombian VAT law. Legal entities that are closely connected must register for VAT individually.

Reverse charge. The withholding mechanism designates certain entities as VAT withholding agents, including government departments, large taxpayers, entities paying nonresident entities, individuals and VAT taxpayers using the common regime, and entities or individuals that provide goods or services to interna­tional trading companies. The withholding rate is equal to 15% of the VAT rate applicable to the transaction, due on any payment or accounting accrual related to taxable goods or services. For transactions with nonresident entities and individuals, or the sale of tobacco and scrap metal, the withholding rate is 100% of the applicable tax rate.

Non-established businesses and the reverse-charge mechanism. A “non-established business” is a business that satisfies the follow­ing two requirements:

  • It does not have a permanent activity.
  • The business is not conducted through a branch of a foreign company in Colombia.

If a Colombian taxable person receives services from a non-established business, the reverse-charge mechanism applies. Under the reverse-charge mechanism, the Colombian resident must withhold VAT due on the sale. The taxability of these ser­vices does not affect the final amount to be received by the for­eign provider of the services. VAT is applied by the resident who requests the service, using a self-withholding procedure. The resident claims this self-assessed VAT as a credit in the VAT tax return of the period in which the VAT was paid, in accordance with the general rules and limitations (full, partial or no tax credit), depending on the VAT treatment of its income.

For accounting purposes, the self-assessed VAT is recorded as a credit (VAT to be paid to tax authorities). It is also recorded as a debit (creditable VAT invoiced to local customers or if not credit­able, as a higher cost or expense), in accordance with the general VAT rules.

Tax representatives. Not applicable.

Registration procedures. Registration in the Registro Único Tributario (RUT) must precede initiation of economic activity. An applicant registers in the RUT by filing Form 001 with the tax authorities DIAN accompanied by hard copies of the following documents:

  • Certificate of incorporation (for non-domiciled entities or non­resident individuals)
  • ID document of the applicant or its attorney, and if the attorney, documentation of power of attorney has to be included
  • Certificate of bank account

This procedure takes an average of 15 days to complete, depend­ing on the time incurred to obtain and attach the certificate of bank account. The registration in the RUT shall be valid indefi­nitely.

Late-registration penalties. A penalty corresponding to 1 tax unit (UVT), which in 2017 is COP31,859, is levied for each day of late registration.

Digital economy. As of 1 January 2017, VAT addresses digital services as a taxable event. Taxation is applied through a with­holding mechanism in electronic payments. The mechanism will be applicable 18 months later subject to regulation from the Tax Authorities.

Taxed services include:

  • Digital supply of audiovisual services (including but not limit­ed to music, video, movies, games and transmission of any event)
  • Digital distribution platform for mobile apps
  • Online publicity services
  • Online training or education services

Deregistration. When a company ceases the economic activity for which it was registered, it should deregister in the RUT within the next month following such termination of taxable activities. A certificate signed by the tax auditor or public accountant demon­strating the absence of activities subject to VAT and the absence of inventory pending sale is required.

VAT rates

Effective 1 January 2017, the rates are 19%, 5% and 0%. The rate of VAT varies according to the type of goods or services, but the standard 19% rate applies to all supplies of goods or services unless a specific provision allows an exclusion from VAT or the application of a reduced or zero rate.

Examples of supplies taxed at 5% rate

  • Toasted coffee
  • Wheat
  • Sugar cane
  • Cotton seeds
  • Soy
  • Rice
  • Prepaid health services
  • Health insurance
  • Storage of agricultural products
  • The first sale of homes of less than 26.800 UVTs

Taxable and excluded supplies. The term “taxable supplies” refers to supplies of goods and services that are subject to VAT. Purchasers of such supplies generally benefit from an input credit on their VAT returns.

Exempt supplies. In Colombia, the term “exempt supplies” refers to supplies of goods and services that are subject to VAT but are zero-rated, that is, taxed at a 0% rate. Purchasers of exempt sup­plies may receive an input credit for the VAT they paid on inputs.

Examples of exempt supplies

  • Exports of movable, tangible goods if the exporter is registered with the National Tax Registry (Registro Único Tributario or RUT), has received a taxpayer identification number and can, at the request of tax authorities, provide proof of agreements to provide exports, such as contracts, offers or purchase orders
  • Services rendered exclusively in Colombia and used exclu­sively abroad by companies or individuals who are not engaged in business in Colombia (Companies not engaged in business in Colombia include companies that are direct beneficiaries of the services, the VAT exemption does not extend to related parties such as a subsidiary, branch, affiliate, representative office or home office in Colombia.)
  • Tourism, if rendered to nonresidents in Colombia and used in the country and benefiting a company that is registered in the National Tourism Registry and promotes tourism by engaging in certain qualified activities
  • Purchase or sale of foreign currency and derivatives

The term “excluded supplies” refers to supplies of goods and services that are not subject to VAT. Purchasers generally may not claim an input discount or credit for the VAT they paid on inputs (see Section F).

Examples of excluded supplies

  • Some goods and services that cover basic needs
  • Utilities
  • Restaurant services
  • Interest and exchange differences
  • Specific digital services, such as educational media for regu­lated government content, hosting, cloud computing and provi­sion of webpages, as well as remote maintenance of hardware and software

Option to tax for excluded supplies. Not applicable.

Time of supply

The time when VAT becomes due is called the “time of sale” or “tax point.”

For a sale of goods, the tax point is the earlier of the following events:

  • The issuance of the invoice or the delivery of the goods
  • Withdrawal of movable goods by the taxable person for its own use or to form part of its fixed assets

For a supply of services, the tax point is the earliest of the follow­ing events:

  • The issuance of the invoice or equivalent document
  • Termination of the provision of the service
  • Payment or accrual, whichever occurs first

For the importation of goods, the tax point is when the goods are “nationalized,” that is, when the goods have cleared all customs formalities for importation.

Imported goods. The general VAT rate on imported goods is 19% (exceptions in law).

Companies that the DIAN recognizes as high-volume exporters (ALTEX) enjoy tax and administrative benefits such as:

  • No VAT imposed for regular imports of industrial machinery that is not produced in the country and is used to transform raw materials
  • Possibility of obtaining authorization from the DIAN to operate an industrial processing warehouse that allows the import of supplies and raw materials with suspension of customs duties and of VAT, as long as such supplies and materials are used in the production of export products

Colombia has special importation-exportation programs, also known as Plan Vallejo, that allow temporary importation of such supplies as capital goods, raw materials, inputs, and parts with significant customs and tax benefits, subject to compliance with the requirement that the imports are used to manufacture and export finished goods or services.

Plan Vallejo is applicable to the imports and exports of compa­nies of which the main activity consists of one of the following:

  • Raw materials
  • Capital goods for the agriculture sector
  • Services export, such as:
    • Services of transmission, distribution, and commercializa­tion of electric energy
    • Special design services, value added telecommunications and software exports

International leasing. International leasing may be used to finance long-term temporary importation of capital goods, which may remain in the national customs territory for more than five years. In addition, the DIAN may allow long-term temporary imports of accessories and spare parts that do not arrive as part of the same shipment, if they are imported within the five-year term. Customs duties (tariffs and VAT) are paid biannually. The maxi­mum term for deferment is five years, even though the goods may remain for a longer period in Colombia. When the agree­ment’s duration exceeds five years, with the last payment corre­sponding to such period, all customs duties that have not been paid must be paid.

This alternative can be complemented with a provision that allows VAT-free treatment of temporary imports of equipment and machinery, considered as heavy machinery for basic indus­tries in Colombia.

Free trade zones. A free trade zone (FTZ) is a territorial area where industrial and commercial activities are developed under a special customs, tax and foreign trade regime. Merchandise that enters a free trade zone is considered to be outside Colombia for customs purposes only. The objective of these zones is to pro­mote new jobs, new investment in fixed real assets and the cre­ation of scale economies.

The main benefits of operating under a free trade zone are:

  • No customs duties or VAT on the capital goods, equipment and machinery that enters into the FTZ for as long as these goods stay in the FTZ.
  • VAT exemption on purchases of movable tangible goods, as long as these are effectively exported or transformed.
  • VAT exemption for local sales when the purchaser is an indus­trial user of a FTZ and the goods (raw material, spare parts, semi-finished goods) will be used in compliance with FTZ rules and regulations.
  • The intermediary production services that these companies may provide are equally exempt from VAT, as long as the final product is effectively exported.
  • Exemption from withholding tax in the payment or credit to account for the acquisition of goods, destined to be exported, provided a certificate of purchase is issued to the seller in which a declaration is made regarding the future export of the product.

International trade companies. International trade companies (ITC) are intended to trade and sell Colombian products abroad. These products are purchased in the domestic market or may be manufactured by partners of the ITC. These companies must be registered before the Colombian Tax and Customs Authority (DIAN).

The most important benefits of these companies are:

  • Exemption from VAT on purchases of movable tangible goods, as long as these are effectively exported or transformed.
  • The intermediary production services that these companies may provide are equally exempt from VAT, as long as the final product is effectively exported.
  • Exemption from withholding tax in the payment or credit to account for the acquisition of goods, destined to be exported, provided a certificate of purchase is issued to the seller in which a declaration is made regarding the future export of the product.

Recovery of VAT by taxable persons

A taxable person may discount (credit) VAT paid on purchases (known as input tax) from VAT charged on sales (known as out­put tax), if the input tax relates to certain types of expenditure. Input tax paid on the acquisition of movable tangible goods and on services supplied to a taxable person, or VAT paid on imports of movable goods may be claimed as a discount (credit) up to a limit determined by applying the rate of VAT charged on the sup­ply of the goods or services provided by the taxable person to the input tax incurred. Any excess input tax paid (that is, the amount of input tax exceeding the limit determined by applying the VAT rate charged on the supply of goods and services) may be requested as a refund but only after the income tax return for the given year has been filed. In addition, for transactions with for­eign suppliers, the reverse-charge (self-assessment) mech anism must be used and the VAT withheld may be treated as input tax in accordance with the general rules and limitations if the taxable person can prove to the tax authorities that the tax has been with­held. Alternatively, the VAT withheld can be treated as a higher cost or expense if the rules to claim the input tax as a credit are not met.

Refunds. If the amount of input VAT recoverable in a taxable period exceeds the amount of output VAT payable, the taxable person earns an input VAT credit. The credit may be refunded on a bimonthly basis if either of the following applies:

  • The taxable person is an exporter of goods or services.
  • The taxable person supplies zero-rated (0% rate) goods or has been subject to VAT withholding and the total balance arises from the withholdings.

In addition, a refund of VAT paid on the acquisition of materials used to construct “housing of social interest” may be requested if the construction plans were approved by the Colombian government.

If a VAT balance in favor of the taxpayer exists because of VAT rate differences, the balance may be carried forward, offset or refunded under certain conditions (see Section 481 of the Colombian Tax Code). The balance in favor must have been originated during the previous taxable period and will be deter­mined according to a proportionality mechanism.

VAT taxpayers subject to the ordinary income tax regime are allowed to claim as income tax credit the VAT paid on acquisition or import of capital goods.

Acquisitions or importations of industrial machinery. VAT paid for the acquisition of capital goods may be creditable against the income tax based on an official accumulative proportion estab­lished yearly by the tax authority, depending on VAT collection in the previous year. VAT paid but not refunded via this mechanism should be treated as part of the cost paid for the assets and is included in the base for depreciation.

Heavy machinery for basic industries. VAT paid for the acquisition of heavy machinery by a company involved in one of the basic industries (for example, mining, oil and gas, and power genera­tion) may be treated as a discount against tax due in the taxpayer’s income tax returns. The discount may be applied in the tax year of acquisition or importation and in the following periods. If the imported machinery has a Cost, Insurance, Freight (CIF) value in excess of USD500,000, VAT may be paid in the following percent­ages:

  • 40% when the importation form is completed
  • The remaining 60% within the next two years

The taxpayer must enter into a payment agreement with the local tax authorities if it wishes to use the above method.

A special measure applies to long-term temporary imports of heavy machinery that are not produced in Colombia and that are imported by companies involved in basic industries. Under this measure, these imports are excluded from VAT, at the time of the entry of the goods into Colombia. To obtain the VAT exclusion, the importer must submit a certificate of the Ministry of Industry, Commerce and Tourism at the time of entry. This certificate must state that the machinery to be imported is not produced in Colombia and that it will be used in a basic industry.

Depending on the situation, VAT paid for the acquisition of “real productive fixed assets” may be treated as one of the following:

  • A part of the cost of the goods acquired.
  • A tax discount in the income tax return. This measure applies only to industrial machinery acquired or imported by producers of VAT-excluded products or the VAT paid in the acquisition or importation of heavy machinery in basic industries.

Partial exemption. Not applicable.

Preregistration costs. Not applicable.

Recovery of VAT by non-established businesses

Colombia does not refund VAT incurred by foreign or non-established businesses unless they are registered for VAT there. How ever, members of accredited diplomatic missions and mem­bers of the United Nations may claim a refund of VAT paid.

Invoicing

Tax credit documents, invoices and credit notes. A taxable person must provide a VAT invoice for all taxable supplies made, includ­ing exports. In some cases, other documents may be treated as equivalent to invoices such as tickets and contracts signed with nonresidents for technical services or technical assistance ser­vices. A tax invoice is generally necessary to support a claim for input tax credit.

Proof of exports. VAT is not chargeable on supplies of exported goods. Exports are exempt from VAT. However, to qualify as VAT-free, exports must be supported by customs documents that prove that the goods have left Colombia. The exporter must file a declaration to the tax authorities by filling out a DEX (Declaración de Exportación) and be registered as an exporter with the Registro Único Tributario (RUT). In Colombia, sales of goods required for the normal development of the businesses of operators or industrial users located in free-trade zones and sales to International Commercialization Companies are considered to be exports if the goods are effectively supplied to the purchaser. Consequently, these transactions are also exempt from VAT.

Foreign-currency invoices. Invoices may be issued in a foreign currency, but must be paid in Colombian pesos (COP). The VAT amount must be converted to pesos using the market exchange rate on the date of the transaction. The Colombian Central Bank manages the exchange system.

VAT returns and payment

VAT returns. VAT returns are filed bimonthly at the end of February, April, June, August, October and December by large taxpayers, which are those with gross revenues equal to or higher than 92,000 UVT (tax value unit or unidad de valor tributario), or approximately USD1 million. Taxpayers with gross revenues between lower than 92,000 UVT (USD1 million) file VAT returns every four months at the end of April, August and December. Returns must be submitted to an authorized commer­cial bank by the due date specified in a governmental decree.

Liabilities shown in returns must be paid in Colombian pesos. Special schemes. Not applicable.

Electronic filing and archiving. Provided the taxpayer has a digital signature, VAT returns must be filed electronically at www.dian. gov.co.

Penalties

The penalty for late filing and payment applies for each calendar month (or part thereof) of delay. It equals 5% of the total tax charged or withheld in the tax return period, up to a maximum of 100% of the tax.

If the taxable person is not required to pay any VAT, the penalty for each month of delay (or part of a calendar month) equals 0.5% of the gross income received by the taxpayer, up to a maximum of 5% of such income, or twice the credit balance in favor of the taxpayer in the return period. The maximum penalty is 5% of gross income or two times the credit balance (if any) or, if no credit balance exists, USD62,000 (for 2017). If the taxpayer does not have any income during the period, the penalty per month (or part of a month) equals 1% of net equity for the pre­ceding year. The maximum penalty is the lower of 10% of the taxpayer’s net equity for the preceding year and twice the credit balance (if any) or, if no credit balance exists, USD62,000. The minimum penalty is USD110.

The taxpayer must include the appropriate amount of penalty in a tax return that is filed late.

The interest rate charged on late payments of VAT is determined every three months, by a national decree. The current rate estab­lished by the government is 33% annually.

The Criminal Code includes penalties for the omission of tax liabilities. A taxpayer or tax withholder that does not pay col­lected VAT amounts within the two months after the due date may be punished with imprisonment for a term of between three and six years, and payment of a penalty equal to twice the amount of unpaid VAT, up to a maximum of USD12 million for 2017.

Consumption tax

Effective January 2013, a consumption tax applies to certain goods and services, including but not limited to restaurant ser­vices (including catering services), mobile phone services, the sale or import of certain vehicles, the sale of jewelry, the sale of plastic bags and the sale of medicinal cannabis.

Consumption tax rates.

  • Certain vehicles based on their free on board (FOB) value: 8%
  • Restaurant services: 8%
  • Mobile phone services: 4%
  • Medicinal cannabis: 16%
  • Plastic bag consumption: 2 cents to 20 cents per bag
  • Luxury vehicles, chassis, hot-air balloons and airships: 16%

Moment of taxation. The tax is levied at the date and time the invoice is issued to the final consumer or upon delivery of the goods or services to the final consumer.

Returns. Returns for the consumption tax are filed quarterly, starting on the date when taxable activities commenced and end­ing at the end of the calendar quarter. A simplified regime is also contemplated for some of the activities above.

The consumption tax return must mention the following:

  • Basic taxpayer identification information
  • All the taxable events subject to the consumption tax
  • The calculation of the consumption tax
  • The signature of the obliged taxpayer and/or its representative
  • The signature of the accountant, CPA and/or statutory auditor if applicable

Invoicing. For restaurants, bars, grills and other food and catering services, the consumption tax must be shown in the bill, registra­tion ticket or invoice, and it must be calculated over the total amount of the consumption, including all the foods, entrances or tickets and any additional amounts attached to the rendering of the service. There are exceptions for tips and food that has not been transformed or otherwise prepared upon serving.

Tax recovery. Consumption tax paid does not generate input VAT (VAT credit) but may be treated as a deduction for income tax purposes, except in the case of plastic bags.

Penalties. Penalties for failure to file consumption tax returns are calculated in the same manner as for VAT (see Penalties section).