Income tax in Colombia is a direct tax levied on income earned by individuals and legal entities.
This tax is in charge of the National Tax and Customs Directorate (DIAN) and is responsible for administering this tax and ensuring compliance by taxpayers.
It is mainly regulated by the Tax Statute and Law 1819 of 2016 which establishes tax provisions for the promotion of equity, employment generation and economic growth in the country.
It is also regulated in Law 1943 of 2018 which modified the income tax rate for 2019 and subsequent years.
This tax is levied on taxable income, which is defined as net income less the costs and expenses necessary to obtain it.
The rate payable for this tax varies according to the level of income and ranges from 0% to 39%.
This tax applies to individuals on all their income, including that obtained abroad.
However, there are certain deductions and exemptions that can be applied to reduce the taxable base and, therefore, the value to be paid.
Deductions and exemptions also apply to the income tax payable by legal entities, which rate is 33%.
It is important to take into account that there are different tax regimes that apply to legal entities depending on the type of legal entity they are, for example, the simplified regime applies to small companies and has different rates and requirements than the general regime.
The deductions applicable to this tax are:
Costs and expenses necessary to obtain income:
costs and expenses necessary to obtain the income may be deducted, provided they are duly justified and reasonable. This deduction applies to both legal entities and individuals.
Pension and health contributions:
only individuals may deduct contributions made to the health and pension social security systems, but this may be up to a limit established by law.
Interest on mortgage loans:
interest paid on mortgage loans to acquire housing can be deducted from income tax.
Donations made to certain non-profit entities may be deducted from income tax, provided they meet certain requirements.
The applicable income tax exemptions are:
Dividends and participations:
dividends and participations obtained by individuals and legal entities may be exempt from income tax, provided they meet certain requirements:
- The dividend or participation must be paid out of the profits generated after January 1 of the respective year.
- The legal entity paying the dividends must have complied with its obligations to file tax returns and pay taxes.
- The beneficiary of the dividends or participations must be a natural or legal person that is not domiciled or resident in a jurisdiction considered a tax haven.
Income from work abroad:
income obtained by individuals from their work abroad may be exempt from income tax, provided they meet certain requirements:
- The work must be performed abroad, within the framework of an employment contract or an employment relationship.
- The worker must have remained abroad for a continuous period of at least 183 days during the taxable year.
- The salary and social benefits must be paid by an employer who is not domiciled or resident in Colombia, or who is domiciled or resident in Colombia but has no permanent establishment abroad.
Interest and financial yields:
interest and financial yields obtained by individuals and legal entities may be exempt from this tax as long as certain requirements are met:
- Interest and financial yields must be generated by public or private debt securities that meet certain requirements determined by law.
- The beneficiary of the interest and financial returns must be a natural or legal person that is not domiciled or resident in a jurisdiction considered a tax haven.
It is important to highlight that deductions and exemptions are subject to changes and updates by the tax legislation in Colombia, so it is always advisable to consult with a tax professional to know the latest updates and apply them properly in order to avoid penalties for tax evasion.
- Law 1819 of 2016. (2016, December 29). Senate Secretariat. http://www.secretariasenado.gov.co/senado/basedoc/ley_1819_2016.html
- Law 1943 of 2018. (2018, December 28). Senate Secretariat. http://www.secretariasenado.gov.co/senado/basedoc/ley_1943_2018.html
- Decree 624 of 1989 – Tax Statute. (1989, March 30). Senate Secretariat. http://www.secretariasenado.gov.co/senado/basedoc/estatuto_tributario.html