The decree regulates the criteria for identifying preferential tax regimes. Taxpayers may want to consider reviewing their structures to determine whether they are subject to the preferential tax regime rules.
On 28 October 2021, the Colombian Government issued Decree 1357 of 2021, regulating the criteria established by Article 260-7 of the Colombian Tax Code (CTC) for identifying preferential tax regimes (PTR).
Article 260-7 of the CTC establishes five criteria for identifying a PTR. If two of the five criteria are met, the regime will be considered a PTR.
Decree 1357 establishes the following series of assumptions to assess whether each of the criteria is met:
|Non-existence of tax rates or existence of low nominal rates on income||
|Lack of an effective exchange of information or the existence of legal regulations or administrative practices that limit such exchange of information||
|Lack of transparency at the legal, regulatory or administrative level||
|Non-existence of a substantial local presence or the development of a business activity with economic substance||
|Regimes available only for nonresidents (ring fencing)||
In accordance with Decree 1357, these criteria must be applied to the list of PTRs established by the Organisation for Economic Co-operation and Development, to determine whether they are PTRs under the Colombian regulations.
If it is determined that a person, company or entity is resident, located or carrying out activities in a PTR as established in Article 260-7, the tax implications will be as follows:
Payments made to the PTR, which are deemed as Colombian-source income, will be subject to withholding tax at the same rate as the corporate income tax rate (31% for 2021 and 35% for 2022). The rate may be reduced if a tax treaty applies.
Transactions with persons, companies, entities or residents located or carrying out activities in a PTR will be subject to the transfer pricing regime, including the filing obligations, even if the person located in the PTR is not a related party. If the transaction is concluded with a related party, a functional analysis should be submitted for the related party.
For additional information with respect to this Alert, please contact the following:
Ernst & Young S.A.S. Bogota
- Luis Orlando Sánchez
- Juan Torres Richoux
- Andrés Millán Pineda
- Amalia Borja Gonzalez
- Isabel Rodriguez Daniels
Ernst & Young LLP (United States), Latin American Business Center, New York
- Zulay Andrea Arevalo
- Ana Mingramm
- Lucas Moreno
- Enrique Perez Grovas
- Pablo Wejcman
- Pablo Angel
Ernst & Young Abogados, Latin America Business Center, Madrid
- Jaime Vargas
Ernst & Young LLP (United Kingdom), Latin America Business Center, London
- Lourdes Libreros
- Claudia V León Campos
Ernst & Young Tax Co., Latin America Business Center, Japan & Asia Pacific
- Raul Moreno, Tokyo
- Luis Coronado, Singapore
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.