On October 3, 2014, the Colombian government submitted to Congress a tax amendment (Tax Bill) whereby five basic modifications are requested, namely: 1) a new net-equity tax, 2) a four-year increase in the CREE tax, 3) an extension of the 0.4% tax on financial transactions, 4) the criminalization of tax evasion (which heretofore has not been penalized) and 5) an off-shore disclosure rule for assets. Please find below an executive summary thereof.
Tax on net equity (referred to by the government as “wealth tax”)
Pursuant to the Tax Bill, income tax payers with a net equity equal or higher to $1 billion Colombian pesos (COP) (roughly US$0.5 million) must file wealth tax returns in 2015, 2016, 2017 and 2018. This tax levies the net equity (total assets minus total debts) that the tax payer has on January 1, 2015, at the following rates:
- A 0.2% tax on the first COP$2 billion (roughly US$1 million) of net equity.
- For a net equity between COP$2 billion and COP$2,999,999,999 (around US$1.5 million) a tax of COP$4 million (US$2,000 approx.) on the first COP$2 billion plus a 0.35% tax on the difference between COP$2 billion and the net equity of the tax payer.
- For a net equity between COP$3 billion (around US$1.5 million) and COP$4,999,999,999 (US$2.5 million approx.) a tax of COP$7.5 million (US$3,750 approx.) on the first COP$3 billion plus a 0.75% tax on the difference between COP$3 billion and the net equity of the tax payer.
- For a net equity surpassing CO$4,999,999,999 (approx. US$2.5 million) a tax of COP$22.5 million (US$11,250 approx.) on the first COP$5 billion plus a 1.5% tax on the net equity of the tax payer exceeding such amount.
The aforementioned tax will be paid four times, in four different years.
The CREE, which is similar to an income tax as it levies the profits (the taxable base might under some circumstances be slightly higher than the income tax base), would be increased three points (currently at 9%, to be increased to 12% if the Tax Bill is approved) when corporate profits exceed COP$1 billion (roughly US$0.5 million). This three-point surplus would be imposed in 2015, 2016, 2017 and 2018. Additionally, another three points (calculated on the CREE of the previous year) would also be paid as an advanced payment of the following year’s CREE.
In general terms, if the proposed Tax Bill is enacted, corporate tax payers (excluding tax payers located in free trade zones to which the CREE does not apply) will have to pay a 25% income tax on profits, 9% for CREE, 3% as CREE surplus and an additional 3% (calculated on their 2014 profits) as an advanced payment for the 2016 CREE tax (this advanced payment may be credited to the 2016 CREE return).
Extension of the 0.4% tax on financial transactions
Currently, gross amounts that are wire transferred from abroad to any Colombian bank account and any domestic withdrawal therefrom are taxed at a 0.4% rate. This tax was scheduled to be reduced in 2015, but if the Tax Bill is approved, it would be extended at least until the end of 2018.
Tax evasion is not currently a criminal offense in Colombia. However, if this Tax Bill is enacted evasion would become a felony. Therefore, any tax payer who intentionally omits to declare assets, alters his or her basis or includes fake expenses for an amount exceeding COP$356,370,510 (around US$178,000) will be prosecuted. Notwithstanding this, the criminal action would terminate upon payment of all amounts due.
The disclosure of off-shore assets that have not been previously included in the income tax return (tax payers in Colombia must include in their income tax return not only their income but also their assets and debts), may be included in 2015 by means of the wealth tax returns set forth above, with a 10% rate calculated on the asset´s basis. If the inclusion of omitted assets is done in 2016, a 15% rate shall be paid, which is increased to 20% if such inclusion is made in 2017. Afterwards, much higher rates would be applied.