How are partnerships taxed?
Pursuant to section 12 of the Colombian Tax Code (CTC), Colombian national companies are taxed on global source income. General and limited partnerships incorporated under Colombian rules or with 'effective place of management' in Colombia (ie, where executive decisions are taken, and decisive and necessary management is exercised) are deemed Colombian national entities for income tax purposes.
According to section 13 of the CTC, these types of partnerships are subject to income tax and qualify as any other Colombian company for those purposes. Managing partners will be jointly and severally liable with the company for taxes and any other liabilities. The limited partners will be liable for tax liabilities in proportion to their capital contribution and limited shareholders will only respond for the amounts of their contributions.
The income tax rate applicable to resident companies and permanent establishments (PEs) of non-resident companies is 33 per cent for 2019, 32 per cent for 2020, 31 per cent for 2021 and 30 per cent for 2022 onwards.
Dividends paid to foreign entities or non-resident individuals by partnerships representing companies will be subject to taxation at a 7.5 per cent rate in Colombia, when the profits have been taxed at the partnership level. Otherwise, profits remitted abroad by a partnership that have not been subject to tax at the company level are subject to a corporate withholding rate at the percentages established above, plus a special rate of 7.5 per cent on the balance. The profits will be subject to withholding tax on dividends. There are various cases where the company's profits are exempt or deductions and other tax benefits result in a lower effective tax rate. In those cases, the taxation of dividends will be higher than 15 per cent to account for the exemption or benefit at the corporate level.
On the other hand, as noted in section 18 of the CTC, secret partnerships, consortia and temporary unions will be treated as transparent entities, which means that assets, liabilities, earnings, costs and deductions are attributable to the parties in the agreement, in proportion to their participation in the business. In this case, the third party paying the services or the goods to the joint venture shall treat the payment as made directly to each of the parties and will apply the withholding taxes accordingly, with reference to the domicile of the beneficiary.
Where the parties in secret partnerships, consortia and temporary unions have agreed to grant a fixed amount to one of the participants, the relationship under the agreement is deemed to be a relationship between independent parties, and will be treated not as a contribution to the business but as a service relationship between them.Reporting and transparency requirements
To what extent must partnerships, LLPs and similar structures file accounts and other documents and information with a government agency?
As per section 28 of Law 962 of 2005 and section 48 of the Commercial Code, general partnerships and limited partnerships must keep accounting books, accounting records and financial statements, in general, for a period of 10 years.
Regarding the obligation to nominate a statutory auditor, pursuant to section 203 of the Commercial Code, only corporations and branches of foreign companies are required to have a statutory auditor.
Secret partnerships, consortia and temporary unions must keep independent accounting records, even though they are treated as transparent entities for tax purposes. Joint ventures are required to apply withholding taxes on any payments to third parties and are subject to withholding taxes as if they are separate legal entities.
The accountant is required to report the earnings, costs and deductions, and the withholding taxes and value added tax (VAT) that are attributable to each party in the agreement.
On the other hand, as per section 61 of the Commercial Code, books and papers of the general and limited partnerships, including the shareholders ledger, are not considered public, meaning that they may not be examined by persons other than their owners or persons authorised to do so, except for the public entities such as the Tax Administration and the Superintendence of Companies.
Partnership arrangements with a legal entity are registered before the Chamber of Commerce; in the case of simple limited partnerships, the identity of the partners is public.Ownership and membership
Can anyone be a partner, and, if not, who can and cannot? Can bodies corporate or other partnerships own a partnership?
Any person can be a partner in a partnership. Given that partnerships must have at least two members, the way to own a partnership is to acquire its members. It is not possible for one single entity or person to own a partnership: the entity or person must own the members of the partnership.Execution of documents
How do partnerships and LLPs execute documents? Must all partners sign? Can the partnership or LLP sign in its own name?General partnerships
The management of the company corresponds to all of the partners, whereby all of them must sign the documents. However, as mentioned above, the management of the company can be delegated to third parties. In this event, decisions taken by the legal representative bind all partners.Limited partnerships
As per section 326 of the Commercial Code, the management will be in charge of the general partners, who may exercise it directly or through their delegates.Secret partnerships
The existence of a managing partner responsible for the commercial operations of the agreement and his or her reputation as the sole owner of the business, and of a hidden or inactive party, which only has the right to the profits of the business, implies that the managing partner is the legal representative of the agreement for all purposes.Joint ventures (consortia and temporary unions)
As per section 7 of Law 80 of 1993, members of consortia and temporary unions shall designate the person who, for all purposes, shall represent the entity and shall indicate the basic rules that regulate the relations between the participants and their responsibility. Therefore, it is not necessary that all members sign the documents, as the signature of the designated legal representative binds all partners.