Taxes in Colombia: Which taxes should we pay?

If you need to know about taxes in Colombia, both for individuals and legal entities, in this article we provide you with the most relevant information so that you can find out in detail about the rates, the conditions of application and the amounts to be paid in each particular case. Understanding Colombia’s tax system doesn’t have to be confusing, here are examples to better illustrate the taxes and how they are applied.

Taxes for individuals or natural persons in Colombia

In Colombia, individuals are subject to various types of taxes, which are divided into direct and indirect taxes. Direct taxes directly affect the income or wealth of individuals, while indirect taxes are levied on the consumption of goods and services.

Income tax in Colombia

Income tax is one of the most important direct taxes for individuals in Colombia. This is calculated on the total annual income, applying a sliding scale of fees according to income level.

• Who must pay this tax: Individuals, both resident and foreign, who meet certain levels of income or asset ownership in Colombia, are subject to income tax. For residents, global income is taken into account, while for non-residents only Colombian source income is considered.
• Income tax rates: The income tax rate in Colombia is progressive, starting at 0% for those earning below the minimum threshold and reaching up to 39% for the highest income brackets. The fares are organised in ranges, as shown below:

• Example: The tax is levied progressively by brackets, rather than as a single percentage of total income. If an individual resident in Colombia generates an annual income of $100,000,000 COP ($22,500 US), he/she must pay a rate of 19% on the income bracket between $50,000,000 COP ($12,500 US) and $90,000,000 COP ($20,500 US) and a rate of 28% on the excess up to $100,000,000 COP ($22,500 US). 

VAT (Value Added Tax) in Colombia

VAT is an indirect tax levied on most goods and services in Colombia. Although the standard rate is 19%, there are some exceptions and reduced rates for certain essential goods and services, such as basic foodstuffs and medicines.

• What products are subject to VAT: Most goods and services in Colombia are subject to VAT, although some essential products, such as certain basic foodstuffs, medicines and health services, are exempt or have a reduced rate of 5%.
• Example: If you buy a technology product such as a mobile phone that costs $1,000,000 COP ($225 US), the applicable VAT of 19% will be $190,000 COP ($43 US), bringing the total cost to $1,190,000 COP ($270 US).

Wealth tax in Colombia

Wealth tax is a direct tax that applies to high net worth individuals, aiming to contribute to those who have a higher economic capacity. Although it has been reformed in recent years, it’s still relevant for those who meet the established wealth thresholds.

• Who must pay it: This tax is applicable to those who have assets equal to or greater than $3,000,000,000 CPO ($675,000 US). The specific amounts and rates may vary from year to year, depending on the tax provisions in force.
• Wealth tax rates: Wealth tax rates range from 0.5% to 1%, depending on the total amount of wealth.
  • Example: A person with an estate of $4,000,000,000 COP ($900,000 US) will have to pay 0.5% on the excess over $3,000,000,000 COP ($719,837.88 US) , resulting in a tax of $5,000,000 COP ($1200,08 US).

Withholding tax in Colombia

Withholding tax is a mechanism for the advance collection of income tax levied on certain types of income, such as salaries, commissions and other payments. This system seeks to ensure that the State collects taxes in advance and, in some cases, serves to facilitate the fulfilment of annual tax obligations.

• When does it apply: Withholding tax applies to specific payments, such as wages of employees and certain services provided by self-employed persons. The withholding rate may vary depending on the type of income.
• Withholding tax rates: Rates vary between 1.5% and 10% for certain types of income and services. For example, for some professional services, the withholding may apply at 10% of income, while for salary income it depends on the level of income and may be around 1.5% on low incomes.
  • Example: If a person provides consultancy services and receives a payment of $5,000,000 COP ($1,130 US), a withholding tax of 10%, equivalent to $500,000 COP ($113 US), will be applied, which will be deducted before receiving the net payment.

Property tax in Colombia

Property tax is a local tax levied on the ownership of real estate, such as houses or land, and is calculated on the basis of the rateable valuation of the property.

• Who must pay it: All persons owning real estate in Colombia must pay this tax. Its collection depends on the local authorities of each municipality, and rates may vary according to the location and rateable value of the property.
• Property tax rates: Rates typically range from 0.3% to 3.3% of the rateable value, depending on factors such as land use (commercial, residential or industrial) and location.
  • Example: If a person owns a house with a rateable value of $200,000,000 COP ($45,000 US) in a residential area, and his municipality establishes a 1% fee, he’ll have to pay $2,000,000 COP ($450 US).

Stamp duty in Colombia

Stamp duty is a tax on certain official documents and contracts, and its objective is to legitimize and validate certain legal acts. This tax applies to certain contracts, such as the sale and purchase of high-value goods and certain financial services.

• When it is applied: This tax is common in documents related to contracts and notarial acts, such as the purchase and sale of property and luxury vehicles.
• Stamp duty rates: The rate of stamp duty varies, but for certain contracts it’s usually between 0.5% and 1.5% of the total value of the document or contract.
  • Example: If the purchase of a property is made through a contract valued at $100,000,000 COP ($22,500 US), with a stamp tax rate of 1%, the tax payable would be $1,000,000 COP ($225 US).

Taxes for legal persons or companies in Colombia

Corporate income tax

Income tax is one of the most relevant taxes for companies in Colombia and is levied on profits earned during the tax year. This tax is calculated taking into account the income of the company, minus the costs and deductions allowed by law.

• Income tax rate: In Colombia, the general corporate income tax rate is 35% of the company’s net profits.
• Example: If a company has a net profit of $500,000,000 COP ($113,000 US) at the end of the year, it must pay 35% of this amount in income tax, equivalent to $175,000,000 COP ($39,400 US).

Sales tax (VAT) for companies in Colombia

VAT (Value Added Tax) is an indirect tax levied on the consumption of goods and services, and businesses are responsible for collecting it and remitting it to the state. Although VAT in Colombia is generally 19%, some goods and services may be exempt or subject to a reduced rate.

• When does VAT apply for businesses: All businesses that sell goods or services subject to VAT must collect VAT at the time of sale. The company acts as an intermediary, collecting VAT from customers and then handing it over to the government.
• Example: A technology company selling products such as laptops or mobile phones must charge 19% VAT on the price of each product. If the value of a product is $1,000,000 COP ($225 US), the corresponding VAT will be $190,000 COP ($43 US), bringing the total price to $1,190,000 COP ($263 US).

Wealth tax for companies in Colombia

The wealth tax is applicable to legal persons with large estates and is intended to tax high value assets. This tax is levied on corporate wealth above certain thresholds defined by the Colombian government.

• Wealth tax rate: For companies, the wealth tax rate varies, starting from 0.5% and increasing for large estates. The total value of assets minus debts is taken into account when calculating equity.
• Example: If a company has net assets of $4,000,000,000 COP ($900,000 US), it’ll have to pay 0.5% on the value of its equity, which represents a tax of $20,000,000 COP ($4,500 US).

Industry and commerce tax (ICA) in Colombia

ICA is a local tax levied by municipalities and districts, and affects companies that carry out commercial, industrial and service activities within a specific jurisdiction. The rate varies according to the activity and location of the company, and is calculated on the basis of gross revenues.

• ICA tariff: The industry and commerce tax generally varies between 0.2% and 1.4% of gross revenues, depending on the type of activity and the municipality in which the company operates.
• Example: A service company operating in Bogotá with gross revenues of $800,000,000 COP ($180,000 US) and an ICA rate of 1% will have to pay $8,000,000 COP ($1,800 US) to the municipality as industry and commerce tax.

Withholding tax for companies in Colombia

Withholding tax is an advance collection mechanism that also affects businesses. In this case, companies must make withholdings on payments made to suppliers, workers and other contractors.

• When does withholding tax apply: Withholding tax applies on certain specific payments, such as contractor services, purchases of goods and services, and payments to employees. The fee varies depending on the type of transaction.
• Withholding tax rates: Withholding tax rates can range from 1.5% to 10%, depending on the type of income or service.
  • Example: If a company hires a consultant for $10,000,000 COP ($2,250 US), and the applicable withholding tax for professional services is 10%, it must withhold $1,000,000 COP ($225 US) and deliver $9,000,000 COP ($2,025 US) to the consultant. The amount withheld is subsequently handed over to the Colombian State.

Property tax for company property in Colombia

Property tax is a territorial tax applied to the real estate owned by the company, and its amount depends on the rateable valuation of the property and the jurisdiction in which it’s located. This tax is levied annually and is mandatory for all companies owning real estate in Colombia.

• Property tax rate: The property tax rate varies between 0.3% to 3.3% of the rateable value of the property, depending on factors such as the use of the property and its location.
  • Example: If a company owns commercial premises valued at $300,000,000 COP ($67,500 US), and the property tax rate in its municipality is 1%, the company will have to pay $3,000,000 COP ($675 US) annually.

Tax benefits in Colombia

Colombia offers various tax benefits to attract foreign investment and encourage the creation of companies in the country. These benefits are designed to encourage economic development, employment generation and technology. Here are some of the most relevant tax benefits for companies and individuals interested in setting up in Colombia.

Tax exemptions in special tax zones in Colombia

Colombia has several free trade zones, geographical areas designated to promote trade and investment, which offer special tax benefits. Companies operating in free trade zones can benefit from a reduced income tax rate and exemptions on some taxes.

• Reduced income tax rate: Instead of the general 35%, companies located in free trade zones can pay a reduced income tax rate of 20%.
• Example: A manufacturing company located in an FTZ with a net profit of $500,000,000 COP ($113,000 US) would only pay 20% income tax, which represents $100,000,000 COP ($22,500 US), instead of the $175,000,000 COP ($39,400 US) it would pay if it were outside the FTZ.

Incentives for technology investment and development in taxation in Colombia

The Colombian government offers tax benefits to companies that invest in research, development and technological innovation. These benefits are intended to promote technological progress and the competitiveness of companies in the country.

• R&D tax deductions: Companies can deduct up to 100% of R&D project expenditures from income tax, which significantly reduces the tax burden.
  • Example: If a company spends $200,000,000 COP ($45,000 US) on research and development during the year, it can deduct this amount from its taxable income, which reduces its tax base and thus the income tax payable.

VAT exemptions for export services in Colombian taxes

Colombia allows companies providing export services to benefit from a VAT exemption, as long as these services are provided to customers outside the country. This encourages companies to expand their services to international markets without having to charge VAT to their foreign customers.

• Example: A consultancy firm providing services to clients abroad won’t have to charge 19% VAT, which allows it to offer more competitive prices internationally.

Incentives for business start-ups in conflict-affected regions in Colombia tax incentives

To encourage development in regions affected by the armed conflict in Colombia, the government offers tax benefits to companies setting up operations in these areas. These incentives aim to generate employment and improve the local economy.

• Example: Companies setting up in these areas may receive partial or full exemptions on certain taxes, depending on regulations and the type of economic activity.

Frequently Asked Questions about taxes in Colombia

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