Expatriate tax - Colombia

Colombia taxes its tax residents on their worldwide income.

Taxation for non-residents is established only on their Colombian-sourced income, which includes employment income obtained for services rendered in Colombia, regardless of from where the payment is made. Non-residents will be required to file a tax return if their total taxable income was not subject to withholding tax in Colombia at the non-resident rate (20%), but additional conditions may apply.
Planning advice should be sought prior to arrival in Colombia if the taxpayer has appreciated assets that may be sold, deferred income that may be received during a residency period or certain pre-assignment incentive compensation payments.

The tax year runs from 1 January to 31 December.

An individual who is a Colombian tax resident at 31 December files Form 210 (individual income tax return). An individual who is a non-resident of Colombia on 31 December files Form 110, that is for legal and similar persons and non-resident natural and similar persons and illiquid estates of non-resident deceased persons or income and assets for entities required to declare.

By issuing an Official Decree, the Colombian government stipulates the deadlines for taxpayers to submit income tax returns for each year, but it is normal for them to be like the dates of the previous year. For natural persons, the dates are between August and October of each year, according to the last two digits of the Colombian tax identification number.

Submitting the declaration is a different obligation from payment, so late payment may generate a different penalty than for making the payment late. Fines may increase over time and are independent of interest for late compliance with the obligation.

Taxpayers can request from the authority a deadline for the payment of pending tax obligations, whether taxes, penalties or late payment interest, if the interested party offers a real guarantee that sufficiently supports the debt.

Interest continues to be generated until the moment in which all of the obligations subject to the facility are paid.

There is a different rate of income tax depending on the range of the natural person's net income, which is different from the Occasional Gain Tax complementary to the Income Tax. In the income tax return for the year 2023, which is presented in 2024, the following rate table applies:

(Figures in COP):

UVT value $42.412 (For taxable year 2023)

Non-resident are taxed only on Colombian source income. Resident aliens are taxed under the same rules as those that apply to Colombian nationals. 

Colombian residents are subject to tax at graduated rates on worldwide income. However, it is necessary to keep in mind that a person may be required to file an income tax return, but not to pay the tax.In Colombia there are minimum amounts that must be met in certain concepts to be obliged to submit the income tax return to the authority. 

Non-residents are subject to an income tax rate of 35%. 

Regarding Colombian residents, only people who have net income greater than 1090 UVT (Tax Value Unit, fixed each year – for the year 2023: COP 42.412) are required to pay income tax, under progressive rates. There are three categories of taxable income (income baskets), reductions and tax rates for such baskets.

The following are the income baskets:

• General basket (includes employment income, non-employment income and capital income related to financial interest and rental income)
• Pensions
• Dividends.

An individual is considered fiscally resident in Colombia if remains in the country (continuously or not) for an aggregate period of more than 183 days within a period of 365 consecutive days. If the permanence in the Country finishes in the second year, the person is considered fiscally resident in the second year.

However, if the person is of Colombian nationality, he or she will be a tax resident if he or she falls within some scenarios contemplated in the tax Law, which may include the place of residence of the spouse or dependents, the place where they have their assets and the place from which their income comes from. An individual can also be considered a Colombian tax resident if he/she has tax residence in tax havens or if he/she does not prove tax residence in another country when the Colombian authority requests it.

Employment income is classified to be in the general basket. It includes salaries, wages, bonuses, commissions, fringe benefits, benefits in kind and any other income arising from the labour relationship. Contributions to the mandatory health and pension systems may decrease taxable income.

Exemptions and deductions applicable to employees are capped at 40% of gross income less contributions to the mandatory Social Security System. In any case, deductions and exemptions cannot exceed the annual amount of UVT 5,040.

In general, taxable self-employment is considered to be in the general basket and equals gross income less contributions to mandatory health and pension systems and business expenses applied according to the tax law.

Payments based on shares or social participation quotas are those by virtue of which the worker: (1) acquires the right to exercise an option for the acquisition of shares or social participation quotas in the company that acts as his employer or a related or (2) receives as part of his remuneration or social interest quotas from the company that acts as his employer or a related company. 

When it comes to the right to exercise an option to acquire shares or social participation quotas, income will be recognized at the time said option is exercised. If these shares or quotas are received as part of the remuneration, the income will be recognized at the time they are delivered, the worker appears as a shareholder of the respective company or the corresponding account entry is made, whichever comes first.

However, when payments are made in shares under other different assumptions, it is considered that this is a payment in kind.

The source of employment is generally determined by the place where services are performed. However, some fringe benefits attached to compensation such as housing, education, certain relocation costs and local transportation are sourced purely on a geographical basis.

Generally, an individual is liable to pay tax on any benefits (in kind) received. The value of payments or credits in kind that constitute income is determined by the commercial value of the goods at the time of delivery. The value of these is determined, unless proven otherwise, by the price established in the contract.

Colombia does not have concessions available for expatriates.

In 2023, Colombia has agreements in force to avoid double taxation with regard to income tax with the following countries: Japan, France, Italy, United Kingdom, Czech Republic, Portugal, India, Korea, Mexico, Canada, Switzerland, Chile, Spain, and, under the Andean Community of Nations (CAN) with Bolivia, Ecuador and Peru. These agreements aim to eliminate or reduce double taxation of income and assets of residents in both countries, as well as prevent tax evasion.

There is also a Homologation Agreement for the tax treatment of Pension Funds with the Pacific Alliance, signed with Chile, Mexico and Peru.

Foreign income taxes over non-domestic-source income are creditable against Income Tax, subject to certain limitations. Generally, the amount of the credit cannot exceed the sum of Colombian taxes imposed over the same income.

Specific reductions and benefits apply to each income basket, as explained below.

Employment income. Mandatory contributions to health and pension systems reduce taxable income. 25% of earned income is exempt up to 790 UVT per year starting in 2023. Exemptions and deductions applicable to employees are limited to 40% of gross income less contributions to the mandatory Social Security System. Deductions and exemptions may not exceed the annual amount of 1,340 UVT.

The deductions include economic dependents, payments to private health companies, interest and loan payments for the taxpayer's home acquisition, with their own limits.

The exemptions favor voluntary contributions deposited in a Colombian pension fund and deposits in accounts opened in local commercial banks for housing construction promotion (AFC).

There is an additional deduction in the general basket for dependents, who can be up to four dependents and is equivalent to 72 UVT. The following people are considered tax dependents:

• The son under 18 years of age.
• The son over 18 years of age and under 23 years of age who is studying in an institution certified by the competent official authority in Colombia or abroad, as long as the employee pays the education fees.
• Spouse, one of the parents or brother of the employee, who is financially dependent on the employee and who receives income less than 260 UVT in the year, duly certified.
• The spouse, one of the parents or siblings of the employee, or the son over 18 years whose dependency related to physical or psychological factors duly certified.
• There is also a deduction of up to 1% of all types of payments made for the acquisition of goods or services supported by electronic invoice, with a limit of an annual amount of 240 UVT.

Capital gains tax is considered complementary to income tax. Capital gains are extraordinary income that an individual receives from the occurrence of an unusual economic act. The different types of capital gains in Colombian tax legislation are:

- Gains derived from the disposal of assets (stocks, bonds, etc.) held for at least two years.
- Profits derived from the liquidation of a company that has been in existence for at least two years.
- Earnings from inheritances, legacies, or gifts (such as the portion of the estate received by the spouse or heir).
- Profits derived from lotteries or games of chance.

The general tax rate for capital gains in Colombia is 15%, except in the case of profits derived from lotteries, games or similar activities whose tax rate is 20%.

For the sale of real estate, the tax is 15% on the value of the occasional gain, except for the first 13,000 UVT of the value of a residential property.

For the receipt of inheritances and donations, the tax is 15% on the value of the occasional gain.

Investment income is within the general basket. Applicable exemptions and deductions are capped at 40% of net income (including earned and unearned income) and cannot exceed the annual amount of 5,040 UVT.

In Colombia there are no local taxes on individual income. Local taxes usually fall on commercial and industrial activities.

Real estate tax is a municipal tax that is levied annually on real estate located in urban, suburban, or rural areas. The taxpayers of this tax are the owners or possessors of the property. 

The tax base for this tax is the current cadastral value of the property, adjusted for inflation. Property tax rates depend on the nature and use of the property and generally range between 0.5% and 1.2%.

This tax is fully deductible for income tax purposes, if it has a causal link with the taxpayer's income-generating activity, except for expatriates.

Employers and employees must jointly pay monthly social security contributions calculated as percentages of the worker's salary. These contributions are the following:

Tax residents are subject to tax on their worldwide wealth. Non-tax residents are subject to tax on wealth held in Colombia, directly or indirectly through a permanent establishment. Wealth Tax is applicable for persons who hold net equity (gross assets less debts) as of January 1 each year that is equal to or greater than 72,000 UVT.

Residents are allowed to exclude the value of their household up to 12,000 UVT.

As follows, the wealth progressive tax rates applicable for 2023, 2024, 2025, and 2026, with values in UVT:

Wealth progressive tax rates applicable from 2027:

The financial transactions tax (GMF, also called 4x1000) is a permanent tax on financial transactions, the collection of which is the responsibility of regulated financial institutions and the Central Bank.

 The tax rate is 0.4%, and the taxable event is the carrying out of financial transactions that involve the disposal of resources deposited in checking or savings accounts, as well as in deposit accounts with Central Bank and the issuance of cashier’s checks.

 50% of the total tax paid is deductible for corporate income tax purposes, regardless of whether or not the transactions have a causal nexus with the income-producing activity of the taxpayer. 

There are operations and transactions that are exempt from this tax, according to the Law.

The Annual foreign asset report was established for those tax resident natural persons who are taxpayers of Income and Complementary Tax who, as of January 1, have assets abroad of any nature that exceed the value of 2000 UVT (COP$ 84824000 in 2023). It is an informative declaration, which does not involve paying any tax, and whose objective is to identify the assets that the taxpayer has abroad.

To comply with this tax obligation, the taxpayer must submit the declaration through the electronic computer services of the national tax authority, using the electronic signature instrument.