Regulation of the Colombian Normalization tax
The Colombian Ministry of Finance issued Decree 1010 of July 14, 2020 to regulate Colombian normalization tax provided in Law 2010 of 2019 or Law of Economic Growth. This decree reiterated and developed several conditions contained in the aforementioned law to normalize omitted assets or non-existent liabilities as of January 1st 2020, as follows:
1. In the cases of foreign foundations of private interest, foreign trusts, insurance with a material savings component, investment funds or any other foreign fiduciary business, taxpayers who are economic, potential or real beneficiaries, and consequently, have the obligations to declare, settle and pay the normalization tax are:
- · The founder, constituent or originator of the assets transferred to any of these structures, when the beneficiaries are conditioned or have no control or disposition of the assets.
- · The hereditary succession in case of death of the founder, constituent or originator.
- · The beneficiaries when they are not conditioned or have control or disposition of the assets.
2. Total assets and rights appreciable in money, including art treasures, jewelry, precious stones and exhibition animals, are part of the taxpayers’ gross assets.
3. Entities with fiscal costs substantially lower than their underlying assets, are those contrived entities, without apparent economic purpose, whose fiscal cost differs substantially from their underlying assets, such as:
- Entities whose capital is substantially lower, compared to the fiscal cost of their underlying assets.
- Entities that do not keep accounting and, consequently, cannot justify the difference in fiscal costs between them and their underlying assets.
4. Fiscal transparency principle will be applicable to those structures that involve foreign foundations of private interest, foreign trusts, insurance with a material savings component, investment funds, any other foreign fiduciary business or entities with fiscal costs substantially lower than their underlying assets.
5. In order to reduce the taxable base of the normalization tax to 50%, due to the repatriation of omitted resources, which are invested with a vocation to remain in the country, the following requirements must be met:
- The taxable base of the normalization tax must be equal to the value of the assets omitted abroad, in accordance with its fiscal cost or the appraisal.
- The omitted resources abroad must be repatriated to Colombia before December 31, 2020.
- The omitted resources abroad must be invested with a vocation to remain in Colombia before December 31, 2020, for a term of at least two years from the aforementioned date.
- Repatriation must be carried out by the taxpayer of the normalization tax or the foreign entity taxed with said tax.
Failure to comply with these requirements will give rise to the obligation to declare and pay the greater value of the normalization tax and default interest.
6. The reduction of the taxable base of the normalization tax to 50%, will not be applicable when the effective management headquarter in Colombia of the normalized foreign entity is configured.
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Juan Díaz | [email protected] | Tax Law