TAX REFORM – SOCIAL INVESTMENT ACT

(ACT 2155 OF 2021)

1. NORMALIZATION TAX

• Taxable event: This is a tax, created for 2022, supplementary to the income tax, and its taxable event consists on the possession of omitted assets or liabilities inexistent by January 1^st, 2022.
• Taxable persons: Income tax taxpayers or substitute tax regime taxpayers.
• Tax base: for omitted assets, the historical fiscal cost, or the commercial self-appraisal; for inexistent liabilities, their tax value as per the regulations contained in the Tax Code.
  • Whenever the assets omitted are represented by a foreign currency, the tax base shall be determined on the Representative Exchange Rate by January 1^st, 2022, and the advanced payment shall be calculated based on the Representative Exchange Rate on the day the Act entered into force.
  • Base can be deducted in half (50%) if resources are repatriated before December 31^st, 2022, and if resources remain in the country for two years.
• Tax rate: 17%.
• Miscellaneous:
  • If there is reinvestment for a period no shorter than two years, the tax base is reduced in 50%.
  • This will no generate penalties on the income tax, the VAT, transfer prices, the exogenous report, annual return of foreign assets, no criminal penalty for assets omitted or inexistent liabilities, foreign exchange violations.

2. CORPORATE INCOME TAX  

• Income Tax General Rate: As of 2022, increased to 35%. The Government has the power to assess the continuity of this measure in 2026.
• Financial Institutions Rate: Institutions with taxable income higher than 120,000 TVUs ($4,356,960,000 COP by 2021) are obliged to pay a 3% surcharge until 2025.
• ICA: Tax discount for ICA paid during the year is maintained at 50%. The Government has the power to assess the convenience of maintaining this 50% discount or to increase it to 100% in 2026.
• Carryback and carryforward in concession contracts and PPPs: A special rule is created to allow for non-taxable excess earnings on commercial earnings for shareholders, originated from concession contracts and PPPs incorporating the construction, administration, operation, and maintenance stages, to be applied to the commercial earnings taxed within the 10 years following or previous to the year generating them (carryback and carryforward).
• Orange economy tax incentives
  • 5-year income tax exemption ordered for orange economy enterprises.
  • Period to access this incentive is extended to June 30^th, 2022.
  • Requirement for a minimum investment amount is repealed.
• Public Works Tax Deduction: the possibility to apply this mechanism is included for projects that without being in the ZOMAC; i) have high poverty rates, or ii) do not have the infrastructure for the provision of public utilities, or iii) are located in areas which are not interconnected, or iv) are located in orange development areas.
• Simplified Tax Regime
  • Threshold: to belong to the simplified tax regime, the limit of gross income obtained in the previous year is increased; the new limit is 100,000 TVUs ($3,630,800,000 COP by 2021).
  • The deadline to subscribe within the regime was postponed to the last business day in February for those in activity and who are RUT
  • By 2022, taxpayers in this regime whose only economic activity is the provision of food and beverages shall not be liable to VAT, nor to the Restaurants and Bars Consumption Tax.
• Audit Benefit
  • Final taxation term for income tax and supplementary tax return for years 2022 and 2023 is reduced as follows:
    • 6 months if net income tax is increased to 35% in regard to the previous year.
    • 12 months if tax is increased to 25% in regard to the previous year.
• Ease of payment of taxes, charges, contributions, penalties, and interest
  • Transient reduction of penalties and interest rates
    • Penalties are reduced to 20% of the amount provided in customs, exchange and tax law.
    • Interests reduced to a rate equivalent to 20% of the current bank interest rate for consumer loans.
    • Obligations must be paid, or their payment must be agreed, before December 31^st, 2021.
    • Applicable to obligations administered by the DIAN, to the taxes, charges, and contributions at the territorial level and to the parafiscal obligations on debt collection before the UGPP.

Contentious-Administrative Settlement

Termination by mutual agreement

3. VAT

• VAT-free days
  • 3 VAT-free days are once again included.
  • Payment can be made in cash, by credit/debit cards or electronic payment collection systems. 
  • The obligation for business to issue an e-bill or similar document is maintained; this must be done before the 23:59 hours of the day following the transaction.
  • Property covered and TVU limits established through Decree 682 of 2020 remain.
  • In order to be a beneficiary of this exemption TVU limits must be taken into account as well as the definitions applicable to this type of property.
• VAT for the import of postal traffic goods
  • The VAT exemption is limited for the importation of goods subject to postal traffic, urgent shipments or fast delivery that does not exceed $USD200, when they come from countries with whom Colombia has signed an agreement or FTA, and where it is obliged do not collect the tax.
  • Non applicable if the import has commercial purposes.
• Exemption for hotel services
  • The exemption in hotel and tourism services provided to residents in Colombia is extended until 2022.

4. STRATEGY AGAINST TAX EVASION

• Registration ex officio in RUT
  • DIAN may register ex officio any natural person in the RUT who, as per the information available, is subject to the obligations administered by said institution
• Single registration of final beneficiaries
  • This registration shall be an integral part of the RUT to identify structures without a legal personality.
  • The DIAN shall be in charge of its functioning and management.
• E-billing
  • The system includes the sales invoice, equivalent documents, and any e—documents stated by the DIAN.
  • Registration in the RADIAN platform is required to formalize the transfer of the economic rights of the security e-bill.
  • A sales invoice, equivalent document or similar document is needed to apply for any costs and deductions as well as any deductible taxes.
  • Penalties related to the documents in the billing system are modified as follows:

• The POS document may solely be issued when the economic transaction is not higher than 5 TVUs ($181,540 COP) taxes excluded.
• Official appraisal of income tax through billing
  • The Tax Administration may establish the official appraisal of income and supplementary taxes through billing, which is an enforceable collection action. The invoice shall be notified by uploading it in the webpage of the DIAN, or via any other system established by the Tax Code.
  • A taxpayer may declare and pay the tax pursuant to what is established in the invoice or recoursing the invoice within the 2 months following its notification. DIAN shall establish any regulations related to this.

5. MAIN MEASURES TO DRIVE ECONOMIC REACTIVATION

Support program to formal employment

• Extended to December 2021, only for those candidate beneficiaries who, by contribution period March 2021, had fifty (50) employees’ maximum.
• Beneficiaries may request this state aid granted by the program once per month, for the payrolls of the months July to December 2021.

Job-creation incentive program

• An incentive is created for the generation of new employment, which will allow to finance labor costs such as social security and parafiscal fees.
• Addressed to employers creating new jobs through the hiring of additional workers as follows:
  • For additional workers who are between 18 and 28 years old, each employer will receive a state aid incentive equivalent to 25% of a monthly minimum legal wage (SMLMV) for each additional worker. 
  • For additional workers who are in the age range stated above, and who earn up to 3 SMLMV, each employer will receive a state aid incentive equivalent to 10% of 1 monthly minimum legal wage (SMLMV) for men and a state aid incentive equivalent to 15% for women.
• This incentive shall be in force until August 2023.

Author: Luis Felipe Paredes I [email protected] I Tax Law / Juan Fernando Díaz I [email protected] I Tax Law