Colombian 2024 Tax Reform Bill Submitted to Congress

| Image credits: "Capitolio Nacional de Colombia (National Capitol of Colombia)." This is the seat of the Colombian Congress and a symbol of the government, located in Bogotá, by Jorge Lascar is licensed under CC BY 2.0.

On September 10, 2024, the Colombian government submitted a tax reform bill (the Financial Law) to Congress, proposing significant changes aimed at covering a US$4 billion gap in the 2025 budget. This reform introduces a variety of tax modifications affecting corporate income tax (CIT), capital gains, individual income tax, and several other sectors.

Here are the main proposals of the bill:

CORPORATE INCOME TAX (CIT)

• Progressive CIT Rate:

• The reform introduces a progressive tax system, phasing out the current 35% marginal rate over time.

• Taxable income is divided into bands, with rates decreasing from 34% in 2025 to 30% by 2029 for income ranging from approximately US$74,000 to US$352,000.

• For income over US$352,000, the rate stays at 33% from 2025-2029.

• Surtaxes:

• A 5% surtax on financial entities remains in effect until 2027.

• A 3% surtax for hydroelectric generators is retained until 2026.

• Oil and Coal Mining:

• CIT for these industries remains at 35%, but an additional surtax fluctuates between 0% to 15% based on market prices.

OTHER KEY PROPOSALS:

• OECD Pillar II inspired Alternative Minimum Tax Rate:

• Increase from 15% to 20%.

• Deductibility of Costs and Expenses:

• Costs and expenses can only be deducted if applicable withholding taxes have been applied and paid before the income tax return deadline.

• Interest on Shareholder Loans:

• The presumed interest rate on shareholder loans will double the official DTF (Depósitos Termino Fijo) rate.

INDIVIDUAL INCOME TAX

• Highest Marginal Tax Rate:

• An increase from 39% to 41% for individuals earning over US$365,000 annually.

• Deduction for Electronic Invoices:

• The deduction will rise to 5% in 2025 but gradually decrease to 1% by 2027.

• Equity Tax:

• Threshold to become an equity tax filer reduced from US$847,000 to US$470,000.

• Equity tax rate for high-value assets increased from 1.5% to 2%.

CAPITAL GAINS

• Capital Gains Tax:

• The rate will increase from 15% to 20% for fixed assets held for more than two years.

• For lotteries and similar activities, the rate will rise from 20% to 25%.

VALUE-ADDED TAX (VAT)

• Renewable Energy Projects:

• Machinery and services for renewable energy will be subject to a zero-rated VAT, allowing input VAT credit.

• Vehicles:

• VAT exemption for new vehicles used in public transport extended to 2029.

• VAT on hybrid vehicles will increase from 5% to 19%.

• Gambling Activities:

• Online gambling activities will become subject to a 19% VAT, and the fixed VAT on slot machines will be doubled.

CARBON TAX

• Carbon Tax Increase:

• The rate will increase from COP25,800 (~US$6) to COP74,833 (~US$19) per ton of CO2.

• Coal's carbon tax rate will accelerate, with 75% of the tax applied in 2025, and 100% by 2026 (currently expected to apply in 2028).

TAX PROCEDURES AND PENALTIES

• Whistleblower Rewards:

• New incentives introduced for reporting tax evasion or smuggling.

• Elimination of Audit Benefit:

• The "audit benefit," which reduces the statute of limitations for income tax cases with significant increases in tax, will be repealed.

• Repeal of Simple Taxation Regime:

• Set to be eliminated by 2026, this regime offers reduced tax rates on gross income for small taxpayers.

This tax reform aims to address fiscal challenges while also focusing on specific sectors such as renewable energy and transport, encouraging sustainable growth and compliance with global tax norms.

SOURCES/ RECOMMENDED READ:

• Colombian 2024 Tax reform bill submitted to Congress, would affect corporate and capital gains rates, among others (ey.com)