Legal and tax incentives in Colombia
Hotel and tourism incentives
Services offered by new hotels located in municipalities with 200,000 inhabitants or more will be taxed for ten years at a 9% income tax rate. This benefit can be accessed until 2022 and the same rate will be applied for 20 years for municipalities with less than 200,000 inhabitants. In that case, the incentive will be accessible until 2028. These rates and terms will also apply for renovated and/or extended hotels, provided that the extension value is no less than 50% of the property’s purchase price.
New theme park, ecotourism, agricultural, and marine pier projects built in municipalities with a population of 200,000 or more will have a 9% income tax rate for ten years. Companies will be able to access this benefit until 2022. The same income tax rate (9%) is applied for municipalities with a population of less than 200,000 inhabitants for a 20-year term. In this case, the benefit will be accessible until 2028.
Sales tax on imports, manufacturing, construction or acquisition of productive real fixed assets
VAT registered companies will be able to deduct the VAT paid to acquire, build, or manufacture and import productive real fixed assets from their income tax payable, including VAT on services required to make them available for use.
First employment deduction
In accordance with Article 88 of Law 2010 of 2019, which added Article 108-5 to the Tax Law, taxpayers who have to file a tax return can deduct 120% of the salaries that they pay to employees aged under 28 years.
Energy efficiency – Non-conventional energy sources (NCES) (Law 1715 of 2014)
50% income tax deduction:
Taxpayers with efficient energy management shall have the right to deduct up to fifty percent (50%) of the investments’ value for a term of no more than 15 years, starting from the fiscal year following the one in which the investment started operating. The value to deduct may in no case exceed 50% of the taxpayer’s liquid income established before subtracting the value of the investment.
To encourage the use of energy from NCES, domestic or imported equipment, items, machinery, and services used for pre-investment or investment for the generation and use of energy from non-conventional sources, as well as for the measurement and assessment of potential resources, shall be excluded from VAT.
Holders of new investments in NCES projects shall be exempt from the payment of import tariffs on machinery, equipment, materials, and supplies exclusively for pre-investment and investment work on projects using said energy sources. This tariff benefit shall be applicable for and cover machinery, equipment, materials, and supplies not produced by domestic industry and that can only be acquired by import.
Generation using NCES will enjoy the accelerated depreciation regime.
Imports with 0% tariff
By means of Decree 272 of 2018, the Ministry of Trade, Industry and Tourism established a 0% tariff duty on the import of products classified in the Standard Classification by Economic Use or Destination (CUODE, as per its Spanish acronym) as raw materials or capital goods, and that are not domestically produced. More than 3,000 tariff sub-items are established in Article 1 of said law, which will be subject to a 0% tariff at the time of import. The list is reviewed and updated annually by the Ministry of Trade, Industry and Tourism.
Use of exempt income in agricultural and creative economy projects.
Social interest housing (VIS, as per its Spanish acronym) and priority social interest housing (VIP, as per its Spanish acronym) related income
Transfer of property for project development, first transfer of housing, and transfer pricing for urban renovation projects.
Colombian holding company (CHC) regime
Designed for domestic companies whose main activities include holding securities, investment, or holding stocks or shares in Colombian and/or foreign companies or entities, and/or managing said investments.
Dividends distributed by companies that are not domiciled in Colombia to the holding company are exempt from income tax.
Dividends paid by the holding company to residents are subject to dividend tax. Dividends paid to non-residents shall not be subject to income tax and are deemed income from a foreign source.
This is a special 20-year tax regime for income taxpayers who generate at least 400 direct jobs and make new investments in Colombia of a value equal to or greater than 30 million tax value units (UVT, as per its Spanish acronym) (approximately $1.06821 trillion COP in 2020, US $273.9 million).
Its benefits include the 27% income tax rate, exclusion from the presumptive income tax regime, exclusion from dividend tax, depreciation benefits, and exclusion from wealth tax.
Additionally, a legal and fiscal stability regime is created for these investments, which will enable them to maintain the benefits in the case of unfavorable amendments to the regime in exchange for the payment of a premium of 0.75% of the investment’s value that is made every year for five years. Investments in hydrocarbons and mining are excluded from this regime.
Incentives for investments and donations to scientific and technological development
Income taxpayers who directly or indirectly make investments or donations to projects classified as research and technological development shall have the right to deduct them from their liquid income in the fiscal year in which they are made. Additionally, said investments can deduct 25% of the value invested in these projects in the fiscal year the investment was made.
Ten-year income tax exemption to develop rural Colombia
Ten-year (10) exemption for companies that make investments in the agriculture, fishing, and rural development sector that increase productivity. To access this incentive, they must have been established as a legal entity after December 28, 2018, begin economic activity prior to December 31, 2022, and generate a minimum number of direct jobs according to the established amounts.