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Key Tax Understanding for New Investors in Colombia

Posted by : Premraj | Posted on : Saturday, July 18, 2020


While Covid-19 may have taken a heavy human and socio-economic toll, it has also created significant opportunities to investors, households and individuals alike. This has been borne out by the emergence of unusual markets and stock options, particularly those focused around IT, cybersecurity and medical declining devices.

In addition to opening their minds to new and lucrative markets, investors and entrepreneurs are also considering the benefits of expanding into different countries.

Take Colombia and its capital Medellin, for example, which have reported a relatively low number of fatalities and blazed a trail for other, densely populated locations to follow when dealing with the pandemic.

We’ll explore this below, while also considering the tax breaks and benefits available who wish to make money in the South American country.

Dealing with Covid-19 and Tax Requirements in Colombia

As we’ve already said, Colombia and the capital of Medellin should certainly be appealing to entrepreneurs and investors in the current climate, with the latter having recording just four Covid-19 deaths amongst a total population of 2.5 million.

This is despite the surge of cases in neighbouring Brazil and Latin America countries as a whole, which has exacerbated the success story surrounding Colombia and highlighting its appeal amongst those with disposable capital or a desire to target prosperous international marketplaces.

Interestingly, Colombia also has far wider appeal amongst investors and entrepreneurs alike, with a raft of businesses and institutions now looking to expand through the incorporation of a Colombian company.

There are two ways in which you can achieve this, the most common of which is referred to as the ‘Simplified Share Company’ (SAS).

The process to incorporate this type of model can be completed in as little as two weeks, while it allows for two shareholders to assume legal ownership of the company.

However, establishing a branch of an existing foreign company in Colombia is a little more complex, although the rates and types of tax payable remain largely the same.

Interestingly, corporation tax in Colombia is relatively high at 34%, although this is slightly offset by the fact that this has remained relatively stable between 1997 and 2018. At the same time, the rate of value-added tax (VAT) is set at a competitive 19% in Colombia, although investors should note that not all firms are eligible to pay this.

For example, web supply, hosting and cloud computing services are not required to pay VAT, and this is a huge benefit given the growth that exists in the global tech space. Legal experts such as RSM will also confirm that those who trade currencies and derivatives are immune to VAT payments, helping investors to optimise their returns significantly.

What About Income Tax?

 As a foreign national living and working in Colombia, you’ll have to pay income tax in instances where your company generates revenues from activities or customers within the region.

You’ll also have to pay this individual tax if you live in Colombia for more than 183 days per year, with the average rate set at 33% but set to decline over the course of the next two years.

With this in mind, the average rate of income tax in Colombia will be fixed at 30% by the end of 2022, as the nation’s government continues to create more progressive tax laws with a view to aiding wealth creation and attracting investment from overseas.

This is another huge boon for business-owners and investors alike, with the current regulatory changes suggesting that now may be the ideal time to expand your interests into Colombian markets and assets.

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