Residence and Nonresidence
Colombian individuals residing in Colombia are subject to income tax (impuesto sobre la renta) on their worldwide income at progressive rates. Foreign individuals residing in Colombia are liable for income tax at the same progressive rates. However, during the first five years of residence, foreign individuals are taxed only on their Colombian-source income; from the sixth year of residence, they are taxed on worldwide income.
Nonresident individuals, whether Colombians or foreigners, are taxed only on Colombian-source income. As a rule, the tax is levied in the form of a flat-rate withholding tax, although there are some exceptions.
An individual is considered to be a resident in a given tax year if he or she holds a permanent visa or has lived in Colombia for six months during that year or has lived in Colombia for six consecutive months ending within that year. In addition, Colombian nationals are considered to be residents if their family or main place of business is in Colombia, regardless of whether they are themselves physically present in Colombia.
Treatment of Families
Each spouse is taxed separately on his or her own income. Children are taxed separately on their own income, although the parents must sign a child's tax return if the child is seven years of age or younger.
Taxable income is an individual's earnings in the form of cash, goods, or services derived from work, capital, or a combination of both. It includes all ordinary and extraordinary receipts derived in the tax year that increase the individual's net wealth, unless they are specifically exempt. His or her minimum income is the higher of 1.5% of his or her gross wealth (excluding holdings in domestic companies and the first $100 million of the taxpayer's home) or 5% of his or her net wealth. The excess of minimum income over ordinary income is deductible over the following five years.
Taxable employment income includes an employee's salary, bonuses, fees, commissions, vacation pay, and fringe benefits. Severance pay and interest thereon, indemnities for occupational accidents or illness, maternity benefits, old-age pensions, and benefits payable on an employee's death are exempt from tax. Losses arising from other activities may not be set off against income from employment.
Resident individuals who are paid dividends by a Colombian company are exempt from tax on those dividends if they were paid out of the company's taxed profits. Otherwise, the dividend income is subject to personal income tax.
The taxable business income of a resident individual is computed in the same way as that of a Colombian company. As in the case of companies, business income is calculated as a percentage of an individual's total net wealth (with some exclusions) if declared income is less than the calculated percentage. The rules are similar to those described at 9.03.
Profits from sales of fixed assets, winnings from lotteries and raffles, prizes, inheritances, bequests, gifts, and other income classified as occasional gains are aggregated and taxed separately from an individual's other income if the individual is not subject to inflation accounting (that is, he or she is not obliged to keep accounting records). The tax levied is the capital gains tax (impuesto a las ganancias ocasionales), but the rates are the same as the personal income tax rates described at 10.05.
Colombians resident in Colombia and foreigners resident in Colombia for more than five years must include their foreign-source income in their income subject to Colombian income tax. Foreign-source income must be included in gross income before any foreign withholding tax is deducted. Only Colombian nationals are entitled to a credit for foreign tax; foreigners resident in Colombia receive no relief.
In addition to the exempt employment and dividend income described above, the proceeds of life insurance policies and copyright royalties (within limits) are exempt.
Deductions and Reliefs
An employee is allowed to deduct interest paid in Colombia on a loan used to purchase his or her own house or apartment located in Colombia. As an alternative, an employee whose employment earnings do not exceed a specified limit may deduct health insurance premiums paid in Colombia and school fees paid for up to two children attending school in Colombia. Both residents and nonresidents are entitled to these deductions.
No special personal allowances (exemptions) or tax credits are given to alleviate the tax burden of taxpayers with dependents, except for health and education expenses up to the limitation determined by law.
Personal Income Tax Rates
Selected progressive rates of personal income tax applicable to Colombian individuals domiciled in Colombia and foreigners resident in Colombia are shown in Table 10.05. The full table is very extensive and could not be included. The rates also apply to income, other than employment income, from permanent services (services lasting more than six months) rendered in Colombia by nonresident individuals.
Selected Personal Income Tax Rates for 1997
Bracket of Taxable Income ($) Tax Payable Corresponding Tax Rate on To Bracket ($) Average of Bracket (%) 1 - 10,600,000 - - 11,800,001 - 12,000,000 260,000 2.18 13,000,001 - 13,200,000 500,000 3.82 14,000,001 - 14,200,000 700,000 4.96 15,000,001 - 15,200,000 900,000 5.96 16,000,001 - 16,200,000 1,118,000 6.94 18,400,001 - 18,600,000 1,814,000 9.81 20,600,001 - 20,800,000 2,452,000 11.85 25,200,001 - 25,400,000 3,786,000 14.96 26,600,001 - 26,800,000 4,192,000 15.70 29,400,001 - 29,600,000 5,004,000 16.96 32,000,001 - 32,200,000 5,758,000 17.94 37,400,001 - 37,600,000 7,324,000 19.53 39,200,001 - 39,400,000 7,846,000 19.96 42,000,001 - 42,200,000 8,658,000 20.57 45,200,001 - 45,400,000 9,766,000 21.56 48,000,001 - 48,200,000 10,746,000 22.34 49,800,001 - 50,000,000 11,376,000 22.80 50,000,001 - 50,200,000 11,446,000 22.85 Over 50,200,000 11,446,000 plus 35% on the excess over $50,200,000
Nonresident individuals are subject to personal income tax at the rate of 35%. Once they become residents, they are subject to progressive rates of personal income tax.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information contact Mario Andrade, Deloitte & Touche, Santafe de Bogota, Colombia on Tel: +57 1 256 1548, Fax: +57 1 256 1557