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A value added tax (VAT) is imposed on imports and on most goods and services provided by individuals and companies. Businesses are responsible for collecting VAT from their customers and paying it to the government. Businesses are placed in a neutral position since they are entitled to an input tax credit for VAT costs incurred on goods or services acquired in the course of making taxable supplies or services. VAT is a consumption tax, since the consumer bears the cost. Nonresidents are not able to recover VAT incurred.
A record of all transfers of goods and rendering of services must be kept. The law stipulates that a corresponding sales invoice must be issued, regardless of contracts entered into by a company.
In general, bimonthly returns must be timely filed on dates selected on the basis of the business's taxpayer identification number.
Suppliers of goods and services are eligible for tax credits for VAT levied on purchases of raw materials for the production or commercial use of taxable goods or services or exported goods or services.
VAT paid in the acquisition of fixed assets cannot be offset against VAT charged to the consumer. This VAT must be capitalized with the cost of acquisition or, if the assets are capital assets, used as a corporate income tax credit.
Rates and Exemptions
The general VAT rate is 16%. Rates of 20%, 35%, 45%, and 60% apply to certain goods, including motor vehicles, alcohol, and luxury items.
The law includes a list of excluded goods and services and exempt goods and services. Goods excluded from VAT include mainly goods that satisfy basic needs and some basic raw materials. Services excluded from VAT are those related to health and welfare activities, transportation, financial services, domiciled public services, and labor contracts, among others.
Goods exempt from VAT are goods sold abroad (exports) and others determined by the law. In the case of such goods, the taxpayer can request a refund of VAT it paid to suppliers on purchases related to those goods. Services rendered in the country and used exclusively abroad by enterprises without businesses or activities in Colombia (as long as such services are provided under a written contract) are exempt from VAT.
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
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