After some years of only having the Andean Community (Peru, Bolivia, and Ecuador) treaty, Colombia keeps expanding the network of bilateral agreements intended to avoid double taxation. Since 2006 Colombia has been working on the negotiation and approval of such treaties.
At the moment, Colombia has signed and approved treaties to avoid double taxation with Spain, Switzerland and very recently with Chile. An agreement with Canada was signed towards the end of 2008 and is now waiting approval. Negotiations with Mexico have ended successfully and the treaty is pending signature. Double taxation treaties are also being negotiated with Germany, India and the Netherlands, and the Colombian government expects to initiate conversations during 2009 with the United Kingdom, Italy, France and Japan.
These treaties have been structured following the OECD model, and they are expected to encourage foreign investment, guarantee legal stability, reduce the overall tax burden and to avoid double taxation in both the country of the investor and the country where the investment is made. Finally, double taxation treaties also provide important means for the exchange of fiscal information to avoid and control tax evasion.
Simplified Share Companies
Colombia has adopted a new type of Company established through simplified shares, similar to those in the United States, France and Japan. Law 1258 of 2008 regulates this new legal figure intended to encourage commercial affaires and to improve foreign investment in Colombia.
One or several individuals or other companies, through a private document registered in the chamber of commerce, can constitute them. The regulation imposed for these companies, allows them to choose their own structure and the legal statutes that will apply to the company without multiple restrictions and with fewer formalities than usual. Another advantage is the possibility of choosing whether to have a board of directors or not. Despite these advantages, they have a restriction regarding the inscription of their shares in the public stock market.
The shareholders are not responsible for the fiscal, labor and other obligations of the company except in cases of proven fraud. These types of companies must have a fiscal revisor only in case the patrimony or the incomes are above a determined cap.
The shares of these types of companies can be included in a commercial trust fund, and they can either be shares with or without a right to vote, with fixed dividend or for the payment of obligations.
This legal figure allows for a much easier going companies regulation, and is an important tool for fiscal planning. The approval of this law will lead to a series of transformations from more complex companies to this new and easier scheme. By legal mandate, all one-person companies must transform into Simplified Share Companies.
Legal Stability Agreements
As a stimulus for private investment in Colombia, the Government has encouraged the approval of stability agreements. During 2008, 25 new agreements were signed and approved.
Under this special type of contracts, the investor suggests a list of the legal dispositions he wants guaranteed even if they are to be modified by the government. Some of the most common legal precepts protected under these contracts are benefits like the possibility of deducting 40% of the value of investments on fixed productive assets; the definition of income from foreign source; the treatment to mergers and splits of companies; the deduction of losses; the rates of certain taxes, and the treatment of dividends. The transitory regulation of Net-Worth tax is also included in most agreements.
Stability agreements have a limited reach, as only the legal precepts included in them are the ones to be protected. For this reason, it's very important to be very rigorous about the legal dispositions selected, which should be picked according to the type of investment to be made.
During the last two years, no tax legislation has been radically changed, however it's important to anticipate the risk of a new fiscal structure in the search of additional fiscal resources.
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