This article is written for the publication: "MANAGING CORPORATE TAXATION IN LATIN AMERICAN COUNTRIES, AN OVERVIEW OF MAIN CORPORATE TAXES IN SELECTED JURISDICTIONS 2009", published by Lataxnet / Latin American Tax & Legal Network ( www.lataxnet.net).

HIGHLIGHTS

National Level Tax Rates:

Through the last major tax reform, contained in Law 1111 dated December 27, 2006 Congress decreased income tax rate to 33% as from 2008. The reform also removed the branch profit tax (7%) and the dividend tax (7%)

Most cross-border loans and leasings qualify for an available withholding tax exemption based on "National Interest" depending on the destination of the loan proceeds or the leased M&E.

The 33% withholding tax rate applies for most of the cross-border royalty payments. Nevertheless, a reduced rate applies for software Licensing, and film licensing.

Law 1111, 2006 changed the tax losses carry-forward rules by eliminating the two existing limits (i.e. the 8-year limit to carry-forward losses and the possibility to use each year only 25% of losses being carried-forward.)

16% is the general VAT rate. Certain transactions could subject to either a lower or a higher VAT rate.

Net-worth tax will be applicable for the year 2007 to 2010 at an annual rate of 1,2%. The base for the four years will be the net-worth possessed on January 1st 2007.

TAX RATES

Corporate Income Tax: 33%

Free Trade Zones reduced income tax rate: 15%

Capital Gains Tax: 33%

Withholding Taxes on:

- Dividends: 0%

- Interest: 0%

- Royalties: 33%

- Technical Assistance: 10%

- Technical Services: 10%

- Imports: Not subject to withholding tax

Tax losses carry-forward term: unlimited

Tax losses carry-back term: Not available

Transfer Pricing Rules: Yes, OECD like

Tax-free Reorganizations: Statutory Mergers, Statutory Divisions,

Transformations

VAT on Sales: 16%

VAT on Services: 16%

VAT on Imports: 16%

Custom Duties: from 0% to 20%

Net-worth (Assets) Tax: 1,2% annually (aggregate rate of 4,8%)

Stamp (Documentary) Tax: 0,5% for 2009 and 0% as from 2010

Bank Debits (Transfers) Tax Rate: 4 per thousand%

Local Level Tax Rates:

Tax on Industrial,

Commercial and Service Activities: from 2 to 13,8 per thousand%

Taxes on Other Property

(including Real Estate Tax): from 1% to 3,3%

Document Registration Taxes and Rights: from 0,3% to 1,5%

OVERVIEW

1. Income Tax

1.1. General Aspects

1.1.1. Income Tax Rate

The general statutory corporate income tax rate for Colombian entities including Colombian branches of foreign companies is 33%.

1.1.2. Taxable Base

All revenues are subject to income tax unless otherwise excluded by law from the taxable base. Excluded Items of Income are subtracted from Gross Income, i.e., the sum of All Items of Income realized by the taxpayer. The result is the Gross Taxable Income from which Costs and Expenses are deducted. The after-deductions result is the Net Taxable Income. Net taxable income should be compared with the Minimum Taxable Income (see below). The Exempted Items of Income are subtracted from the greater of both the Net Taxable Income and the Minimum Taxable Income of the taxpayer, resulting in the Taxable Base to which the 33% statutory corporate tax rate is applied. The result of applying the 33% tax rate is the Resulting Income Tax from which applicable Tax Credits are subtracted to find the Income Tax Liability. We illustrate below this assessment process for further clarification:

[+] Sum of All Revenues

[=] Gross Income

[–] Excluded Items of Income

[=] Gross Taxable Income

[–] Costs and Deductible Expenses

[=] Net Taxable Income or Minimum Taxable Income (if greater)

[–] Exempted Items of Income

[=] Taxable Base

[*] 33% Corporate Tax Rate

[=] Resulting Income Tax

[–] Tax Credits

[=] Income Charge Payable

Capital gain tax is a complementary tax with its own tax base. In the case of transfer of assets possessed for more than two years by the taxpayer capital gain tax is triggered at a rate of 33% on the gain obtained in the transfer, which is equal to the difference between the fiscal cost, and the consideration received. The capital gain can only be offset with capital losses.

1.1.3. Minimum Taxable Income

As pointed out above, Income taxpayer's ordinary Net Taxable Income must be compared with her Minimum Taxable Income. The income tax liability must be computed using the greater of these two amounts. Tax law presumes that a taxpayer's Minimum Taxable Income in any given taxable year is at least 3% of her net worth on December 31st of the previous year (i.e., all assets net of all liabilities and other allowable exclusions, e.g., shares in Colombian corporations).

When taxpayers pay income tax under the Minimum Taxable Income system, the difference between such Minimum Taxable Income and the ordinary taxable income will be considered a tax credit that may be offset with taxable income of the following five years.

1.1.4. Deductions

As a general rule all costs and expenses are deductible provided that they are related, proportional and necessary to the income producing activity. Any costs or expenses related to Excluded and/or Exempted Items of Income are not deductible. Some costs and expenses are limited or forbidden, depending on the facts and circumstances of each case, e.g., related party charges, commissions, among others. Special limitations apply to the deduction of expenses incurred abroad, which will be dealt with in §1.5.2. below.

1.1.5. Depreciation and amortization

Tangible fixed assets' depreciation is deductible. Depreciation term varies depending on the nature of the asset; 20 years for real estate, 10 years for all other tangible fixed assets, except for motor vehicles and computers for which regulations establish a 5-year term. Globally used methods are generally accepted in Colombia for tax purposes, e.g., straight-line method, declining balance method, etc. Double and triple shift accelerated depreciation is also available and can be combined with the declining balance method when the asset needs to be depreciated in full in the first years of its useful life, where allowed.

Investment necessary for the income productive activities that according to the accounting rules have to be recorded as an asset (including expenses for the installation, organization and development or cost of acquisition or exploitation of mines and oil and gas exploration and exploration costs) can be amortized in a minimum period of five years using any generally accepted method. The same rule applies for intangible assets. The amortization quota is a deductible expense.

1.1.6. Transfer Pricing

Colombia has OECD like transfer pricing rules applicable to all transactions between a Colombian party and a foreign related party. A different set of rules applies to transactions between two Colombian related parties. Under the OECD like transfer pricing rules, the Colombian party exceeding net assets or revenues thresholds established by the Tax Code, must keep and file supporting documentation with the tax authorities, as well as it must perform a transfer pricing study showing that its prices or profit margins on the transactions are within the comparable arm's-length prices or profit margins ranges for its activity and similar transactions. Parties in tax havens are deemed as related parties for these purposes (a tax heavens list has to be issued by the Government, which does not yet exist). The Colombian transfer-pricing regime has a catalog of situations where two parties are deemed related. This catalog is complex and its application should require a more detailed analysis on case-by-case basis.

Bear in mind that the transfer of shares or equity stakes in a Colombian company by a foreign shareholder or partner to its related party located abroad is subject to transfer pricing rules.

1.1.7. Inflation Adjustments

The inflation adjustment system applicable for income tax purposes to all non-monetary assets, to all liabilities in foreign currency and non-peso denominated debt, and to the taxpayer's net-worth was eliminated by Law 1111, 2006 and thus was applicable until December 31, 2006.

Nevertheless the Tax Code maintains the possibility to make annual inflation adjustments on fixed assets by applying inflation index. Such adjustment is not mandatory and will not have effect in the P&L statement.

1.1.8. Tax Losses Carry-forward / Carry-back

A Colombian taxpayer can carry-forward her tax losses without any time limit. For losses obtained until December 31, 2006 there were two limits: (i) a maximum term of 8 taxable years to carry-forward and (ii) in any given year within the carry-forward period, the taxpayer could only deduct up to 25% of the total tax loss figure generated in each taxable year. There is no carry-back possibility.

Tax losses can be credited towards (and are capped by) the taxpayer's net income for the deduction's taxable year. Therefore, a tax loss deduction cannot generate further tax losses.

Tax losses cannot be transferred to other taxpayers (not even to the shareholders), except as provided in the cases of reorganizations.

This deduction is allowed only when the tax loss arises from an income generating activity ordinarily taxable under the general income taxation rules. Should the tax loss lack such nexus, i.e., be related to a non-taxable or exempt income generating activity, then the taxpayer is not allowed to take the tax loss deduction. Exceptions apply such as losses generated by applying the deduction of 40% of the value of fixed assets acquired during the taxable year (see §1.1.10 below)

There are only two type of tax-free reorganizations authorized by Colombian law.

In both statutory tax-free mergers and statutory tax-free spin-offs, the tax attributes of the target company are transferable to the surviving or resulting corporation.

In the case of tax-free mergers the above-mentioned general limitations still apply. Nonetheless, in this case tax losses are transferable to the new or surviving entity. For tax-free spin-offs part of the tax losses of the target entity are transferred to the resulting entity(ies).

In Colombia there are no requirements of continuity of business or continuity of interest for these purposes. Nevertheless and in order to qualify for the tax losses transfer under reorganization tax rules, the corporate purpose of the merging entities should be the same. For spin-offs the corporate purpose of the target entity and of the resulting entities should also be the same.

In addition, it is important to point out that the new, surviving or resulting entities will not be allowed to benefit from all of the tax losses accrued by the entities subject to the merger or to the spin-off. Only that part proportionally corresponding to their participation in the net-worth of the new, surviving or resulting entities, should be deductible.

The carry-forward period (when applicable) is not refreshed by the occurrence of a tax-free reorganization.

Colombian tax law limits (or in some cases sets special conditions) for the assessment and deduction of tax losses other than those generated by the net operating losses. We list some of these cases:

* Losses generated by acts of god affecting taxpayer's assets.

* Losses generated in the sale of fixed assets.

* Losses generated in the sale of assets (fixed or current) between related parties,

or a corporation and its shareholders –not deductible.

* Losses in the sale of stock –not deductible.

1.1.9. Tax-Free Reorganizations

Tax-free treatment is available for statutory mergers, statutory divisions and corporate transformations. Although must tax attributes should survive in the head of the beneficiary corporation pursuant to one of these reorganizations, due care should be given to the use of tax losses which is restricted.

1.1.10. Deduction of 40% of the Value of Fixed Assets Acquired

There is a tax incentive, consisting of a 40% deduction on all investments performed by income taxpayers in tangible assets, qualify as fixed assets, effectively utilized (during its useful life) in the taxpayer's income producing activity. The deduction is also available on assets manufactured or built by the taxpayer, and even on used (second-hand) assets. Leased assets are subject to this benefit,provided that the leasing terms incorporate an irrevocable purchase option for the taxpayer and the latter exercises the option.

The income taxpayer must take the deduction in the fiscal year in which the investment is performed.

Regarding this benefit, Law 1111, 2006 expressly established the following rules:

(i) The use of the deduction will not generate a taxable income for shareholders or partners, which means that this is an exception of the general rule according to wish dividends are not taxed for shareholders or partners only if they are paid out from previously taxed profits at corporate level.

(ii) Deduction applies only on assets acquired that were not subject to transactions between other related parties.

(iii) Asses subject to this benefit may only be depreciated using the straight-line method.

(iv) Losses originated in the use of this benefit might be carried-forward without any time limit.

The deduction is computed on the cost basis of the asset, whether acquired, manufactured or built. The basis should include the VAT paid in the asset's acquisition but only if the VAT is capitalized in observance to general applicable tax law. Otherwise, the non-capitalized VAT should not increase the base to compute the deduction. If the non-capitalized VAT is creditable, its creditability is not prevented by the use of this deduction.

Should the asset purchase agreement be cancelled, rescinded, vacated or annulled, the deduction is recaptured in full and computed as net taxable income for the taxpayer in the fiscal year of the contract's rescission. The deduction is also recaptured in full on leased property, whenever the taxpayer fails to exercise the irrevocable purchase option. In this event the lessor most report the lessee's omission to the Colombian Internal Revenue Service.

This deduction is an additional tax benefit that should not prevent the taxpayer from benefiting from other statutory deductions on this type of investments, such as depreciation (only under straight-line method) or amortization. If the taxpayer stops utilizing the property on her income producing activity prior to its depreciation or amortization in full, the special deduction is recaptured in proportion to the remaining useful life (or amortization period) of the property.

1.1.11. Leasing Tax Treatment

As a general rule, the assets leased must be entered on the lessee's books as an asset and in addition its value must also be entered as a liability. The part of the lease payments corresponding to principal decreases the registered liability, while the interest portion is a deductible expense. The lessee will have the right to take depreciation or amortization deductions on the asset, provided the asset is either depreciable or amortizable.

If the assets leased are M&E and the lease term is of at least 36 months (24 months for motor vehicles and computers, and 60 months for real estate), then the lessee is not allowed to enter in its books neither an asset nor a liability.

Instead, the lessee will be entitled to treat the lease payment in full as deductible. This will only apply to leasing agreements entered into until December 31, 2011 by (i) power infrastructure projects if the lease term is of at least 12 years (ii) medium size companies (i.e. with assets in an amount between approx. US$1.200.000 andUS$7.200.000).

1.1.12. Special treatments (income tax exemptions)

There are special treatments available consisting in considering exempted any income generated in certain activities:

(i) For generating companies and for a term of 15 years income generated by wind power, bio-mass or agricultural waste if some special requirements are met.

(ii) As from January 1, 2004 and for 15 years income generated in river transport services in low draught boats.

(iii) Income received for hotel services in hotels constructed or renewed within 15 years following January 1, 2004. The exemption will be applicable for a term of 30 years.

(iv) Income generated in eco-tourism activities certified by the correspondent authority for a term of 20 years as from January 1, 2004.

(v) Use of new forestry plantations based on the qualification by the competent authority or investment in new sawmills for the use of said plantations.

1.2. Payment and Filing.

For any given taxable year the corresponding income tax return and tax liability must be filed and paid on the first date of the next year, according to the filing and payment dates set out by the tax authorities in the corresponding schedules

All entities including corporations must file their income tax return between April 13 and April 24, 2009 (for FY2008), observing the filing schedule issued yearly by the tax authorities and filing no later than on the day indicated according to the last digit of the taxpayer's Tax Identification Number (TIN).

Payment of the corresponding tax liability can be performed in two installments of 50% each. The first installment must be paid on the filing date and the second installment must be paid between June 8 and June 23, 2009, observing the payment schedule issued yearly by the tax authorities.

There are special filing and payment schedules issued by the tax authorities for corporations classified as Grand Taxpayers. This year all Grand Taxpayers must file their return no later than on the day indicated according to their TIN's last digit, between April 13 andApril 24, 2009 (for FY2008).

Grand Taxpayers also benefit from a special 5 installments payment facility. For FY2008 (filing in 2009) the first 20% installment must have been paid between February 9, and February 20, 2009. The second 35% installment must be paid with the filing of the return. The third 30% installment must be paid between June 8 and June 23, 2009. The fourth 25% installment must be paid between August 11 and August 25, 2009, and the last 10% installment between October 8 and October 22, 2009.

Filing and payment dates are ordinarily similar year after year.

1.3. Penalties on Unpaid Tax or Tax Paid Belatedly.

Unpaid taxes are subject to lateness interest that should be daily assessed at a rate equivalent to the highest legally accepted rate certified by the Financial Superintendence for the correspondent month of delay. The Superintendence certifies a usury rate applicable for a three month period. The lateness interest yearly rate applicable from January 1 to March 31 2009, is 33.93%, i.e., 2,83% for each of said months.

Other penalties apply for non-filing or inaccurate filing, which may range from 5% up to 160% of the corresponding tax liability, depending on the facts and circumstances of each case.

1.4. Dividends Tax / Branch Profits Tax.

There is a 7% remittance tax on dividends and branch profits remitted abroad to non-resident alien entities or individuals applicable to profits obtained by branches of foreign companies and dividends distributed to foreign shareholders or partners until December 31, 2006. As from January 1, 2007 this is not longer applicable due to its elimination by Law 1111, 2006. If the dividends or profits were reinvested in Colombia for a minimum 5-year term, they would be exempted from this tax when remitted abroad after this period. This is still applicable for profits of branches obtained until December 31, 2006 and dividends distributed before that date.

To avoid double taxation, Corporate profits should only be taxed at the corporate level. Nevertheless, if the accounting earnings and profits of a Colombian corporation exceed the tax profits subject to income tax, the excess should be subject to income tax at the shareholder level. If the shareholder is a foreign resident, the applicable rate will be 33%. This does not happen in the case of Colombian branches of foreign companies, case in which there should be no home office taxation on the excess of the taxed profits over the accounting earnings and profits of the branch.

1.5. Cross-border Payments

1.5.1. Withholding Taxes

When Colombian sourced income is remitted abroad to a beneficiary that is a non-resident alien individual or entity, the payment should be subject to a withholding tax.

1.5.1.1. Dividends

If the corresponding profits were taxed at the corporate level then no income tax withholding applies, otherwise a 33% income tax withholding would be applicable.

1.5.1.2. Royalties

Royalty payments are subject to a 33% withholding tax for income tax.

1.5.1.3. Technical Services, Technical Assistance and Consulting Services

Whether rendered in Colombia or abroad by a non-resident, technical services and technical assistance payments are subject to 10% withholding for income tax.

1.5.1.4. Other Services

If rendered from abroad and are not technical services or technical assistance or consulting services, then no withholding tax applies. If the services were rendered in Colombia, then a 33% withholding tax applies, unless otherwise provided by special rules.

1.5.1.5. Interest and Leasing Payments

As a general rule, payments performed pursuant to foreign debt agreements and cross-border M&E leasing agreements are subject to a 33% withholding for income tax. A reduced 2% withholding for income and remittance taxes applies in some specific cases for M&E leasing payments in the construction industry, provided that certain requirements are complied with. Nevertheless, in most cases these interest and M&E lease payments could qualify to be treated as non-Colombian source payments.

Therefore, should not be taxable in Colombia.

1.5.1.6. Equity Reimbursements

Equity reimbursements not corresponding to dividend or profit distributions are not taxable items of income for the foreign shareholder. Therefore no withholding taxes should apply.

1.5.1.7. Tax Havens

Any payments corresponding to items of income deemed from a Colombia source directed to a tax haven beneficiary must be subject to an effective 33% withholding tax f, the corresponding deduction will not be allowed. This higher withholding will not be applicable to interest and leasing payments corresponding to cross-border transactions duly registered with the Central Bank. Bear in mind that the list of tax heavens has not been issued by the government yet.

1.5.2. Limitations for Costs and Expenses Incurred Abroad by Colombian Taxpayers.

It is important to keep in mind that costs and expenses incurred abroad are subject to limitations. On one hand, payments to a home office or parent company abroad are only deductible if they where subject to withholding tax in Colombia and were fixed based on arm's length principle. On the other hand, all costs and expenses incurred abroad are deductible only to the extent that such deductions do not exceed 15% of the taxpayer's Net Taxable Income assessed without taking into account these deductible items. This 15% limitation does not apply whenever the payment abroad has been subjected to the

corresponding statutory withholding tax, on certain commission payments, on interest and leasing payments that are deemed not from a Colombian source, and on payments on imported movable tangible property.

1.5.3. Tax Treaties

Colombia has only five OECD-like income tax treaties to avoid double taxation with Spain, Chile, Switzerland, Mexico and Canada. The Treaty with Spain was approved by law 1082 2006 as in now in force. The treaty with Chile was approved by law 1261, 2008 and is pending review by the Constitutional Court. The treaty with Switzerland is pending approval by Congress and later Constitutional review. Treaties with Canada and Mexico have also been discussed and agreed.

Colombia is a member of the Andean Pact. Therefore, it benefits from the Andean Pact Commission Act to Avoid Double Taxation No. 578 adopted in 2004, and that provides in most cases for exclusive source taxation among member countries, i.e., Bolivia, Colombia, Ecuador and Peru (Venezuela retired in April 22, 2006).

2. Value Added Tax (VAT)

2.1. General Aspects

2.1.1. Tax Rates

VAT's general rate is 16%. There are reduced and increased rates for certain goods and services, e.g., motor vehicles rates range from 20% to 35%, depending on the vehicle type.

Please keep in mind that in Colombia there are exempted (zero-rated) and excluded goods. When selling excluded goods or services no VAT has to be charged and no formal duties arise; VAT paid by the seller will be a higher cost of the sold products or goods. In the case of exempted or zero-rated goods no VAT has to be charged but formal duties arise; VAT paid by the seller might be credited against VAT payable generating a credit balance in the VAT return, which refund may be requested to the tax authorities.

The lists of zero-rated and excluded goods are extensive and should be checked in detail on a case-by-case basis.

There are also some VAT exemptions for specific public entities of the national or local territorial level, which may or may not be relevant depending on which is the public entity that will act as contracting entity in any given project.

2.1.2. Taxable Transactions

These are: sale and importation of movable tangible property; and services rendered in Colombia.

In some cases, services rendered outside Colombia are deemed as subject to VAT because of their nature and for being the beneficiary a party located in Colombia, e.g., consulting, advising and auditing services. In these cases the VAT does not affect the foreign party as the Colombian party must cover and pay directly to the tax authorities 100% of the tax accrued, being possible to credit such VAT paid against VAT payable.

The sale of movable tangible property that is a fixed asset for the seller is not subject to VAT.

2.1.3. Taxable Base

As a general rule, the taxable base is the price or value of the consideration paid for the goods or services, which should correspond to their Fair Market Value (FMV).

There are cases where certain items must be either included or excluded from the taxable base and/or cases with either mandatory or optional taxable bases, which should be analyzed on a case-by-case basis.

2.1.4. Creditable VAT

As a general rule the VAT taxpayer has a right to credit against VAT payable all VAT paid to her providers for tangible movable property bought or imported and for services hired, provided that they constitute a cost or expense of the taxpayer's income producing activity.

The VAT paid in the acquisition of goods that will become fixed assets for the buyer is neither creditable against VAT nor income tax. It should be capitalized increasing the cost basis of the fixed asset, unless otherwise allowed by law (as we will see below in §2.2. below).

There are limitations in the VAT credits available for VAT paid on costs and expenses, when incurred in a VAT exempted or VAT zero-rated activity.

2.2. Selected VAT Incentives.

These are some VAT incentives selected among the many incentives available in the VAT law:

2.2.1. Temporary Importation of Heavy M&E

Temporary importation of heavy M&E (qualified as such by the Ministry of Trade based on a request by the importer) not produced in Colombia to be used in basic industries (i.e. mining, hydrocarbons, heavy chemistry, iron and steel industry, extracting metallurgy, electric generation and transmission, obtaining purification and conduction of hydrogen oxygen) should not be subject to import VAT. It is likely that this treatment does not apply to the goods imported for construction purposes.

2.2.2. Permanent Importation of Heavy M&E

Permanent importation of heavy M&E (whether or not produced in Colombia) is subject to VAT. But if the M&E's is going to be used in a basic industry (see 2.2.2. above) and it's CIF value exceeds USD$500K, payment of the VAT can be deferred (40% upon importation, and 30% in each of the following 2 years). In addition, in these cases the VAT paid can be credited against the taxpayer's income tax in the taxable year in which the VAT was paid or in the subsequent taxable years if the VAT paid cannot be credited in full.

2.2.3. Environmental Monitoring and Control Systems

Any domestic or imported equipments or devices to be used in the construction of control and monitoring systems required by environmental law and standards in any activity, are not subject to VAT. Access to this exemption requires certification of the environmental authority qualifying the specific equipment or devices acquired.

2.3. Payment and Filing

VAT has a 2-month taxable period. Therefore, the tax must be assed and a VAT return filed bimonthly. The VAT return must be filed and paid in full on the filing dates scheduled by the tax authorities for these purposes, which are usually after the first week following the corresponding bimonthly period's end depending on the last digit of the taxpayer's TIN.

3. Other Taxes

3.1. Net-worth Tax

This new net-worth tax applicable as from January 1, 2007 is a national level tax. It is temporary as it is programmed to be applicable for the taxable years 2007 to 2010. For the four taxable years it is applied on the taxpayers' net-worth as of January 1, 2007, i.e., assets less liabilities, provided it exceeds approximately USD$ 1,360,000.00.

Colombian branches and corporations are subject to this tax. The tax rate is 1.2% for each year. Taxpayers can exclude from the taxable base the stock held in Colombian corporations.

3.2. Property Taxes

There are municipal (local territorial level) taxes on real estate and vehicles. The rate for these taxes is set in municipal ordinances adopted by each locality, therefore they vary. Real estate tax usually ranges from 1 per thousand to 33 per thousand. Motor vehicles tax ranges from 1% to 3.5%. The taxable base in the case of real estate is the cadastral value of the property, and in the case of motor vehicles their fair market value. These taxes are usually paid and a return filed yearly.

Incentives in these taxes are ruled by the ordinance of the municipality in which the property is located. Therefore, the availability of incentives must be checked on a case-by-case basis.

3.3. Industry & Commerce Tax

This is also a municipal tax applicable to all industrial commercial and service activities performed in the territory of said municipality. The taxable base is the gross revenue received by the taxpayer and arising from the activity performed in said locality. The tax rates vary from locality to locality and range from 2 to 10 per thousand (Bogota's rates are up to 13,8 per thousand). This tax is usually paid and a return filed yearly, with the exception of many localities that have adopted a 2-month taxable period, e.g., Bogota.

Incentives in these taxes are ruled by the ordinance of the municipality in which the activity is performed and taxed. Therefore, the availability of incentives must be checked on a case-by-case basis.

3.4. Bank Debits Tax

This tax is a national level tax. It is withheld by Colombian banks (and other savings institutions). It applies on any deposited funds that are either withdrawn or transferred from checking or savings account. The taxable base is the amount withdrawn or transferred. The tax rate is 4 per thousand. There are very limited exemptions. It is an important tax to keep in mind when structuring transactions' cash-flow.

3.5. Stamp Tax

This is a documentary tax applicable to all written agreements executed or with effects in Colombia or for a Colombian party. The tax rate is 0,5% for 2009 and 0% as from 2010. The taxable base is the full amount of the consideration agreed in the document, unless otherwise indicated by law

There are several exemptions to this tax, which must be checked against the different agreements entered into or securities issued. Each party to the agreement usually takes care of 50% of the tax. There are some public entities that are exempted from this tax, but rarely this exemption extends to the private party entering into the corresponding agreement with the public party and therefore, the private party still has to take care of its 50% part of the tax.

This tax needs to be considered always and prior to entering into a written agreement with effects in Colombia, to see if an exemption is available on case-by-case basis.

3.6. Registration Tax

The registration of acts and documents with the cadastral registry office or the merchants' registry office, is subject to this registration tax. The tax rate ranges between 0.5% and 1,5% (including registry rights) depending on the type of act or document, when it is subject to registration with the cadastral registry office, and from 0.3% to 0.7% when it is subject to registration with the merchants' registry office. The taxable

base is the amount of the price or consideration shown in the document. Very few documents that are subject to registration are exempted from this tax, but if the document is subject to registration tax it is automatically exempted from the above-commented stamp tax. If one of the parties to the document is a public entity, the taxable base is reduced in 50%.

3.7. Local stamps

Bear in mind that there are some laws authorizing departments to issue stamps in order to support investments in hospitals, universities and other public entities and activities as consequence of carrying out activities and transactions within the jurisdiction of the correspondent department. Such stamps are usually levied at a rate of 1% of the gross income generated by the taxable event. Local stamps applicable must be checked on a case-by-case basis.

4. Customs Regime

General Aspects

4.1. Custom Duties

As pointed out in §2.1.2. above, importation of goods is subject to import VAT at a general rate of 16% unless a different rate applies depending on the goods. In addition to import VAT, imports are also subject to custom duties that range between 5% and 20%, also depending on the type of M&E being imported.

It is important to point out that Colombia has entered into Preferred Custom Duties Agreement (PCDA) with many countries, reducing the applicable custom duties for certain M&E from a certified origin.

Zero-rated custom duties regimes are available for some activities or importers.

These must be checked further on case-by-case basis.

4.2. Taxable Base

Custom duties are computed on the CIF value of the goods, while import VAT is computed on the CIF value plus the corresponding custom duties.

4.3. Transfer Pricing

Custom valuation rules in place in Colombia are those of the GATT (1994) valuation code, which are similar to the current WTO valuation rules. For valuation purposes, the Andean Pact valuation rules in Decisions 378 and 379 apply. These rules are also similar to the first mentioned rules.

4.4. Filing and Payment

An import return must be filed upon nationalization of the goods. As a general rule in the ordinary importation regime, custom duties and import VAT must be paid within the first month following the arrival of the M&E to Colombian customs jurisdiction. Both filing and payment must occur within this 1-month period. A 1-month extension can be granted upon previous and well-grounded request by the importer.

4.5. Used M&E

Imported used M&E (and spare parts) require a previous import license that will be granted by the authority, only whenever the M&E is not produced locally or in any Andean Pact country. Importation of used spare parts is hardly authorized.

4.6. Selected Custom Duties

Regimes Available

Importation of M&E can be performed through a variety of customs regimes different to the ordinary importation regime. Each of these special custom duties regimes has a different customs duties and import VAT treatment.

For M&E sold, the custom regime applicable will be ordinary importation. For leased or free bailment M&E (or M&E contributed as equity to a corporation or branch) the custom regimes applicable are either the ordinary or temporary regimes but with a non-reimbursable import license. Here are some of the most relevant importation regimes available.

4.6.1. Ordinary Importation Regime

It applies to all goods that will remain permanently in Colombian territory without any use or jurisdictional restrictions. Full payment of custom duties and import VAT is required upon nationalization. These imports may be reimbursable or non-reimbursable for foreign exchange purposes. Non-reimbursable imports require previously obtained import license.

4.6.2. Long-term Temporary Importation Regime

It applies to M&E and spare parts listed by the applicable regulations as capital goods. This regime is used whenever the goods are expected to remain in Colombia at least 10 months and no longer than 5 years. During this time, payment of custom duties and import VAT will be deferred and must be paid in equal quotas every six months during the term of stay. It is important to keep in mind that computation of custom duties and VAT must be performed upon temporary nationalization within the above-stated 1-month period. Customs authorities can grant authorization for a longer period of temporary permanence in Colombia upon a well-grounded request by the importer. In these cases payment of duties and VAT must be performed within the first 5-years of permanence as explained above. In any event the importer must grant a compliance bond in case payment fails or is delayed. These imports may be reimbursable or non-reimbursable for foreign exchange purposes. Non-reimbursable imports require previously obtained import license. Upon finalization of the term, the importer can either export the goods out of Colombia or nationalize the goods without paying any additional amounts for custom duties or import VAT.

4.6.3. Long-term Temporary Importation Regime for Leased Equipment

The rules of this regime are similar to the above-explained rules. Nevertheless, in this case the imports must be performed as non-reimbursable for foreign exchange purposes, because lease payments are treated as foreign debt payments for foreign exchange purposes. In addition, this regime allows the substitution of the goods initially imported.

4.6.4. Short-term Temporary Importation

This regime applies to specific goods that will be used for a specific activity that will take no longer than six months, although a 3-month extension can be authorized. Therefore, the permanence in the country of the goods is limited to that 9-month maximum period. Rarely, the term of stay authorized can be longer than 9 months pursuant to a well-grounded request and authorization of the customs authority. An import return must be filed within the 2 month above-mentioned period, assessing custom duties and import VAT for control purposes only, but payment of those duties and VAT is not required. At the end of the temporary importation the goods must be exported or the importer must apply for a long-term importation regime, otherwise the goods will be forfeited or a 200% fine will be imposed.

4.6.5. VAT Benefits

It is important to point out that the VAT incentives mentioned in §2.2 above are still applicable.

4.6.6. Free Trade Zone Regime

Colombia has a convenient Free Trade Zone regime that should be carefully explored by importers and other parties with business interest or permanent operations inn Colombia. This regime has prove to be useful in many specific situations and in addition there are some VAT and income tax benefits attached to them that should be reviewed on a case-by-case basis. Two of the most important benefits available for operations carried out from FTZs as of January 1st , 2007 are (i) the entitlement to a reduced 15% income tax rate and (ii) the treatment for VAT purposes as zero-rated of sales of products from the rest of the territory to the FTZ as well as sales between FTZ's users.

5. Payroll Taxes / Welfare Contributions

5.1. Retirement Contributions

The employee can elect between private or public pension funds. The contribution must be equal to at least 16% of the employee's wage; both employer and employees can make additional voluntary contributions.

Contributions must be computed and paid to the pension funds on a monthly basis. The employer must cover 75% of the contribution, while 25% corresponds to the employee. The employer is responsible for withholding the employee's corresponding 25% and for depositing 100% of the monthly contribution in the pension fund. Filing and payment is done on a monthly basis.

5.2. Health Contributions

The employee must be affiliated to general Health Care Plan. Contributions to the HCP administering entity must be equal to 12,5% of the employee's wage.

Contributions must be computed and paid to the HCP administering entity on a monthly basis. The employer must cover 2/3 of the contribution, while 1/3 corresponds to the employee. The employer is responsible for withholding the employee's corresponding 1/3 and for paying to the HCP administering entity 100% of the monthly health contribution. Filing and payment is done on a monthly basis.

5.3. Labor Risks Insurance System

The employee must be affiliated to a labor risk insurance system of her election.

This contribution must be between 0.348% and 8,7% (depending on the activity) and is computed and paid on a monthly basis. The employer must cover 100% of this contribution and pay it to the insurer.

5.4. Contributions to Child and Family Protection Services, Public Training System, and Compensation Funds

The employer must make these 3%, 2% and 4% contributions, respectively, on behalf of the employee. The employer must cover 100% of these contributions.

Filing and payment is done on a monthly basis.

5.5. Unemployment Fund Contribution

During the employment relation, the employer must contribute an amount equal to one monthly wage per year to a unemployment fund elected by the employee.

In addition, the employer must pay to the employee a 12% yearly interest on the amount of that yearly contribution. Both the contribution and the interest must be paid on a yearly basis.

5.6. Incidence on Wages Deductibility

Payment of the above mentioned welfare contributions is a requirement for the deductibility of the wages paid by the employer.

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.