Tax Management Portfolio, Business Operations in Colombia, No. 7090, contains information enabling foreign investors to determine the best method of conducting their operations in Colombia from both a tax and a general legal point of view. To view this Portfolio, visit Bloomberg Tax for
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Tax Management Portfolio, Business Operations in Colombia, No. 7090, contains information enabling foreign investors to determine the best method of conducting their operations in Colombia from both a tax and a general legal point of view. It analyzes in detail the statutory and procedural framework of Colombian income taxation as it applies to individuals and corporations. The analysis also covers many of the other legal details vital to the organization of a Colombian company. In addition to a detailed explanation of the Colombian system of income taxation, the Portfolio discusses indirect taxation (VAT), basic tax and financial accounting, and corporate, trade, customs, labor, and foreign investment and exchange-related law issues.
The Portfolio analyzes the practical issues that confront foreign businesses operating in Colombia. A guide to the Detailed Analysis is provided by a Table of Contents.
This Portfolio may be cited as Acero and Ospina, 7090 T.M., Business Operations in Colombia.
Martín Acero Salazar, Esq.
Martín Acero S., Universidad de los Andes (Degree in Financial Law); Universidad del Rosario (J.D.); Professor of Law, Universidad del Rosario; member, Colombian Tax Law Institute; member, International Fiscal Association; Licensed to practice Law in the Republic of Colombia.
Felipe Ospina Acosta, Esq.
Felipe Ospina A., Universitat de Barcelona (LLM in International Economic Law and Policy), Universidad del Rosario (Degree in Tax Law, J.D.); member, Colombian Tax Law Institute; Licensed to practice Law in the Republic of Colombia.
Table of Contents
Detailed Analysis I. Colombia: The Country, Its People, and Economy A. The Country B. Language C. Population D. Basic History E. Political Organization F. Economy 1. Overview 2. Agriculture 3. Energy 4. Minerals and Ores II. Operating a Business in Colombia A. Foreign Investment Regulation 1. Legislation on Foreign Investment: General Overview 2. Investment Restrictions 3. Foreign Investment Registration 4. Representation, Controversies, Controls, and Sanctions a. Representation and Notice b. Sanctions 5. Special Foreign Investment Regimes within the General Regime a. Financial Sector b. Hydrocarbons and Mining Sector (1) General Overview (2) Special Regimes c. Portfolio Investments with Foreign Capital B. Currency and Exchange Controls 1. Legal Background 2. The Channeling of Foreign Currency a. The Exchange Market (1) Exchange Market Transactions (a) Imports and Exports of Merchandise (b) Foreign Indebtedness Operations (c) Foreign Capital Investment (d) Colombian Investment Abroad (2) Exchange Declaration (3) Authorized Foreign Exchange Intermediaries (4) Bank Clearing Accounts b. Foreign Free Market Exchange (1) Utilization of Foreign Currency from the Free Market (2) Transactions between Colombian Residents (3) Ordinary Foreign Currency Accounts C. Trade and Commerce Regulation 1. Imports and Exports a. International Trade Agreements (1) General Overview (2) Andean Community of Nations/Cartagena Agreement (3) Free Trade Agreements (a) U.S.-Colombia FTA (b) Canada-Colombia FTA (c) Colombia-Mexico FTA — G2 (d) Chile-Colombia FTA (e) Venezuela-Colombia FTA (f) Northern Triangle FTA (g) EFTA-Colombia FTA (h) Colombia CARICOM (i) CAN MERCOSUR (j) European Union (k) Cuba (l) Nicaragua (4) Latin American Integration Association (5) World Trade Organization (6) Pacific Basin Economic Council b. Licenses and Quotas c. Customs Duties and Other Taxes d. Duty Drawback/Deferral Programs (1) Plan Vallejo (2) Temporary Imports for Export in the Same Condition (3) International Trading Companies e. Value-Added Tax f. Other Special Customs Regimes (1) Special Customs Zones (2) Free Trade Zones (a) Tax (b) Customs (c) Offshore Free Trade Zones 2. General Regulation of Business a. Monopolies b. Mergers and Acquisitions c. Stock Acquisitions d. Mergers e. Spin-offs and Split-offs f. Restrictive Trade Practices and Unfair Competition g. Price Controls h. Securities Regulation i. Privatization Rules 3. Intellectual Property Rights a. Patents b. Utility Models c. Industrial Designs d. Trade Secrets e. Trademarks f. Franchising g. Copyrights and Author Rights h. Intellectual Property Violations i. Personal Data Protection D. Immigration Regulations 1. Overview 2. Visas a. Work Visas b. Business Visas c. Resident Visas d. Temporary Visas 3. Registration with the Immigration Agency (Migración Colombia) 4. Sanctions for Noncompliance with Immigration Law E. Labor Relations 1. Legal Framework 2. Individual Labor Regime (Employment) a. General Employment Rules b. Employment Agreement c. Employer's Obligations d. Salary e. Working Schedule, Overtime and Surcharges f. Vacations g. Foreign Employees h. Labor Contracts i. Termination of Employment Contracts 3. Organized Labor Management Regime a. Unions (1) Creation of a Union (2) Types of Unions (3) Union Privileges (4) Negotiation b. Collective Agreements c. Measures to Protect the Right to Create a Union (1) Labor Measures (2) Criminal Measures 4. Social Security System a. Pension System b. Healthcare System c. Occupational Hazards III. Forms of Doing Business in Colombia A. Principal Business Entities B. Joint Stock Corporation/Sociedad Anonima 1. Formation a. Purpose Clause b. Corporate Name c. Incorporation d. Articles of Incorporation e. Capital Stock (1) Ordinary Shares (2) Industrial Shares (3) Preference Shares (4) Shares Without Voting Rights (Preferred Nonvoting Shares) f. Incorporation Procedure for Foreign Shareholders g. Costs of Incorporation 2. Operation a. License b. Amendments to Articles of Incorporation c. Increases and Decreases in Capital (1) Increase in Capital (2) Decreases in Capital d. Acquisition of Own Stock e. Corporate Officers f. Shareholders' Meetings g. Director Meetings h. Books and Records i. Financial Statements j. Dividends and Other Distributions k. Reserves 3. Statutory Merger 4. Dissolution 5. Liquidation 6. Reorganizations C. Other Corporate Entities (Sociedad en Comandita por Acciones) D. Simplified Stock Corporation (SAS) E. Limited Liability Company (Sociedad de Responsibilidad Limitada) F. Partnerships 1. General Partnership (Sociedad en Nombre Colectivo) 2. Partnership with Mixed Liabilities (Sociedad en Comandita Simple) G. Branch of a Foreign Corporation 1. Overview 2. Registration 3. Cost of Establishing a Branch in Colombia H. Other Business Forms 1. Contrato de Cuentas en Participación 2. Consortium and Temporary Union 3. Trust (Fiducia) 4. Sole Proprietorship Entities 5. Joint Ventures and Business Collaboration Contracts IV. Principal Taxes Introductory Material A. Income Tax B. Estate and Gift Tax C. Value Added Tax D. Capital Investment Tax E. Payroll Tax F. Trade Tax G. Net Worth Tax H. Wealth Tax I. Regularization Tax J. National Consumption Tax K. National Tax on Gas and Diesel Fuel L. National Tax on Carbon M. National Consumption Tax on Medical Cannabis N. National Consumption Tax on Plastic Bags O. Local Taxes 1. Industry and Commerce Tax (Turnover Tax) 2. Municipal Property Tax P. Registration Tax V. Income Taxation and Financial Accounting of Domestic Entities A. What Is a Domestic Entity? B. Corporate (Entity) Taxation 1. General Overview 2. Foreign Entities 3. Basis of Taxation 4. Tax Accounting a. In General b. Tax Accounting Periods c. Tax Accounting Methods d. Inflationary Adjustments (Tax Accounting) e. Consolidated Returns 5. Taxable Income a. Gross Income b. Capital Gains c. Colombian-Source Income d. Non-Colombian-Source Income e. Calculation of Taxable Income 6. Deductions a. Business Expenses in General b. Organizational Expenses c. Cost of Goods and Services (1) General Overview (2) System for Establishing the Cost of Disposed Movable Assets (3) Cost of Acquisition of Goods (4) Reduction in Inventory Costs (5) Fixed Asset Costs (6) Self-created Intangibles (7) Deductibility of Related-Party Expenses (8) Non-deductibility of Value Added Tax (9) Costs Incurred in Promotion and Marketing of Certain Imported Goods (10) Travel Expenses (11) Royalties, Technical Assistance and Service Fees d. Charitable Contributions e. Casualty Losses f. Unrecoverable or Bad Debts (1) General Provision System (2) Individual Provision System (3) Debts Which Are Manifestly Lost or Worthless g. Rents h. Salaries and Fringe Benefits i. Research, Technology Development and Innovation j. Interest k. Depreciation and Amortization l. Taxes m. Exchange Rate Adjustments n. Pension Provisions o. Loss Carryforward and Carryback p. Loss on Disposal of Assets 7. Tax Credits a. Foreign Tax Credit b. Value Added Tax Credit 8. Tax Exemptions a. Small Businesses b. Industrial Users of Free Trade Zones c. Interest Generated from Foreign Public Debt d. Hotel Services e. Editorial Companies f. Real Estate Investment Funds and Companies Specialized in Leasing for Public Housing g. Forestry and Late Yield Crops h. Software 9. Corporate Tax Rate 10. Compliance — Assessment and Filing a. Calendar Tax Year b. Returns for Legal Entities c. Tax Audits d. Disputes and Appeals e. Payment of Tax f. Penalties g. Refunds 11. Other Income Taxes a. Withholding Taxes b. Remittance Tax c. Dividend Income Tax C. Other Taxes Imposed on Colombian Entities 1. Registration Tax 2. Industry and Commerce Tax (Turnover Tax) 3. Value Added Tax a. Taxable Transactions b. Exemptions and Exclusions c. Imports d. Exports e. Tax Rates f. Value Added Tax Registration and Legal Requirements 4. Financial Transactions Tax (FTT) 5. Tax on Vehicles 6. Tax on Property 7. National Consumption Tax D. Financial Accounting 1. General Overview 2. Accounting Period 3. Colombian Financial Statement Principles a. Valuation and Measurement b. Substance Over Form and Disclosure c. Characteristics of Colombian Financial Statements d. Off-Balance Sheet Accounts e. Inflationary Adjustments f. Recording of Entries VI. Taxation of Foreign Corporations A. Definition of a Foreign Corporation B. Taxation of Foreign Corporations C. Determination of Taxable Income D. Rendering of Technical Services and Technical Assistance E. International Transportation F. Turn-Key Contracts VII. Taxation of a Branch A. Formal Branches of Foreign Parent Companies B. Determination of Taxable Income C. Method of Taxation D. Branch Accounting E. Subsidiary v. Branch VIII. Taxation of Permanent Establishments IX. Controlled Foreign Corporations (CFCs) X. Taxation of Partnerships XI. Taxation of Resident Individuals A. Individuals Subject to Tax B. Residence C. Determination of Gross Income 1. Items Included in Gross Income 2. Capital Gains and Losses 3. Exempt Income D. Allowable Deductions and Credits 1. Business and Personal Deductions 2. Small Taxpayers E. Tax Rates for Resident Individuals 1. General 2. Income Expressly Excluded from Taxable Income or Gains 3. Withholding Tax 4. Limitation on Deductions on the Withholding Taxable Base F. Assessment and Filing 1. Filing Date 2. Payment of Tax XII. Taxation of Nonresident Individuals A. General B. Salaries, Fringe Benefits and Labor Compensation C. Independent Personal Services XIII. Estate, Inheritance, Transfer and Death Tax XIV. Taxation of Foreign Portfolio Investments XV. Transfer Pricing Introductory Material A. Introduction B. Related Party Definition C. Accepted Colombian Transfer Pricing Methods D. Comparability Criteria E. Special Rules F. Transfer Pricing Report and Information Return G. Adjustments H. Tax Haven (Low-Tax Jurisdiction) I. General Limitations on Deductions J. Advance Pricing Agreements 1. General Provisions Concerning Advance Pricing Agreements 2. Procedure 3. APA Termination 4. Appeals K. Penalties for Noncompliance 1. Noncompliance Related to the Transfer Pricing Report 2. Noncompliance Related to the Information Return L. Penalty for Repeated Sanctionable Conduct XVI. Avoidance of Double Taxation A. Foreign Tax Credit B. Tax Treaties 1. General Agreements to Avoid Double Taxation 2. Shipping and Air Transportation Agreements 3. Regime of the Andean Community of Nations to Avoid Double Taxation and to Prevent Tax Evasion
Table of Worksheets Worksheet 1 Foreign Exchange Declaration for Purchase and Sale Foreign Currency and Travelers Checks — Form 18 Worksheet 2 Foreign Exchange Declaration for Imports of Foreign Goods — Central Bank Form No. 1 Worksheet 3 Foreign Exchange Declaration for Exports of Foreign Goods — Central Bank Form No. 2 Worksheet 4 Foreign Exchange Declaration for Foreign Indebtedness — Central Bank Form No. 3 Worksheet 5 Report of Disbursements and Payments of Foreign Indebtedness — Central Bank Form No. 3A Worksheet 6 Foreign Exchange Declaration for International Investments — Central Bank Form No. 4 Worksheet 7 Foreign Exchange Declaration for Services, Transfers and Other Miscellaneous Services — Central Bank Form No. 5 Worksheet 8 Registration of Guarantees in Foreign Currency — Central Bank Form No. 8 Worksheet 9 Registration of Compensation Accounts — Central Bank Form No. 9 Worksheet 10 Reporting and Accounting of Compensation Account Transactions — Central Bank Form No. 10 Worksheet 11 International (Foreign) Investment Registration Form — Central Bank Form No. 11 Worksheet 12 Registration of the Supplementary Capital Investment and Updating of Equity (Capital) Accounts for Special Regime — Central Bank Form No. 13 Worksheet 13 Equity (Capital) Reconciliation Reporting for Companies and Subsidiaries — General Regime — Central Bank Form No. 15 Worksheet 14 Application for Extension of Time for Foreign Investment Registration — Central Bank Form No. 17 Worksheet 15 DIAN — Official Receipt of Payment of Customs Duties and Central Bank Penalties — Form 690 Worksheet 16 DIAN — Certificate of Withholding Taxes and Income — Form 220 Worksheet 17 DIAN — Asset Tax and Payment Reporting Form — Form 420 Worksheet 18 DIAN — Income Tax Return for Persons Required to Keep Accounting Records (Corporations, Other Business Entities, and Individuals) — Form 110 Worksheet 19 DIAN Income Tax Return for Persons Not Required to Keep Accounting Records (Corporations, Other Business Entities, and Individuals) — Form 210 Worksheet 20 DIAN — Monthly Withholding Tax Return — Form 350 Worksheet 21 DIAN — Bimonthly VAT Return — Form 300 Worksheet 22 DIAN — Andean Region Customs Valuation Report — Form 560 Worksheet 23 DIAN — Customs Exportation Invoice Declaration Form — Form 630 Worksheet 24 DIAN — Customs Declaration of Importation — Form 500 Worksheet 25 DIAN — Simplified Customs Declaration of Importation — Form 510 Worksheet 26 DIAN — Importation Nationalization Form — 550 Worksheet 27 DIAN — Consolidated Transfer Pricing Report — Form 130 Worksheet 28 DIAN — Transfer Pricing Report — Form 120 Worksheet 29 List of Countries with Which Colombia Has In Force Income Tax Treaties and Other Tax-Related Agreements as of March 31, 2018 Worksheet 30 [Reserved.] Worksheet 31 Agreement Between Colombia and the United States of America for the Avoidance of Double Taxation of Income from Shipping and Air Transport
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