SIGNIFICANT DEVELOPMENTS
There have been no significant tax or regulatory developments regarding individual taxation in the past year. The information in this entry is current as of January 2001. For subsequent developments, consult the contacts listed above.
TERRITORIALITY AND RESIDENCE
Colombia taxes its nationals and aliens as follows.
1.Alien residents are taxed on Colombian-source income. As from their sixth year of residence, alien residents are taxed on worldwide income.
2.Nonresident nationals and aliens are taxed on Colombian-source income.For tax purposes, aliens become resident when they remain in Colombia for more than six months continuously or discontinuously within a tax year or when they complete this time period in the calendar year.
Nationals are considered residents if they maintain their family or their principal business site in Colombia.
GROSS INCOME
Employee gross income/An alien resident is taxed on salary earned for services provided in Colombia no matter where payment is made. Salary includes bonuses, living allowances, housing allowances, tax reimbursements, benefits-in-kind, and certain payments that must be made under Colombian labor law. All employees, including those who opt to receive an integral salary, that is, without the social benefits of a legal bonus and severance compensation, can treat at least 30% of the total annual labor payments or salary as exempt income. Although some payments derived from a labor relationship may be agreed as not being salary, they are deemed to be taxable for income tax purposes.
Capital gains and investment income/ An individual in Colombia for less than six years is taxed on Colombian-source capital gains and investment income. Thereafter, the alien resident is taxed on worldwide capital gains and investment income.
Capital gains are taxed separately from ordinary income but are taxed on the basis of the individual tax rates.
“Monetary correction” on savings accounts (an adjustment that savings and loan institutions credit to clients placed n certain types of savings or term-deposit accounts in order to compensate for inflation) is free of tax. The correction must be certified by the institution. Any additional yield recognized as interest is, however, taxable.
The inflation component of interest received on certain bonds by individuals not required to keep books of account is not subject to income tax.
Domestic shareholders and individual foreign shareholders resident in Colombia are not subject to income tax on dividends or participations received from Colombian companies whose income has been taxed.Contributions to pension system/ Mandatory contributions made to the Colombian pension system funds by an employee are not deemed to constitute income or capital gains for the employee and are therefore not part of the withholding tax base.
Similarly,the voluntary contributions made by either the employee or the employer to these funds are not considered income or capital gains for the employee and are therefore not part of the withholding tax base, provided the payments added to the mandatory contributions do not exceed 30% of the employee’s labor income. Notwithstanding the above, voluntary contributions will become taxable if they are withdrawn by the employee within five years of having been deposited in the fund.
Contributions made to foreign pension systems are deemed to be taxable for the expatriate or employee and are therefore part of the withholding income tax base.
DEDUCTIONS
Business deductions/ Employees are not entitled to deduct business-related expenses from their compensation income.
Nonbusiness expenses/ A resident alien can deduct from compensation mortgage interest paid in Colombia, up to a maximum of COP18,000,000 annually.Employees with annual income of less than COP67,800,000 may choose to deduct either mortgage interest or prepaid medical assistance and educational expenses.
Some donations are allowed as deductions, provided they are made to certain institutions dedicated to development of health, education, culture, religion, sports, scientific and technological research, ecology an the protection of the environment, or social development programs of general interest. Most of these donations are limited with respect to the deductible amount.
Personal allowances/There are no personal allowances.
TAX CREDITS
A resident alien is not entitled to foreign tax credits.
OTHER TAXES
Social security tax/ Nonresident aliens should be affiliated with the Colombian Retirement Pension Funds if they are not covered in their native countries with a system equal to or better than Colombia’s. The rate of employee contribution to these funds is 3.375% of monthly salary for those assignees whose salary does not exceed four
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