On July 10, 1997, tax reform, Law 383, was approved, which included a number of provisions affecting foreign investors in Colombia, including important changes to the income, stamp, and value-added taxes. The effective dates of the provisions are:
q Income Tax january 1, 1998;
q Value-Added Tax september 1, 1997;
q Stamp and Import Taxes effective immediately.
Withholding Tax on Technical Services and Technical Assistance. Through 1997, fees paid to nonresidents for the performance of technical assistance or technical services are exempt from Colombian withholding tax provided the services are performed outside of Colombia. If the services are performed within Colombia, the withholding tax rate is an effective 35%. Effective January 1, 1998, technical service and technical assistance fees paid to nonresidents will be subject to Colombian withholding tax at a rate of 10% if the services are performed outside of Colombia and 35% if performed within Colombia.
Technical assistance and service agreements must be registered with INCOMEX (Foreign Trade Institute). The term technical assistance?refers to assistance supplied under a contract that provides for the rendering of intangible services involving the use of technical knowledge, usually in the context of a transfer of technology. technical services?involve the application of technology without its actual transfer to the service recipient. Under income tax regulations, investment banking services rendered by nonresidents in the context of the valuation, promotion, and sale of financial institutions also qualify as technical services.
Source of Services for Value-Added Tax. As a general rule for VAT purposes, services are deemed to be performed where the service provider principal office is located. The tax reform contains a number of exceptions to this general rule exceptions that generally are intended to subject the services provided by nonresidents to Colombian residents to Colombian VAT. Most significantly, the following services are deemed to be performed at the service recipient or the beneficiary principal place of business:
q The licensing or leasing of intangible property for use or production in Colombia;
q Professional consulting, advisory, and auditing services;
q The leasing of tangible property by leasing companies, excluding ships, aircraft, and other assets used in international transportation;
q Insurance, reinsurance, and coinsurance services;
q Services performed on tangible personal property, except those related to international transportation.In addition, services performed on real property are deemed to be performed where the real property is located.Stamp Tax Rate Increase. The most significant revenue-raising provision of the tax reform is expected to be the 100% increase in the stamp tax rate from 0.5% to 1%. Stamp tax is generally imposed on private and public documents and on contracts that are executed, accepted, or performed in Colombia, or that give rise to obligations in Colombia, where the payments contemplated under the agreement or document exceed approximately US$34,000 (Col. Ps. 41,800,000).
Exchange Modifications. Resolution No. 5 of the Central Bank provides further restrictions regarding foreign indebtedness. Significant requirements are:
q Foreign indebtedness must be channeled into Colombia through certain qualified financial institutions, with a special exception for financed imports;
q Colombian borrowers must make an interest-free deposit with the Central Bank for a term of 18 months, equal to 30% of the principalamount of the foreign indebtedness, regardless of term, except that, in the case of import and export financing, foreign indebtedness includes only import financing that exceeds 6 months and export financing that exceeds 12 months.Foreign indebtedness includes prepayments received by Colombian exporters from customers if the exportation does not occur within four months of the date of prepayment. The following types of foreign indebtedness, however, have been exempted from the 30% deposit:
q Import financing of certain capital goods;
q Import financing for less than US$5,000;
q Foreign indebtedness to finance investments outside of Colombia;
q Foreign indebtedness arising from personal expenses incurred with international credit cards;
q Foreign indebtedness incurred by Colombian intermediaries in the foreign exchange market with foreign financial institutions.
INCOME TAXES ON CORPORATIONS
1. Rates
The rate of corporate income tax is 35%.Presumed Income. For tax purposes, it is presumed that a taxpayer taxable income is not lower than the higher of 5% of the net taxable assets or 1.5% of the gross taxable assets on the last day of
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