Known for its rich culture, diverse landscapes, and growing economy, Colombia has become an attractive destination for expatriates and retirees from around the world.
Understanding the tax system in Colombia is crucial for anyone considering moving to or living in the country, whether temporarily or permanently.
The Colombian tax system distinguishes between residents and non-residents, and this distinction plays a crucial role in determining an individual's tax liability.
The distinction between these two categories is important as it affects the amount of tax you are liable to pay and the type of income that is taxable.
The criteria for being considered a tax resident in Colombia are specific and include several conditions:
This period does not have to be within a single calendar year; it can be spread over two years.
These conditions include deriving more than 50% of their income from Colombia, managing more than 50% of their assets in Colombia, or having more than 50% of their assets physically located in Colombia.
Colombia's tax system includes several types of taxes, each with its own rates and regulations. Understanding these taxes is essential for anyone living or doing business in Colombia.
In Colombia, personal income tax is levied based on an individual's residency status. Tax rates vary according to the type and amount of income.
Residents are taxed on their worldwide income. Income is divided into different categories, such as earned income, investment income, and non-work income. Tax rates for residents are progressive, i.e. they increase with the level of income.
For example, in the tax year 2023, the rates are as follows:
| Taxable income (TU*) | Tax rate (%) |
| 0-1,090 | 0 |
| 1,090-1,700 | 19 |
| 1,700-4,100 | 28 |
| 4,100-8,670 | 33 |
| 8,670-18,970 | 35 |
| 18,970-31,000 | 37 |
| 31,000 and above | 39 |
*In December 2006, the Colombian government approved a reform of its tax system.
This reform introduced the tax unit (TU) as a standard for determining various limits and thresholds, which were previously set in fixed numbers and adjusted annually by decree.
For the fiscal year 2022, the value of one TU was set at 38,004 Colombian Pesos (COP), and for the fiscal year 2023, it was increased to 42,412 COP.
Non-residents are taxed only on income earned in Colombia. The tax rate for non-residents is generally a flat rate of 35%
In Colombia, local income taxes are relatively simple compared to other countries:
Unlike many other countries, Colombia does not levy local income taxes. This means that individuals and companies do not have to pay additional income taxes at the municipal or departmental level.
While there are no local income taxes, other types of local taxes may apply, such as property taxes, industrial and commercial taxes (ICA), and urban development taxes. These taxes are levied by local governments and vary depending on the region and the specific circumstances of the taxpayer.
In Colombia, capital gains tax is levied on gains from the sale of certain assets, such as real estate, stocks, and bonds. The rate for this tax is usually set at 10% but can vary depending on the type of asset and specific circumstances.
Value Added Tax, commonly known as VAT, is a widely used consumption tax in Colombia, which is levied on most goods and services. The standard VAT rate is 19%, which applies to a wide range of products and services.
However, there are exemptions with reduced or zero rates for essential items such as basic foodstuffs, and health and education services.
Equity tax in Colombia is a form of wealth tax targeted at individuals and entities with significant net equity. This tax is calculated on the value of the net worth of an individual or entity, which includes all assets minus all liabilities.
The rate of net wealth tax is progressive, increasing with the amount of net wealth:
| Taxable base (TU*) | Tax rate (%) |
| 0-72,000 | 0 |
| 72,000-122,000 | 0,5 |
| 122,000-239,000 | 1 |
| 239,000 and above | 1,5 |
Inheritance tax in Colombia is an important consideration for individuals planning their estates. This tax is levied on the transfer of assets from a deceased person to their heirs or beneficiaries.
The rate of inheritance tax varies depending on the relationship between the deceased and the beneficiary, with closer relatives generally subject to lower rates.
The value of the estate, the type of assets involved, and the number of beneficiaries can all affect the amount of tax due.
Property tax is an important aspect of local taxation in Colombia. This tax is levied on the ownership of real estate, including land and buildings.
The rate of property tax varies depending on the location and value of the property, with higher rates typically applied to properties of greater value or in more affluent areas.
The Financial Transactions Tax in Colombia is a unique tax applied to certain types of financial transactions. This includes transactions such as bank transfers, withdrawals, and other movements of money through financial institutions.
The rate of this tax is relatively low, but it applies broadly to a wide range of transactions, making it a common consideration for individuals and companies managing their finances.
Understanding the deadlines for tax payments in Colombia is crucial to ensuring compliance and avoiding penalties. The Colombian tax year is based on the calendar year, running from 1 January to 31 December.
However, tax filing and payment deadlines can vary depending on the type of tax and the taxpayer's circumstances.
Comparing tax rates between Colombia and the US reveals some interesting contrasts, particularly in how the two countries structure their tax systems.
| Category | Colombia (%) | United States (%) |
| Corporate tax rate | 31 | 21 |
| The top individual income tax rate | 39 | 37 |
| Standard VAT/GST rate | 19 | 0 |
| Capital gains tax rate | 10 | 20 |
In Colombia, the tax system categorizes income into different types, each with its own set of rules and tax implications. Understanding these categories is crucial for accurate tax reporting and compliance.
Employment income is one of the most common types of income in Colombia and includes all income received as a result of an employment relationship. This includes salaries, wages, bonuses, commissions and other similar benefits. Here are the main points to consider:
Special savings accounts in Colombia are a unique financial instrument designed to encourage individuals to save.
Contributions to special savings accounts may qualify for tax deductions, subject to certain conditions and limits.
These accounts are often used for specific purposes, such as housing or education, and the tax benefits are aligned with these objectives.
The tax benefits are usually conditional on the funds being used for their intended purpose and remaining in the account for a specified period.
Contributions to the pension system in Colombia are an important aspect of retirement planning and have tax implications:
Dividend income in Colombia refers to income received from investments in shares of companies. This type of income is particularly relevant for investors and shareholders and has specific tax implications:
Dividends are usually distributed to shareholders from the profits of a company. In Colombia, the taxation of dividend income depends on whether the profits have already been taxed at the corporate level.
The tax rate on dividend income varies. If the profits were taxed at the corporate level, the dividend income may be taxed at a lower rate or exempt for the shareholder. However, if the profits are not taxed at the corporate level or are taxed at a lower rate, the dividends may be subject to higher tax rates when distributed to shareholders.
Individuals receiving dividend income must report it in their annual tax returns. The tax may be withheld at source or the individual may have to pay it when filing their tax return.
Interest income is another important category of income in Colombia, generally derived from savings, investments, and loans. It includes income from bank deposits, bonds, and other interest-bearing instruments:
Interest income is generally taxable in Colombia. The tax rate depends on the type of interest and the taxpayer's total income.
Certain types of interest income may be exempt from tax or eligible for deductions, depending on the nature of the investment and the applicable laws.
For US expats living in Colombia, navigating the tax system involves understanding not only Colombian tax laws but also how they interact with US tax obligations. One key area is the availability of tax deductions, which can have a significant impact on overall tax liability.
US expats in Colombia can benefit from deductions for certain employment-related expenses. These deductions are particularly important for those who are self-employed or who have incurred certain expenses related to their employment. Key points include
Personal deductions allow US expats in Colombia to reduce their taxable income through various allowable expenses and exemptions. These include:
For US expatriates in Colombia, the interest paid on educational loans can be a valuable tax deduction. This deduction is particularly important for those who have used loans to finance their own education or that of their dependents.
The deduction generally applies to interest paid on qualified student loans used for higher education expenses, including tuition, fees, and related educational expenses.
Interest paid on these loans can be deducted from your taxable income, potentially reducing your overall tax liability.
Personal allowances, in the context of US expats in Colombia, refer to the standard deduction and personal exemptions that reduce taxable income. These allowances can have a significant impact on the overall tax calculation:
Social security in Colombia is a comprehensive system designed to provide support and benefits to workers in a variety of circumstances, including retirement, health issues, and workplace injuries. Key aspects of the Colombian social security system include
The Colombian pension system is an important component of the country's social security framework, which aims to provide income security for individuals in their retirement years.
Сolombia offers both a public pension system (Régimen de Prima Media) and private pension funds (Régimen de Ahorro Individual con Solidaridad).
To qualify for a pension, individuals must meet certain contribution requirements, including a minimum number of weeks of contributions and reaching retirement age.
The amount of the pension depends on the individual's salary history and the total number of contributions made during their working life.
For expatriates living in Colombia, understanding the tax credits available is essential for effective tax planning. These credits can reduce the amount of tax owed and avoid double taxation. Important considerations include
There is no formal tax treaty between the United States and Colombia. This lack of a specific agreement has several implications for U.S. expatriates living in Colombia and Colombians living in the U.S., especially in terms of taxation and social security.
For US expatriates living in Colombia, certain tax forms are particularly relevant for ensuring compliance with US tax laws:
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US expats in Colombia also need to be familiar with Colombian tax forms, including:
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