ColombiaTax Obligations Detailed

In Colombia, employers navigate various tax obligations for their employees and their business.

Employer Obligations: Income Tax

• Corporate Income Tax: The standard corporate income tax rate is 35%. A surtax of 3%, resulting in a total rate of 38%, applies to financial institutions with taxable income exceeding 120,000 UVT (Unidad de Valor Tributario). The UVT value for 2025 is COP 49,799. Therefore, the threshold is COP 5,975,880,000.
• 2025 Deadlines for Corporate Income Tax: Large taxpayers, classified as those with a gross income of 92,000 UVT (COP 4,575,508,000) or more as of December 31, 2024, must file and pay in three installments:
  • First Installment: Between February 11 and 24, 2025.
  • Second Installment (and Return Filing): Between April 9 and 24, 2025.
  • Third Installment: Between June 11 and 25, 2025.
• Withholding Tax: Employers withhold income tax from employee salaries monthly. The tax rate is determined by a progressive system ranging from 0% to 39%. Income up to 1,090 UVT (COP 54,280,910 as of 2025) is exempt from income tax.
• Payroll Tax Withholding Changes for 2025: Starting February 2025, the "procedure two" withholding method, which generally allowed for lower withholding, will be eliminated. Employers must use "procedure one," based on actual monthly income. The option to use a fixed monthly rate based on the employee's average income from the past 12 months is no longer available.

Employer Obligations: Social Security

• Social Security Contributions: Both employers and employees contribute to the social security system, covering health, pension, and labor risks.
  • Healthcare: Employers contribute 8.5% of the employee's salary, while employees contribute 4%.
  • Pension: Employers contribute 12% of the employee's salary up to a limit of 25 times the minimum wage.
• Payroll Taxes (Parafiscal Contributions): Employers generally contribute 9% of the total monthly payroll, distributed as follows:
  • Family Welfare Institute (ICBF): 3%
  • National Apprenticeship Service (SENA): 2%
  • Family Subsidy Fund (Caja de Compensación Familiar): 4%
• Payroll Tax Exemption: Employers are exempt from ICBF and SENA contributions for employees earning less than ten times the minimum monthly wage.

Other Employer Obligations

• Electronic Payroll Reporting: After processing payroll, employers must submit electronic payroll support documents to the DIAN (National Tax and Customs Office) within ten days. An annual income and withholding certificate is also due by March of the following year.
• Annual Income Tax Return for Employees: Employees meeting specific criteria must file an annual income tax return. The deadline is between August and October, based on the last two digits of the employee's tax identification number (NIT).

Local Taxes

In addition to national taxes, employers must also pay local payroll taxes, which vary depending on the specific region.

This information is current as of February 5, 2025, and might be subject to change.

In Colombia, employers are responsible for withholding various taxes and social security contributions from employee salaries. These deductions, along with employer contributions, fund social security programs and ensure compliance with Colombian tax law.

Income Tax

Income tax in Colombia is calculated using a progressive system, meaning higher earners pay higher rates. The tax rates range from 0% to 41%. The applicable tax rate depends on the employee's income level. Tax is withheld from each paycheck based on the employee's projected annual income and is known as retención en la fuente.

Social Security Contributions

Both employers and employees contribute to the Colombian social security system, which covers healthcare, pensions, work-related risks, and family allowances.

• Healthcare: Both employers and employees contribute.
• Pension: Both employers and employees contribute. As of July 2025, Colombia's pension system will transition to a multi-pillar model, requiring all contributors to contribute to Colpensiones (the Colombian Public Pension Administrator). Income above a certain threshold must also be contributed to a private pension fund.
• Work-related Risks (ARL): Employers contribute based on the risk level of the employee's job.
• Family Allowance (Caja de Compensación Familiar): Employers contribute.

Other Deductions and Exemptions

• Exempt Income: Up to 25% of an employee's total annual income is exempt from income tax, up to a monthly cap. As of January 1, 2025, the cap is COP 3,278,268 monthly and COP 39,341,210 annually, based on the UVT (Tax Value Unit) of COP 49,799.
• Deductions: Certain deductions can reduce taxable income, including contributions to voluntary pension funds, housing savings accounts (AFC), charitable donations, mortgage interest payments, and healthcare expenses. There are limits on these deductions and, collectively, these deductions (including the 25% exempt income) cannot exceed 40% of the employee's net income, capped at COP 5,561,054 per month and COP 66,730,660 per year for 2025. These limits are adjusted annually based on the UVT.
• Dependents: Taxpayers can deduct an amount for dependents (children under 18, children between 18 and 25 studying, or children over 18 with disabilities) up to a maximum value. For 2025, the maximum deduction is COP 1,593,568 per month, based on the UVT of COP 49,799.

Employer Obligations

Employers are responsible for:

• Withholding: Accurately calculating and withholding the correct amounts for income tax and social security from employee salaries.
• Payment and Reporting: Paying the withheld amounts and employer contributions to the appropriate authorities by the designated deadlines.
• Compliance: Maintaining accurate payroll records and complying with all relevant Colombian tax and labor laws.

Important Considerations for 2025

• UVT: The UVT for 2025 is COP 49,799. This value is used to calculate many tax and social security figures.
• Minimum Wage Increase: The monthly minimum wage has increased to COP 1,423,500 for 2025, influencing social security calculations.
• Tax Reform: Proposed tax reforms, if enacted, may impact future tax rates and deductions. Stay informed about any legislative changes.

Note: This information is based on the best available knowledge as of February 5, 2025, and is subject to change due to legislative updates or regulatory changes. It's essential to consult with a tax professional for the most up-to-date information and personalized advice.

In Colombia, the Value Added Tax (VAT), known as Impuesto sobre las ventas (IVA), is a consumption tax applied to most goods and services.

VAT Rates

• Standard Rate: 19% (Applies to most goods and services)
• Reduced Rate: 5% (Applies to specific goods and services like certain foods, agricultural supplies, and some types of insurance)
• Zero Rate: 0% (Applies to exports, certain foodstuffs, and tourism packages for foreign visitors)

VAT Registration

• Businesses: No registration threshold. Registration is required if selling goods, providing services, or importing goods, regardless of revenue.
• Individuals: Registration is triggered when total gross income exceeds 3,500 UVT (Unidad de Valor Tributario) in the current or previous year. The UVT for 2025 is COP 49,799. This means the threshold for 2025 is COP 174,296,500.
• Non-Resident Suppliers of Digital Services: No registration threshold. Foreign businesses providing digital services to Colombian consumers must register for VAT. A withholding VAT scheme is available via credit card and financial institutions if they do not register.

VAT Filing and Payment

• Frequency: Bimonthly for large taxpayers (gross income equal to or greater than 92,000 UVT as of December 31, 2024). Exact deadlines depend on the last two digits of the taxpayer's NIT and are published annually.
• Form: Form 325 for foreign service providers must be submitted electronically.
• Electronic invoicing: Mandatory for most VAT-registered taxpayers since November 2020.

VAT Exemptions

Various goods and services are exempt from VAT, including:

• Certain medical services
• Educational services
• Public finance management services
• Internet connectivity for specific demographics
• Certain utilities (energy, gas, and water)
• Medicines
• Exports

VAT Withholding

Some transactions require the purchaser to withhold a percentage of the VAT and remit it to DIAN. This applies to transactions with government entities, non-resident vendors, and certain transactions within the common VAT regime. The standard withholding rate is 15%.

Additional Consumption Taxes

Aside from VAT, note that a separate Consumption Tax applies to restaurant services (8%), mobile phones (4%), and luxury goods (16%). These are not considered part of the VAT regime.

It's important to consult official sources like DIAN (Dirección de Impuestos y Aduanas Nacionales) for detailed and up-to-date information. This overview is current as of February 5, 2025, and may be subject to changes in regulations.

Colombia's tax landscape is evolving, introducing changes for businesses and individuals.

Corporate Income Tax

• General Rate: A progressive corporate income tax rate is in effect, ranging from 27% to 34% based on taxable net income. This aims to alleviate the tax burden on small and medium-sized enterprises.
• Free Trade Zones: Industrial users in Free Trade Zones (FTZs) generally face a 20% corporate income tax rate on income derived from exports. Those experiencing at least 60% revenue growth in 2022 compared to 2019 retain the 20% rate through the 2025 tax year. However, income from non-export activities is subject to the standard corporate income tax rate.
• Minimum Tax: A new 15% minimum tax applies to legal entities subject to income tax and those operating in duty-free zones. Certain entities, such as those in special economic zones or operating under concession agreements, are exempt.

Individual Income Tax

• Maximum Rate: The maximum rate for individual income tax and occasional gains has been increased. As of September 13, 2024, there is a proposal to increase the highest marginal tax rate for individual tax residents from 39% to 41% for those with annual taxable income exceeding approximately US$365,000 (31,000 tax units). The exact rates applicable in 2025 will depend on the final legislation.
• Exemption for Employment Income: 25% of total employment income is tax-exempt, up to a limit of 790 UVT (Unidad de Valor Tributario) annually. This exemption applies after considering other tax benefits.
• Foreign Tax Relief: A tax credit is available for foreign tax paid on foreign-source income, limited to the Colombian tax liability on that income. This credit is available to both individual and corporate residents, requires proof of foreign tax payment, and can be carried forward indefinitely.

Wealth Tax

The wealth tax threshold has been lowered from 72,000 UVT to 40,000 UVT, expanding the taxpayer base. There was also a proposal as of September 17, 2024, to lower the personal wealth tax threshold from approximately USD 836 million to USD 460 million, impacting over 75,000 more taxpayers. The actual threshold for 2025 depends on the final approved legislation.

Value Added Tax (VAT)

• Online Gambling: VAT now applies to online gambling services.
• Excise Tax on Certain Foods: An excise tax applies to sugar and sodium-rich ultra-processed food products, covering production, import, and self-consumption. This tax is 10% initially, rising to 15% in 2024, and 20% from 2025 onwards.
• VAT Refund for Tourists: Foreign tourists can claim a VAT refund on purchases exceeding 3 UVT, with a maximum refund of 200 UVT per request. Tourists must present the purchased goods and corresponding electronic invoices upon departure. Remember the value of the UVT changes annually (49.799 COP in 2025).

Environmental Taxes

A carbon tax has been introduced to support environmental projects. It will affect various fuels, including gasoline, diesel, and jet fuel (with an exemption proposed for the San Andrés archipelago), and coal. The rate for 2025 will depend on the proposed changes to accelerate its implementation, potentially applying 75% of the full rate.

Other Tax Incentives

Tax incentives are available for investments in renewable energy and clean technologies, as specified in Law 1715 of 2014. For instance, companies can obtain a 50% tax deduction on related investments when purchasing energy transition bonds. A 30% tax credit is also available for certain investments in scientific, technological, or professional training projects.

Tax Administration

• Electronic Invoicing: The incentive for using electronic invoicing has been increased. There are proposed changes to further incentivize this by increasing the deduction for purchases supported by electronic invoices.
• Simplified Taxation Regime (RST): The RST was eliminated starting in 2025, transitioning taxpayers to traditional systems.

Important Note: The Colombian tax landscape is subject to change. Tax laws and regulations can be amended, and specific details may vary. It is always advisable to consult with a tax professional for personalized guidance. This information is current as of February 5, 2025.