To know whether you need to pay tax in Colombia, you need to know if you count as a resident. And fiscal residency is very different from visa residency.
The Colombian working environment is a diverse one, with a number of foreign nationals finding work in the many industries here. This, no doubt, has countless benefits for both the country’s global business and its workforce diversity.
However, if you are a foreign national working in Colombia, be aware that the country’s taxation regulations can be complex, and it’s essential to understand what your obligations may be under local law. It is vital to know whether you are included as a tax contributor, so as to avoid future penalties and incursions.
Firstly, you need to keep in mind that Article 10 of the Tax Statute states that the criterion for the payment of taxes in Colombia does not depend on the nationality of a person but on their status as resident in the country.
Determining fiscal residency or not
To determine if your living and working situation could be classified as fiscal residency in Colombia, you’ll need to consider a number of conditions that could affect your eligibility.
Fiscal residency is confirmed when:
- You spend more than 183 days in the country continuously or in total over a period of 365 consecutive calendar days.
- More than 50% of your income comes from an economic activity in Colombia
- More than 50% of your equity is managed in Colombia.
- More than 50% of your assets are contained within the country
If you fall into any of these categories, you will need to declare taxes in Colombia.
UVT (Unidad de Valor Tributario)
Every year, the Departamento de Impuestos y Aduanas Nacional (DIAN) sets a UVT, which is a Unit of Value for Tax in Colombia. This is a unit of measurement which helps to define the threshold of who is obligated to declare and pay; and who is not.
The value for the UVT is set by DIAN and altered year on year to accommodate the various economic changes across the country such as the value of the Colombian peso and the cost of living. In 2019, the UVT was set at COP$34,270. The rate is published at the end of every fiscal year and will is then applicable for next tax year.
Declaring and paying your taxes: a step-by-step
Upon becoming aware that you are a fiscal resident in Colombia, you must arrange an appointment with DIAN to obtain your RUT (Registro Único Tributario), a unique code assigned to your identity. Note that this appointment does not have any cost.
Typically, taxes are declared and paid online via the DIAN’s webpage. With the RUT given to you by DIAN, you will be able to register online. This will then provide you with your tax ID, login and password. Once fully registered and logged into the webpage, it will then become clear where to start filling out the declaration forms.
Related: How to start a business in Colombia.
If what you declare reaches an amount which is eligible to pay tax on, you will be taken to another webpage. Within each box to fill on the webpage, a text box appears explaining each type of tax and the maximum UVT that should be paid. This ensures that you are kept informed during the procedure. Whilst on the website, it is also important to be aware of areas of capital within your declaration that are tax-deductible.
Tax declaration and payment is free if done correctly. There are many instances in which you can make mistakes, either with declaration or payment. In these circumstances, financial penalties are incurred. For first time tax payers, it is advisable to do it with a professional accountant or a company that provides these services.
Double taxation
As a foreigner, it is likely that you have an additional fiscal residency over the course of the fiscal year. If you have equity or income sourced from another nation, you could end up declaring and paying tax in two countries. However, Colombia does have legislation in place to prevent double taxation in certain countries like:
- Spain
- Chile
- Switzerland
- Canada
- Mexico
- South Korea
- Portugal
- India
- Czech Republic
- France
All these countries permit Colombia to be the sole tax collector, therefore waving their right to collect tax. This law is only relevant if considered a fiscal resident in Colombia.
Instances of tax deduction
Any one of the following scenarios could make you eligible for certain tax deductions:
- Capital (money or contribution) paid towards someone financially dependent on you (such as children/elderly relatives) is tax-deductible up to 32 UVT
- Interest on mortgages being paid on a house
- Payments towards Premium Healthcare
- Voluntary contributions and donations are deductible. These have to be proven to be to a non-profit organisation. Certification of such a transaction must be confirmed by a fiscal auditor.
If by the end of your tax payment, you have overpaid and therefore have an outstanding balance, you can make a request for a tax return to account for overpayments on your taxed revenue or assets. This process can be complicated, and you must ensure that your information is correct and up to date, as an incorrect tax return can incur penalties in the next tax year.
As with any country, there are caveats and exceptions within many aspects of Colombian tax law. It’s important to understand that no person’s declaration is the same; all circumstances are unique and it’s therefore highly recommended that individuals seek specialist tax advice especially as a newcomer to the system.
