Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

May 22, 2024
2024-1039

Colombian Tax Authority issues new ruling on Significant Economic Presence

On 30 April 2024, the Colombian Tax Authority (DIAN) issued Ruling No. 100208192-305, aimed at resolving several concerns in relation to the Significant Economic Presence (SEP) rules.

The SEP rules were created by Colombia's most recent tax reform, Law 2277 of 2022, and were regulated by Decree 2039 of 2023. (For more on the regulation, see EY Global Tax Alert, Colombia issues regulations on Significant Economic Presence, dated 4 December 2023.)

In general terms, under this set of rules, and provided certain conditions are met, nonresidents who sell goods and/or provide certain digital services to customers and/or users located in Colombia may create SEP. In such a scenario, the nonresident seller will be subject to Colombian income tax either through (i) a 10% withholding tax, or (ii) a 3% income tax to be filed annually, calculated on the gross income obtained in Colombia. The rule entered into force as of 1 January 2024.

No deductibility limitation on payments to nonresidents with SEP

The DIAN clarified that payments to nonresidents with SEP in Colombia that were not subject to withholding tax would not be subject to the limitation of Article 122 of the Colombia Tax Code (CTC).1 This is provided that the nonresident who created SEP has chosen to file an income tax return in Colombia and requested that no withholding tax should be applied.

Nevertheless, a Colombian taxpayer should collect withholding tax from a nonresident with SEP, absent an indication that withholding tax is not applicable (e.g., because they are an SEP income tax filer). Withholding tax is a requirement for the deductibility on SEP expenses in accordance with the tax law, particularly Article 121, CTC.

SEP registration and withholding

Nonresidents with SEP that have chosen to file and pay income tax should obtain a Colombia tax ID ("RUT" is the acronym in Spanish) and register the responsibility to act as income tax filer. If they decide not to be subject to withholding, they should submit, together with the petition for nonapplication of withholding tax, evidence of proper registration in the RUT.

In any case, Colombian withholding agents that make payments abroad to foreign providers of goods/services should duly inquire to determine whether these providers meet the criteria to apply the SEP withholding tax.

SEP for foreign goods providers

Regarding foreign-goods providers, the DIAN pointed out that sales of goods entering the country through an importation process and not acquired through digital platforms, will be subject to taxation via SEP if the transaction complies with the requirements, regardless of whether the goods were paid for using a foreign compensation account.

The DIAN clarified that SEP rules do not require interaction through a digital ecosystem to trigger SEP in the sale of goods. Therefore, according to the DIAN, any sale that meets the criteria for revenue and "deliberate and systematic interaction" will fall under the SEP rules.

Digital services taxed with SEP

The DIAN clarified that digital services taxed for the purposes of SEP are solely those included in the list provided by tax law. According to this clarification, any service not found on said list will be subject to the general rules provided by Colombian tax law.

SEP for Foreign Housing Service Providers

The DIAN confirmed that foreign service providers using a digital platform to offer accommodation/housing services in real estate located within the country generate Colombian-source income from the exploitation of these asset and will be subject to tax according to the general rules of the tax law. Consequently, this income is not taxed under SEP special rules, although the commissions obtained for the use of the platform may be taxed under special rules.

Exchange rate applicable to the sale of goods by SEP taxpayers/filers

The DIAN stated that for sales of goods payable in foreign currency, it is mandatory to use the exchange rate applicable at the moment of initial recognition in the accounting records, particularly in the financial statements in which assets and liabilities are to be expressed in foreign currency. It is also noted that adjustments for exchange differences will be recognized in accordance with Colombian tax law.

Withholding tax agents and SEP

The DIAN clarified two features regarding the obligations to be triggered to SEP withholding agents. First, it indicated that there are only two situations in which withholding is not applicable — when the foreign entity (i) has stated that it does not meet the criteria to be subject to Colombian SEP rules, or (ii) has chosen to file income tax (which will be verified with the appropriate registration in the Colombian Tax ID) and has requested that no withholding should apply. In all other cases, the withholding tax should apply; otherwise the deductibility of the expense may be challenged.

As a second point, The DIAN stated that if financial entities lack the information to act as SEP withholding agents and lack the possibility to obtain the information, the payment processors will be in charge of acting as SEP withholding agents. However, a financial institution issuing a credit card that could not act as withholding agent should be able demonstrate that it requested the information from (i) the payment processors and (ii) all entities related to the payment of goods/services subject to SEP taxation.

* * * * * * * * * *
Endnote

1 Under article 122 of the CTC, payments abroad that are not subject to withholding tax in Colombia would only be deductible up to an amount equivalent to 15% of the taxpayer's net income, determined before costs and expenses subject to the limitation.

* * * * * * * * * *
Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young S.A.S. Bogota

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 2024, Ernst & Young LLP.

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

 

"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.

 


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or ey.com. Please refer to the privacy notice/policy on these sites for more information.


Yes, I accept         Find out more