On 10 September 2024, the Colombian government submitted to the Congress a tax reform bill (Financial Law) aimed at covering a gap of approximately US$4b in the proposed 2025 budget law, which is also currently under discussion in the Congress.

This Alert discusses the main proposals of the bill.

Corporate income tax (CIT)

CIT rate

The tax reform bill proposes to establish a progressive CIT rate, and a phased reduction of the marginal rate (35% rate), as follows:

The proposal keeps the surtax for financial entities at 5% until 2027 and for hydroelectric generators at 3% until 2026; the surtax is added to the new CIT rate determined under the table above.

Oil and coal mining industries

The basic CIT rate remains at 35%, with a price-dependent surtax from 0% to 15% (making the total CIT rate 35% to 50%). For coal mining companies this would represent an increase from 10% to 15% for the highest potential surtax.

Minimum tax rate

The minimum tax rate is proposed to be increased from 15% to 20%.

Deductibility of costs and expenses

Under the proposal, costs and expenses would be deductible only if the corresponding withholding taxes have been effectively applied and transferred to the Tax Authority, prior to the relevant income tax return deadline. Note that, in Colombia, CIT withholding tax (among other withholdings) usually applies on local-to-local transactions.

Presumed interest on loans between companies and shareholders

The government plans to increase the presumed interest rate on loans between shareholders and their companies to double the official DTF¹ rate at the prior year-end. Currently, the presumed interest rate is equal to the DTF rate. In addition, the presumed interest rate would apply on loans between the companies and their permanent establishments (PEs).

Individual income tax

The highest marginal tax rate applicable for individual tax residents in Colombia is proposed to increase from 39% to 41%. This would apply to individuals with annual taxable income exceeding 31,000 tax units (approx. US$365k).

The 1% deduction for purchases supported by electronic invoicing is proposed to increase to 5% in 2025, decline to 3% in 2026, and revert to 1% from 2027 onward.

Other proposed changes include: (i) eliminating the so-called "procedure #2" for labor withholding tax from February 2025, which generally allows a lower withholding; (ii) introducing an automatic reimbursement system for taxpayers who receive more than 80% of their income from labor and meet certain other requirements; and (iii) applying general tax rates, rather than progressive withholding tax, for fees, services and commissions when taxpayers choose to claim costs and expenses on their individual income tax returns.

Equity tax

The general taxable threshold to become an equity tax filer is proposed to be reduced from 72,000 tax units (approximately US$847k) to 40,000 tax units (approximately US$470k).

Domestic corporations, as well as PEs in Colombia would be subject to equity tax in relation to so-called "non-productive real fixed assets" (NPRFA) held on 1 January each year, regardless of their amount. NPRFA are defined as tangible assets that: (i) do not consistently produce income, or (ii) lack a direct connection to the income-generating operations. Intangibles with underlying tangible assets that satisfy these conditions will be categorized as NPRFA and, consequently, be subject to equity tax.

The tax rate for equity tax is proposed to be increased from 1.5% to 2% for taxpayers in the highest bracket; this rate is expected to be reduced to 1% from 2027 onward. For domestic corporations and PEs with NPRFA, the proposed rate is 1.5%.

Capital gains

The capital tax gains rate would increase from 15% to 20% (this rate, among others, applies to the sale of fixed assets held for two years or longer). For lotteries, raffles, bets and similar activities, the rate would increase from 20% to 25%.

Value-added tax (VAT)

Machinery, services and equipment for renewable energy projects

Regarding the sale of goods and services for the production and use of energy from nonconventional energy sources, which currently are not subject to VAT, the proposal would introduce a zero-rated treatment for VAT purposes. The zero-rated treatment could allow sellers of goods or services to credit input VAT on their VAT returns.

Vehicles

The VAT exemption on new vehicles for public passenger and freight transport exceeding 10.5 tons is extended to 2029, benefiting owners of up to two vehicles for a one-time fleet upgrade. From 2026, this VAT exemption will only apply to vehicles meeting Euro VI standards or similar, favoring cleaner technologies, with a priority for electric vehicles if available locally. VAT on hybrid vehicles would increase from 5% to 19%. The 5% rate would remain for electric vehicles.

Hotel services

A proposal has been made to exempt from VAT hotel services provided in municipalities with a population of fewer than 200,000 inhabitants.

Gambling activities

Online gambling activities would become subject to a 19% VAT (currently excluded). For slot machines, the VAT (which is a fixed monthly amount) would be doubled.

Carbon tax

It is proposed to increase the carbon tax from the current 25,800 Colombian pesos (COP25,800) (approx. US$6) to COP74,833 (approx. US$19) per ton of CO₂ equivalent.

For coal, the proposal would accelerate the application of the carbon tax rate. Under the current rules, in 2025 a 25% of the carbon tax rate would apply. However, as per the proposal, in 2025 a 75% of the carbon tax rate would apply; a 100% carbon tax rate is proposed to apply as from 2026. Currently, the 100% carbon tax rate would apply as from 2028.

Tax procedures, tax penalties, etc.

Several rules are proposed in relation to: (i) control of and sanctioning of fictitious suppliers; (ii) rewards for whistleblowers in cases of tax abuse/evasion or smuggling; and (iii) reduced penalties related to the electronic invoicing omissions or mistakes that the taxpayer has voluntarily disclosed.

The proposal would repeal special procedures in Colombia for discussing tax abuse cases. Thus, these cases would be subject to the general discussion procedure.

The "audit benefit," which allows a short-term statute of limitations² when the income tax has increased over a certain percentage from one year to another, would be repealed.

The Simple Taxation Regime, which is applicable for taxpayers below certain thresholds and replaces several levies (including the income tax) with a tax on gross income at reduced rates, would be repealed as from 2026.