The Colombian government submitted a bill before Congress introducing a new tax reform proposal. The main implications from a Global Employment Services perspective are discussed below.
For a detailed discussion of the tax reform bill, see BDO’s article Colombia - Broad-Based Tax Reform Bill Presented to Congress.
The tax reform bill proposes that the highest tax rate for individuals increase from 39% to 41% when taxable income is greater than COP 1,459,015,000 for the 2024 tax year.
Additionally, the withholding tax rate for taxable income derived from employment, pensions (retirement, disability, survivors, and occupational risks) with taxable net income greater than COP 108,249,500 for 2024 tax year would increase from 39% to 41%.
Individuals required to file the income tax return under the general income bracket would be able to deduct 5% (currently 1%) for purchases of goods and/or services supported by electronic invoices and paid through electronic methods for the 2025 tax year, 3% for the 2026 tax year, and 1% for subsequent tax years.
The tax bill project proposes that individuals be permitted to deduct up to four dependents equivalent to 72 TVU, clarifying that the deduction for a dependent can be claimed only by one taxpayer. “TVU” stands for “Tax Value Unit,” and it is used to determine limits and thresholds established in Colombian tax law. One TVU is equivalent to COP 47,065 for the 2024 taxable year.
An automatic refund provision is established when more than 80% of the worker’s income corresponds to employment income, and the income tax return generates a balance in favour due to the withholdings performed. The Colombia Tax Administration shall automatically refund within 90 days.
For withholding tax purposes related to employment income, the proposed bill would eliminate the so-called “procedure two,” which generally allows lower withholding, from February 2025. “Procedure one” would be preserved.
The proposal would repeal the payroll tax withholding computation procedure that allows employers to use a fixed monthly payroll tax withholding rate based on the employee’s average payroll income over the prior 12 months. The only computation method available, known as procedure one, would be based on actual monthly income.
The capital gains tax rate for domestic companies and individuals, as well as for non-resident companies and individuals with Colombian-source assets, would increase from 15% to 20%.
Affected taxpayers should closely monitor the bill as it proceeds through Congress and be aware of any changes that may be made during the legislative process.
Martha Reyes
Tatiana Sierra
BDO in Colombia
For a detailed discussion of the tax reform bill, see BDO’s article Colombia - Broad-Based Tax Reform Bill Presented to Congress.
Income Tax for Individuals
The tax reform bill proposes that the highest tax rate for individuals increase from 39% to 41% when taxable income is greater than COP 1,459,015,000 for the 2024 tax year.Additionally, the withholding tax rate for taxable income derived from employment, pensions (retirement, disability, survivors, and occupational risks) with taxable net income greater than COP 108,249,500 for 2024 tax year would increase from 39% to 41%.
Individuals required to file the income tax return under the general income bracket would be able to deduct 5% (currently 1%) for purchases of goods and/or services supported by electronic invoices and paid through electronic methods for the 2025 tax year, 3% for the 2026 tax year, and 1% for subsequent tax years.
The tax bill project proposes that individuals be permitted to deduct up to four dependents equivalent to 72 TVU, clarifying that the deduction for a dependent can be claimed only by one taxpayer. “TVU” stands for “Tax Value Unit,” and it is used to determine limits and thresholds established in Colombian tax law. One TVU is equivalent to COP 47,065 for the 2024 taxable year.
An automatic refund provision is established when more than 80% of the worker’s income corresponds to employment income, and the income tax return generates a balance in favour due to the withholdings performed. The Colombia Tax Administration shall automatically refund within 90 days.
Payroll Tax Withholding
For withholding tax purposes related to employment income, the proposed bill would eliminate the so-called “procedure two,” which generally allows lower withholding, from February 2025. “Procedure one” would be preserved.The proposal would repeal the payroll tax withholding computation procedure that allows employers to use a fixed monthly payroll tax withholding rate based on the employee’s average payroll income over the prior 12 months. The only computation method available, known as procedure one, would be based on actual monthly income.
Capital gains
The capital gains tax rate for domestic companies and individuals, as well as for non-resident companies and individuals with Colombian-source assets, would increase from 15% to 20%.
Next Steps
Affected taxpayers should closely monitor the bill as it proceeds through Congress and be aware of any changes that may be made during the legislative process.Martha Reyes
Tatiana Sierra
BDO in Colombia