TAX NEWS - 2010

Colombia Tax: Preparing for new net equity tax

Colombia's 2009 tax reform (Law 1370) introduced a new tax on net equity that will begin to accrue on 1 January 2011 where a taxpayer's net worth exceeds COP 3 billion.

The net equity tax will be assessed on taxpayers that file an income tax return, with investments in shares of public or private Colombian corporations excluded from the tax base subject to the tax.

Net equity tax will be levied at a rate of 2.4% where net equity exceeds COP 3 billion (USD 1.5 million) and 4.8% where net equity exceeds COP 5 billion (USD 2.6 million). In the latter case, the 4.8% will apply to the net equity over COP 3 billion. Although taxpayers will need to determine their net worth as from 1 January 2011, the net equity tax can be paid in eight equal installments during 2011, 2012, 2013 and 2014 (i.e. two payments per year).

Law 1370 also sets penalties (160% on the unpaid tax) for accounting and/or tax adjustments that do not correspond to the taxpayer's effective or actual operations and that serve to lower the net equity tax payable by omitting or underestimating assets, submitting reduced valuations or tax adjustments / readjustments, including non-existent liabilities, etc. The law also grants power to the tax authorities to conduct special audits, etc., to prevent taxpayers from taking steps to reduce their taxable base for purposes of the net equity tax.