This is the Tax Reform within the 2024 Financing Bill in Colombia

September 2024

Under the bill titled “Through which financing rules for the General Budget of the Nation are enacted and other provisions are established”, a series of provisions are outlined that primarily aim to amend the content of the Tax Code. Many of these provisions had been adjusted through Law 2277 of 2022. 

Notable aspects include the proposal to eliminate the Simple Taxation Regime, the proposal to establish changes to the general income tax rate applicable to legal entities and the increase in the base of taxpayers for the equity tax, among others that involve adjustments to the Occasional Profits Tax, the treatment of certain goods and services concerning VAT, withholding tax, and the deduction of costs and expenses in the income tax.

Likewise, the text also proposes amendments to Law 1819 of 2016¹ regarding the national carbon tax, and to Law 863 of 2003² concerning rewards for providing information to authorities that helps identify violations of the tax and customs regime. However, it also incorporates a range of provisions on various topics that includes tax incentives for energy generation projects from Non-Conventional Sources -FNCE for its acronym in Spanish-, the temporary flexibility of the Fiscal Rule to facilitate what is defined in the project as green investments³, and the regulation of housing improvement loans managed by the National Savings Fund⁴.

To simplify the reading of the Bill and facilitate understanding of the discussions that will arise on tax matters, we present below a summary of the main aspects on which the reforms have been proposed. 

1. Simple Taxation Regime 

Through the repeal of Book Eight of the Tax Code, starting from the year 2026, the Simple Taxation Regime (SIMPLE) would be eliminated⁵, as it has been identified as causing distortions in taxation without achieving business formalization. 

2. Income Tax for Legal Entities

Differential tax rates would be created⁶

The general income tax rate applicable to legal entities* would be reduced. It would change from being a single rate (35%) to being applied differentially, with weighted rates based on: 1) taxable net income ranges (RLG) calculated in UVT⁷, and 2) the respective tax year, as follows: 

Taxable Net Income	Marginal rate
From 0 to 6,285 UVT	27%
Greater than 6,285 UVT  and less than 120,000 UVT	34% for the tax year 2025  33% for the tax year 2026  32% for the tax year 2027  31% for the tax year 2028  30% from tax year 2029 onwards
Greater than 120,000 UVT	34% for the tax year 2025  33% from tax year 2026 onwards

 

*Except for those legal entities engaged in the extraction of coal (ISIC⁸ – 0510), lignite (ISIC - 0520), and crude oil (ISIC – 0610), for which the rate would remain at 35%.

In the case of activities with ISIC codes 0510 and 0520, an additional level would also be created in the scale of additional points for income tax, along with the corresponding adjustment to the addition condition for these activities: 

 

Additional tax points	Addition condition
0	The reference percentile for the average price in the respective tax year would change from 65 to 30.
5	The reference percentile of the average price in the respective tax year would change from being between 65 and 75 to being between 30 and 45.
10	The reference percentile of the average price in the respective tax year would change from being above 75 to being between 45 and 60.
15	The reference percentile of the average price in the respective tax year would be set at more than 60.

 

The Minimum Effective Tax Rate would be increased⁹

The Minimum Effective Tax Rate would increase from 15% to 20%, and in the formula for calculating the UD (Adjusted Profit), the value UC (Accounting Profit) would be modified to include accounting or financial losses before taxes.

For cases where the Adjusted Tax Rate (TTD for its acronym in Spanish) is less than 20%, the rules applicable to taxpayers whose financial statements are subject to consolidation would be extended to those whose financial statements are also subject to consolidation. 

3. Equity tax 

National companies would become taxpayers, and the taxable base for other taxpayers would be reduced 

The equity Tax would be applied to national companies and their equivalents, as well as to permanent establishments of foreign entities, solely in relation to net wealth composed of non-productive fixed assets¹⁰. For other taxpayers of the equity tax, the taxable value of wealth would decrease from 72,000 UVT to 40,000 UVT¹¹. 

Tax rates would be increased 

A rate of 1.5% would be established for new taxpayers, while for other taxpayers, the rates would be applied according to the following table: 

 

Wealth Range	Rate	Tax
Between 40,000 UVT and 70,000 UVT	0.5%	(Taxable Base in UVT minus 40,000 UVT)  x 0.5%
Seniors 70,000 UVT and up to 120,000 UVT	1.0%	(Taxable Base in UVT minus 70,000 UVT)  x 1.0% + 150 UVT
Greater than 120,000 UVT and up to 240,000 UVT	1.5%	(Taxable Base in UVT minus 120,000 UVT)  x 1.5% + 650 UVT
Greater than 240,000 UVT	2.0%	(Taxable base in UVT minus 240,000 UVT)  x 2% + 2,450 UVT

 

The minimum yield of presumptive interests would be doubled¹²

It would establish that the presumptive interests would also be generated on loans from permanent establishments to companies or to shareholders or partners. 

The minimum yield for the taxable period would no longer be equivalent to the DTF rate but would instead be twice the DTF rate as of December 31 of the previous year. 

4. Occasional Profits Tax 

Tax rates would be increased 

The rate for the Occasional Profits Tax on the sale of fixed assets held for more than two years would increase from 15% to 20% for companies and their equivalents¹³, as well as for individuals and their equivalents, whether residents or non-residents¹⁴. 

The rate for the Occasional Profits Tax on lotteries, raffles, bets and similar activities would increase from 20% to 25%¹⁵. 

A regulatory framework would be established for compensation or damages for immaterial harm¹⁶.

It would specify that compensation or damages for immaterial harm recognized judicially would be considered as non-taxable income and not occasional gains. It does not address compensation or damages recognized extrajudicially. 

In the case of the transfer of litigation rights related to these compensations or damages, the same treatment would apply to what is received by the victim or their heirs. However, the difference between what is received and what is paid by the third party acquiring the litigation rights would be considered taxable income

5. Income tax for individuals and similar entities

The marginal rate would be increased 

The marginal rate of the income tax for individuals, estates of residents, and assets allocated for special purposes due to donations or modal assignments equal to or greater than 31,000 UVT would increase from 39% to 41%¹⁷. 

The limits for determining taxable net income under the general tax return would be changed¹⁸

It would be specified that a single dependent can only be claimed as a deduction by one taxpayer. 
The percentage that individuals declaring income under the general tax return (Article 335 of the Tax Code) can deduct for the acquisition of goods and services would increase to 5% by 2025 and to 3% by 2026. Thereafter, the deduction percentage would return to 1%.

On the other hand, it would be established that automatic refunds of balances in favor would be granted to workers whose income consists of more than 80% from work-related earnings¹⁹. 

6. Sales tax -VAT- 

The treatment of vehicles with respect to VAT would be modified

Complete motor vehicles for public passenger transport, or for public or private freight transport, chassis with engine and body, would continue to be considered exempt from VAT under the existing conditions. However, starting from January 1, 2026, this exemption would only apply if the vehicles meet the maximum permissible emission limits for air pollutants corresponding to EURO VI technologies or their equivalent, or to less or non-polluting technologies. If there are electric vehicles available in this category within the country, the benefit would only be applicable to these electric vehicles²⁰.

On the other hand, the requirements for electric vehicles to be considered taxable goods at a 5% VAT rate would be modified²¹:

• Vehicles intended for the transport of 10 or more people would now include those for private transport.
• All types of electric vehicles for passenger transport would be included (not only taxis).
• Among the vehicles for cargo transport or special use, hybrids and plug-in hybrids would be excluded. 

The treatment of hotel services would be changed²²

Hotel services provided in municipalities with a population of fewer than two hundred thousand (200,000) inhabitants would be exempt from the sales tax -VAT- for those corresponding to the following ISIC codes: 

5511. Accommodation in hotels 

5512. Accommodation in aparthotels

5513. Accommodation in holiday resorts

5514. Rural accommodation 

5519. Other types of visitor accommodations

5520. Activities of camping sites and recreational vehicle parks

5590. Other types of accommodation not classified elsewhere.

7911. Travel agency activities 

7912. Tour operator activities

7990. Other reservation services and related activities

8230. Organization of conventions and trade events

9321. Activities of amusement parks and theme parks

9329. Other recreational and leisure activities not classified elsewhere.

Treatment and billing of games of chance and betting²³

Games of chance and betting operated exclusively over the internet would be included in the list of goods and services subject to sales tax. 

The taxable bases for VAT on games would be increased as follows:

• For localized games, the monthly threshold would increase from 20 to 40 UVT.
• For gaming tables, the threshold would increase from 290 to 580 UVT.
• For electronic slot machines in venues with activities other than games of chance, the threshold would increase from 10 to 20 UVT.
• For bingo games, the threshold would increase from 3 to 6 UVT per seat.
• For other localized games, the threshold would increase from 10 to 20 UVT. 

It would also grant the DIAN²⁴ the authority to establish documents equivalent to sales invoices²⁵ for games of chance, other than those that give the right to participate

Does the new tax reform in Colombia 2024 affect fuels and does it impact Withholding at Source? 

7. National carbon tax

Tax rates would be modified²⁶

The national carbon tax rate would shift from being calculated in pesos (COP 20,500) to Tax Value Units (1.59 UVT) per ton of carbon equivalent in fuel (CO2eq). Thus, the rate would stop being adjusted annually based on the CPI and would instead be adjusted according to the variation in UVT, plus one percentage point, until it reaches the equivalent of 3 UVT per ton of carbon equivalent (CO2eq).

The gradual implementation of the tax rate for coal would be modified as follows:

• For the year 2025: it would increase from 25% to 75% of the full rate.
• For the year 2026: it would increase from 50% to 100% of the full rate. 

Coal exports would continue to be exempt from the tax only when performed directly by the producer. 

The Archipelago of San Andrés, Providencia and Santa Catalina would be included among the territories where the national carbon tax rate is COP $0.

The subjects responsible for the tax would be unified²⁷

Specific provisions concerning the timing of when the national carbon tax is incurred for the sale, withdrawal for personal use, or importation of coal would be eliminated. Instead, only producers and importers would be held responsible for the tax, meaning that coal purchasers would no longer be responsible. 

The revenue would be primarily allocated to the General National Budget²⁸

The percentage of the revenue from the national carbon tax designated for specific purposes would be reduced. The allocation for ecological programs and activities would decrease from 80% to 27%, funding for the National Comprehensive Program for the Substitution of Illicit Crops (PNIS) would decrease from 20% to 7%, and the remaining 66% would become part of the General National Budget. 

8. Withholding tax

The rate and procedure for withholdings would be modified²⁹

Starting February 1, 2025, the marginal withholding rate applicable to the range of 2,300 UVT and above would increase from 39% to 41%. 

The application of the withholding tax established in Article 383 E.T. would be conditioned on the taxpayer not having opted to take costs and expenses. 

A single procedure would be established to determine the withholding base for labor income³⁰.

By repealing, the second option of the withholding procedure established in article 386 of the Tax Code would be eliminated³¹.

New conditions for the deduction of costs and expenses would be established³²

The deduction of costs and expenses would be conditioned on the taxpayer having withheld, declared, and paid the withholding tax derived from payments or credits, as well as any applicable penalties and interest. It would be established that failure to withhold, declare, and pay these taxes would prevent access to the audit benefit specified in Article 869-3 E.T.

9. Other tax provisions

Rules for the acceptance of costs, deductions, liabilities and deductible taxes³³

For the acceptance of costs, deductions, liabilities, and deductible taxes, any electronic payment method authorized by the national government would be added to the accepted payment methods. 

The amounts paid in cash that could be recognized for tax purposes as costs, deductions, liabilities, or deductible taxes would be reduced. The tax-recognized amount would continue to be the lower value between two scenarios: 

The first lower value scenario would change from 40% to 20% of the amount paid, with the maximum amount decreasing from 40,000 UVT to 20,000 UVT. 

The second lower value scenario would change from 35% to 18% of the total costs and deductions. 

The tax disallowance of costs, deductions, liabilities, or deductible taxes for payments not processed electronically would also apply to those receiving capital income. In any case, the maximum amount to be recognized for tax purposes for payments not processed electronically would decrease from 100 UVT to 50 UVT. 

Rewards for reporting tax abuse³⁴

Abuse in tax matters and smuggling of hydrocarbons would be added to the behaviors for which information disclosure confers rewards. However, if the report concerns non-existent facts, a fine of 1,000 UVT would be imposed on the informant. Rewards would be prohibited for DIAN officials, the Fiscal and Customs Police, and their relatives.

In tax matters, additional conditions for granting rewards would be introduced:

1. Concrete evidence must be provided.
2. A corrected or submitted tax return (instead of an official assessment) with an amount to be paid equal to or greater than 5,000 UVT must be generated.
3. The corrected or submitted tax return must be fully paid. 

Additionally, the reward calculation would be modified: it would change from 50% of the audit costs to 20% of the increased amount to be paid.

In terms of smuggling, the reward would be increased from 3% to 10% of the value of the confiscated goods. However, a condition would be added: the value of the goods must be equal to or greater than 6,000 UVT.

Scope of fictitious supplier qualification³⁵

The fictitious supplier classification would be extended to legal entities, their direct or indirect partners or shareholders, and the ultimate beneficiaries who have direct or indirect control over the taxpayer subject to the qualification process. It would also apply to companies directly or indirectly controlled by such beneficiaries. 

This classification would also apply to legal entities established by the sanctioned taxpayer during the following 5 years, as well as those in which the taxpayer is listed as an administrator or acquires control during this same period.

Voluntary Acknowledgment of Violation of Invoicing Duty³⁶

A treatment would be established for obligated subjects who voluntarily acknowledge non-compliance with the obligation to issue invoices or equivalent documents, or who have issued these documents without meeting the legal requirements (specifically, the provisions b), c), d), e), f) of Article 617 of the Tax Code). The penalty for such conduct (including the closure of the establishment and criminal liability for the non-collection of sales tax and national consumption tax) would be extinguished if, before the issuance of a formal charge and by means of an official receipt, the obligated subject voluntarily settles and pays the corresponding fine for each transaction in which the obligation was not met. The fines applicable would be among the following: 

1. A penalty of 10 UVT for each transaction with a value equal to or less than 6 UVT;
2. A penalty of 20 UVT for each transaction with a value greater than 6 UVT and equal to or less than 12 UVT;
3. A penalty of 30 UVT for each transaction with a value greater than 12 UVT. 

When the omission involves more than one transaction in the same month, the maximum penalty to be applied would be 5% of the non-invoiced transactions or 3% of the transactions invoiced without meeting the requirements, but it should not be less than the penalties indicated in items a), b), and c). 

No payment facilities or agreements would be allowed for the fine. 

Prioritization of Tax Audits³⁷

The DIAN's policy for prioritizing audits based on the nature, amount, impact on tax collection, or economic and social order, and the cost-benefit ratio would be elevated to the level of law. 

Other procedures of the Tax Authority

The tax administration would be authorized to determine taxpayers' income through patrimonial comparison³⁸.

The administrative procedure for determining abuse in tax matters would be eliminated by repealing art. 869-1 of the Tax Code³⁹.

10. Specific Provisions for Certified Investors in Non-Conventional Energy Generation Projects -FNCE- 

The right to deductions for investments would be negotiable⁴⁰

Certified investors in projects for generating energy from Non-Conventional Energy Sources (FNCE), who hold the right to deduct 50% of the total investment made in accordance with Article 11 of Law 1715 of 2014, would be granted the ability to freely transfer this right in the market through the issuance of bonds, under the denomination of energy transition bonds. 

The VAT treatment for investments in FNCE would be modified⁴¹ 

The acquisition of goods and services for the development of projects using Non-Conventional Energy Sources (FNCE) and for efficient energy management would shift from being considered excluded from VAT to being classified as VAT-exempt.

 

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¹ Article 37 del P.L. 300 de 2024.

² Article 2 del P.L. 300 de 2024, que modificaría integralmente el artículo 240 E.T.

³ Article 2 del P.L. 300 de 2024, que modificaría integralmente el artículo 240 E.T.

⁴ Article 3, 4 y 5 del P.L. 300 de 2024, que modificarían, respectivamente, los artículos 292-3, 294-3 y 295-3 E.T.

⁵ Article 4 del P.L. 300 de 2024, que modificaría el artículo 294-3 E.T.

⁶ Article 6 del P.L. 300 de 2024, que modificaría el artículo 296-3 E.T.

⁷ Article 30 del P.L. 300 de 2024, que modificaría el artículo 35 E.T.

⁸ Article 7 del P.L. 300 de 2024, que modificaría el artículo 313 E.T.

⁹ Articles 8 y 9 del P.L. 300 de 2024, que modificarían respectivamente los artículos 314 y 316 E.T.

¹⁰ Article 10 del P.L. 300 de 2024, que modificaría el artículo 318 E.T.

¹¹ Article 35 del P.L. 300 de 2024, que adicionaría un artículo 45-1 E.T.

¹² Article 12 del P.L. 300 de 2024, que modificaría el artículo 241 E.T.

¹³ Article 11 del P.L. 300 de 2024, que modificaría el numeral 3 y el inciso primero del numeral 5 del artículo 336 E.T.

¹⁴ Article 37 del P.L. 300 de 2024, que derogaría el art. 386 E.T. y el parágrafo 1 del art. 387 E.T.

¹⁵ Article 17 del P.L. 300 de 2024, que modificaría los numerales 4 y 5 del artículo 477 E.T.

¹⁶ Article 25 del P.L. 300 de 2024, que modificaría el artículo 468-1 E.T.

¹⁷ Article 16 del P.L. 300 de 2024, que adicionaría un numeral 33 al artículo 476 E.T.

¹⁸ Article 13 del P.L. 300 de 2024, que modificaría el literal e) del artículo 420 E.T.

¹⁹ Article 37 del P.L. 300 de 2024, que derogaría el art. 386 E.T. y el parágrafo 1 del art. 387 E.T.

²⁰ Article 17 del P.L. 300 de 2024, que modificaría los numerales 4 y 5 del artículo 477 E.T.

²¹ Article 25 del P.L. 300 de 2024, que modificaría el artículo 468-1 E.T.

²² Article 16 del P.L. 300 de 2024, que adicionaría un numeral 33 al artículo 476 E.T.

²³ Article 13 del P.L. 300 de 2024, que modificaría el literal e) del artículo 420 E.T.

²⁴ Article 37 del P.L. 300 de 2024, que derogaría el art. 386 E.T. y el parágrafo 1 del art. 387 E.T.
²⁵ Article 17 del P.L. 300 de 2024, que modificaría los numerales 4 y 5 del artículo 477 E.T.
²⁶ Article 25 del P.L. 300 de 2024, que modificaría el artículo 468-1 E.T.
²⁷ Article 16 del P.L. 300 de 2024, que adicionaría un numeral 33 al artículo 476 E.T.
²⁸ Article 13 del P.L. 300 de 2024, que modificaría el literal e) del artículo 420 E.T.

²⁹ Article 21 del P.L. 300 de 2024, que modificaría el artículo 222 de la Ley 1819 de 2016.
³⁰ Article 20 del P.L. 300 de 2024, que modificaría el artículo 221 de la Ley 1819 de 2016.
³¹ Article 22 del P.L. 300 de 2024, que modificaría el artículo 223 de la Ley 1819 de 2016.

³² Article 26 del P.L. 300 de 2024, que modificaría el artículo 383 de la Ley 1819 de 2016.
³³ Article 27 del P.L. 300 de 2024, que modificaría el art. 385 E.T.
³⁴ Article 37 del P.L. 300 de 2024, que derogaría el art. 386 E.T. y el parágrafo 1 del art. 387 E.T.
³⁵ Article 28 del P.L. 300 de 2024, que adicionaría dos incisos al artículo 107 E.T.
³⁶ Article 31 del P.L. 300 de 2024, que modificaría el artículo 771-5 E.T.

³⁷ Article 29 del P.L. 300 de 2024, que modificaría el artículo 37 de la Ley 863 de 2003.
³⁸ Article 33 del P.L. 300 de 2024, que modificaría el artículo 671 E.T.
³⁹ Article 34 del P.L. 300 de 2024, que adicionaría un artículo 657-2 al Estatuto Tributario.

⁴⁰ Article 36 del P.L. 300 de 2024, que adicionaría un artículo 45-1 al Estatuto Tributario.
⁴¹ Article 32 del P.L. 300 de 2024, que modificaría el artículo 236 E.T.