Basically, there is little positive to report for taxpayers in connection with the 2022 tax reform (Ley 2277 de 2022). There have been significant rate increases and tightening in all areas of tax law. One exception, however, is for foreign pensioners, i.e., people who live in Colombia and receive a pension from abroad. For this small group of people, the tax reform contains an extremely welcome innovation.
The previous legal situation
Until now, in principle foreign pensioners had to pay tax on their pensions received from abroad in Colombia. Before the tax reform, there were considerable tax allowances on pensions. However, these allowances only applied to pensions from Colombian sources.
The new legal situation
Under the new legislation, Colombian-source pensions and foreign-source pensions are treated equally. Accordingly, all pensions, whether Colombian-sourced or foreign-sourced, are treated tax-free up to a monthly allowance of 1,000 (UVT = unidad de valor tributario). 1 UVT in 2023 is COP $42,412. Accordingly, the monthly tax-free amount is COP $42,412,000 (approx. USD $8,900, as of December 17, 2022).
Bottom line
The equal treatment of Colombian and foreign pensions represents an enormous advantage for foreign pensioners. The political decision to essentially exempt foreign pensions from income tax was made by the new Colombian government with the motivation to make Colombia a more attractive location for expatriate pensioners. One can assume that this calculation will work out.
