Skip to main content

Does Colombia impose taxes on foreign pensions?

02 February 2022

Short answer: yes. In principle, all pensions / annuities are subject to income tax in Colombia, at least if the taxpayer / pension recipient has his tax residence in Colombia (residente fiscal). In principle, it is irrelevant what nationality the pensioner has, whether the pension is paid by a foreign state or company and whether the pension is paid in favor of a foreign or Colombian bank account of the pension recipient.

The world income principle

The background to this is the world income principle in Colombia, i.e. anyone living in Colombia must in principle pay tax on all income, regardless of whether it is received in Colombia or abroad and regardless of the currency in which the pension is paid. In principle, it does not even matter whether foreign countries also want to tax the pensions / annuities, especially the country of origin of the pension. Because of the pension recipient's center of life on Colombian territory, Colombia considers itself in principle primarily entitled to taxation.

Domestic i.e. Colombian pensions

Domestic / Colombian pensions are also subject to income tax in Colombia. Consequently, these must be declared as part of the annual tax return (declaración de renta). However, enormous allowances apply to domestic pensions. Accordingly, practically only Colombian pensions larger than COP $38,004,000 per month (equivalent to about EUR 8,500 - as of February 2022) are subject to income tax. Such high pensions are likely to be received by only a tiny fraction of the Colombian population. As a result, Colombian pensions are mostly de facto tax-free.

Foreign pensions

These generous tax allowances do not apply to foreign pensions (see Art. 206 Par. 3 Estatuto Tributario).  The Colombian tax law does not provide for any allowances for foreign pensions, which is why they are fully taxable in Colombia. This means that they are subject to the progressive income tax scale just like all other income received by a taxpayer in Colombia, such as income from employment contracts, capital income, etc. These portions of incomes are added together and taxed in Colombia. By applying the progressive rate table in Art. 241 Estatuto Tributario, the tax is calculated.

Double taxation treaties

How the above principles affect the individual taxpayer depends on whether a treaty for the avoidance of double taxation (DTT) is applicable in the individual case. The purpose of a DTT is to assign the tax jurisdiction for a certain type of income to a certain jurisdiction, so that the taxpayer is not asked to pay in both jurisdictions - in this case in the state of origin of the pension and in the state of residence, i.e., Colombia - by the respective tax authorities.

First case: DTT is applicable - example DTT Switzerland - Colombia

In principle, the DTT between Switzerland and Colombia stipulates that the country of residence has the right to tax the pension (Art. 17 DTT between Switzerland and Colombia). Thus, anyone who receives a pension from Switzerland and lives in Colombia must pay tax on his pension in Colombia. If you want to avoid this problem, you could consider having your pension paid out as a lump sum in Switzerland before becoming a tax resident in Colombia. An exception to the principle of tax sovereignty of the state of residence is provided for in Art. 18, para. 2 DTT Switzerland-Colombia: A person who receives a Swiss civil servant's pension must pay tax on it exclusively in Switzerland, even if he lives in Colombia, at least as long as he does not become a Colombian citizen.

Second case: DTT is not applicable - example Germany - Colombia

Surprisingly, there is still no DTT between Germany and Colombia. As a result, Colombia in principle always levies income tax on German pensions and annuities. I.e., these are taxable in Colombia like all other income in application of the progressive rate table according to Art. 241 Estatuto Tributario. From the Colombian point of view, it is irrelevant whether and to what extent the income from gainful employment that led to the accumulation of the pension was already subject to income tax in Germany. In principle, it is also irrelevant whether and to what extent Germany taxes the pensions. If the pensions are (partially) subject to income tax in Germany, however, the question arises whether the taxes paid in Germany can be credited against the Colombian tax liability under Colombian tax law, pursuant to Art. 254 Estatuto Tributario (descuento por impuestos pagados en el exterior). This is because, under certain conditions, Colombian tax law allows tax paid abroad to be deducted from Colombian income tax - even if no DTT is applicable. Otherwise, the pension would have to be taxed twice, which would be unacceptable. Whether and to what extent the descuento por impuestos pagados en el exterior can be claimed requires careful examination in each individual case.