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Investing in Colombia and wealth tax

20 January 2022

Many foreign investors wonder if there is a wealth tax in Colombia, and sometimes make their decision to invest in Colombia (partly) dependent on the answer to this question.

The wealth tax has a long history in Colombia. It has been repeatedly revived through various tax reforms in the last decades, under different names, mostly "impuesto al patrimonio" or "impuesto a la riqueza".

Technically, it was always designed in such a way that those taxpayers were subject to the wealth tax whose worldwide net wealth (gross wealth minus debts and certain allowances) exceeded a certain threshold amount on a certain cut-off date (usually January 1 of a specific year defined in the tax law).

The wealth tax was never designed as a permanent tax, but regularly expired after a certain period. It did not affect those taxpayers whose assets did not exceed the threshold until after the cut-off date or who became tax residents (residentes para efectos fiscales) in Colombia only after the cut-off date. Thus, unlike income tax, wealth tax has always been strictly cut-off date related.

Currently there is NO wealth tax in Colombia, because according to the law (Art. 294-2 Estatuto Tributario) it only affects persons who exceeded the threshold on 1/1/2020 (in this case COP $5,000,000,000) and the wealth tax according to Art. 292-2 Estatuto Tributario is only levied in the tax years 2020 and 2021. Thus, foreign investors who invested substantial assets in Colombia after Jan. 1, 2020, are not subject to the wealth tax. And even individuals whose assets exceeded the threshold on Jan. 1, 2020, no longer need to declare wealth tax for the 2022 tax year because it expired at the end of the previous year in 2021.

So, the wealth tax, which rate in 2020 and 2021 was one percent (1%) on net wealth, can be said to have been abolished in Colombia - at least for now.

Interestingly, at the beginning of 2021, the Colombian government had planned to increase the wealth tax rate for larger assets even to 2%. However, this plan failed along with the then planned tax reform in the wake of mass protests and unrest.

Subsequently, in mid-2021, the government presented a revised tax reform (Ley de Inversión Social), which provided for increases in corporate income tax but did not say a word about the wealth tax.

In view of the long history of the wealth tax in Colombia, however, it cannot be ruled out that it could be reactivated after a change of government.