Frequently, immigrants ask at what rate income tax is due on a certain income in Colombia. There is no blanket answer to this question, as the answer depends on several variables and individual circumstances.
First, it depends on whether or from when the person is considered to have unlimited income tax liability in Colombia (residente fiscal). Roughly speaking, this is the case from the moment he or she establishes permanent residence in Colombia (Art. 10 Estatuto Tributario, E.T.). As a tax resident, the person is subject to a progressive income tax rate in Colombia. As long as the person does not maintain a permanent physical presence in Colombia, he or she is considered no residente fiscal, which means that he or she has only limited tax liability in Colombia. Limited tax liability means that they only have to pay tax in Colombia on Colombian source income, for example rental income from a Colombian property. As a residente fiscal, all "world income" must be taxed, unless there are special provisions in applicable double taxation treaties.
The income tax rate for no residentes fiscales is basically a flat rate of 35% on Colombian source income (Art. 247 E.T.).
The progressive income tax rate for residentes fiscales is based on Art. 241 E.T. or the mathematical formulas set forth in this provision. In simple terms, this provision establishes seven different rates for defined income margins: 0%, 19%, 28%, 33%, 35%, 37%, 39%. The income margins are defined depending on the variable UVT (unidad de valor tributario), which is determined every year by the DIAN Tax Authority. For the tax year 2022, one UVT is COP $38,004 .
Accordingly, there is a basic exemption amount up to 1,090 UVT annual income, meaning that annual income up to COP $41,424,360 is tax-free.
After that, the income tax increases progressively. Here are some calculation examples in application of Art. 241 E.T.:
Taxable income of COP $60 million - tax approx. COP $3.5 million.
Taxable income of COP $75m - tax approx. COP $7.3 m.
Taxable income of COP $100m - tax approx. COP $14.3m.
Taxable income of COP $150m - tax approx. COP $28.3m.
Taxable income of COP $200m - tax approx. COP $44.5m.
Taxable income of COP $300m - tax approx. COP $77.5m.
Taxable income of COP $500m - tax approx. COP $146.9m.
The above examples should be understood in a highly simplified manner, as they do not consider individual deductions or arrangements. For example, an allowance (renta exenta) can be claimed on salary under certain conditions and up to certain limits. Apart from that, there are deductions for social security contributions paid in Colombia, private supplementary health insurance, care of certain family members, for taxes already paid abroad and creditable in Colombia, etc. At this point, the calculation becomes very complex and is highly dependent on the individual circumstances of each case.
In addition, the above table only reflects the regular income tax rate and ignores the fact that there are special rates for certain types of income. For example, the rate for gains from private sales transactions, such as real estate held for more than two years, is a flat rate of 10%. Dividend income is also subject to specific rates (Art. 242 E.T.).
As a result, the effective tax payable is likely to be significantly lower than the above exemplary figures. Considerable optimization can usually be achieved through timely and careful planning.
