Tax Bulletin No. 42

We present Tax Bulletin No. 42, where you will find the most relevant news on tax matters for the month of December 2021. Among other topics, we report the changes made by decree, to the Simple Taxation Regime and the benefit of exempt income for Orange Economy projects. Additionally, we summarize the decision of the Council of State, which declared the annulment of the limit of 420 UVT per month to the total of exempt incomes and deductions that may be subtracted from the withholding tax on labor incomes. 

The complete Bulletin is found only in Spanish in the below PDF, because of many domestic tax terms we are unable to translate for you. However, please find below the main subjects we will be speaking of in the Bulletin. If you are interested to find out more information, do not hesitate to contact us.

Regulation issued by the National Government regarding tax issues

Changes to the tax benefit for orange economy companies.

Orange economy companies (companies operating in the technology industry or in creative activities) have the benefit of tax-exempted income. Article 45 of Law 2155 of 2021, regulated by Decree 1843 of December 24^th, 2021, issued by the Ministry of Finance, modified the following aspects of this tax benefit established in numeral 1 of Article 235-2 of the Colombian Tax Code:

1. The requirement for companies to incorporate and initiate economic activities before December 31^st, 2021, was extended until June 30^th, 2022.
2. The term for tax-exempted incomes was reduced from 7 years to 5 years.
3. The requirement of minimum investment amount to access this tax incentive was eliminated.

Due to the success demonstrated by the figures of the National Administrative Department of Statistics regarding this tax incentive, the issuance of this Decree seeks that more entrepreneurs present orange economy projects in 2022 to reactivate the creative and cultural sector in Colombia.

Adjustment of the cost of fixed assets to determine income or occasional profit in the taxable year 2021.

Colombian National Government, by means of Decree 1846 of 2021 and in accordance with the provisions of Article 70 of the Colombian Tax Code, determined that the adjustment of the cost of fixed assets would be 1.97% for the taxable year 2021.

The same Decree stablished two ways to calculate the value that individuals must take as the tax cost of real estate, shares or contributions, according to the following criteria:

1. Multiplying the tax cost of the fixed assets as of the taxable year 1986 by 40.11, in the case of shares or contributions, or by 383.06, in the case of real estate; or
2. Multiplying the acquisition cost of the fixed asset by the adjustment figure shown for the year of acquisition according to the table provided in the Decree.

Individuals may adjust the tax cost of their fixed assets, as established in the referred Decree, for purposes of determining the income or occasional gain from the transfer of real estate, shares or contributions, which have the character of fixed assets.

Important modifications to the Simple Taxation Regime

Decree 1847 of 2021 made changes to two key aspects of the Simple Taxation Regime (SIMPLE). First, the maximum gross income limit for companies wishing to enter the SIMPLE was increased from 80,000 UVT to 100,000 UVT. This was done to allow more business to join the SIMPLE.

Secondly, the deadline for taxpayers enrolled in the Unified Tax Regime (RUT) to opt to join the SIMPLE regime was extended, allowing them to change regime from January 1^st to the last day of February of each taxable year. Taxpayers who are registering in the SIMPLE regime for the first time, may do so at any time provided they indicate in the RUT registration form their intention to join this regime.

Tax Rulings

Forms and formats are made available for compliance with customs and exchange obligations in 2022.

With Tax Ruling 165 of December 29^th, 2021, the Colombian Tax Authority enabled the official forms necessary for the completion of import, export and customs transit declarations and for the timely fulfillment of other exchange obligations, in accordance with Article 25 of Decree 1165 of 2019. To avoid difficulties or setbacks in the execution of customs operations, the aforementioned Resolution enters into effect as of January 1^st, 2022.

The enabled forms are available free of charge by accessing the Colombian Tax Authority (DIAN) website, for their completion and printing.

The Single Registry of Beneficial Owners (RUB) is regulated.

Following the guidelines and recommendations issued by the Financial Action Task Force (FATF), the Colombian Tax Authority issued the Tax Ruling no. 164 of December 27^th, 2021, which regulates the Single Registry of Beneficial Owners (RUB, for its acronym in Spanish) provided for in Article 631-6 of the Colombian Tax Code. This registry will be an integral part of the Unified Tax Registry (“RUT” for its Spanish acronym) and will be the mechanism through which all necessary and sufficient information on final beneficiaries defined in Article 631-5 of the Colombian Tax Code must be provided. 

In addition to the definitions given in this Resolution, the following matters, among others, are established: (i) definition of those who are obliged to provide information in the RUB, (ii) some guidelines to identify the final beneficiaries of corporate entities and unincorporated structures, (iii) the conditions and opportunity in which the information in the RUB must be provided and updated and (iv) the penalties applicable for failure to provide information in the RUB, which will be the same as those provided for failure to comply with the obligation to register in the RUT.

Colombian Tax Authority regulates the Support Document in transactions with parties not required to issue invoices.

On December 30^th, 2021, the Colombian Tax Authority issued Tax Ruling no. 167 of 2021, which regulates the Support Document in acquisitions made to parties not obliged to issue sales invoices or equivalent documents, in accordance with the provisions of articles 616-1 and 771-2 of the Colombian Tax Code.

With the referred Tax Ruling the functionality of the Support Document was implemented in the electronic invoicing system together with its respective technical appendix. Additionally, the Ruling regulates the terms and conditions, as well as technical and technological mechanisms for the implementation, generation, electronic transmission and validation of the Document; it also establishes the adjustment notes and the minimum content to be included.

The Colombian Tax Authority established that the maximum deadline for the implementation of the Support Document in acquisitions is May 2^nd, 2022. Moreover, it was determined that the parties required to generate and transmit this document are the purchasers who are electronic billers, taxpayers of income tax and complementary taxes, and those responsible for VAT tax, who make purchases of goods or provide services to parties not required to issue invoices, and who need to support the costs and deductions made to the income tax.

Additions are made to General Tax Ruling No. 913636 of 2021, which deals with the transitory reduction of penalties and interest rates contemplated in the tax reform of 2021.

In addition to the concept already issued on the scope of the transitory reduction of penalties and interest rates contemplated in article 45 of Law 2155 of 2021, the latest tax reform, the Colombian Tax Authority issued on December 3^rd, 2021, Tax Ruling No. 100208192-539 in which the following concerns, among others, are resolved:

1. Within obligations that are in default by June 30^th, 2021, the penalties self-liquidated by the taxpayer are included, as long as they correspond to events that occurred prior to June 30^th, 2021. In turn, within these self-liquidated obligations, exchange obligations are included, provided that they comply with the above mentioned and with the other requirements set forth in article 45 of Law 2155 of 2021.
2. Taxpayers who intend to benefit of the transitory reduction will not be required to previously demonstrate or prove that their non-compliance was caused or aggravated as a consequence of the COVID-19 crisis. However, they will be obliged to demonstrate such consequence before the tax administration when the Colombian Tax Authority requires so.

In addition to these concerns, the Colombian Tan Authority resolves many others related to customs and exchange obligations, clarifying that the same conditions and requirements required in respect to tax obligations are applicable to these obligations in order to access the transitory reduction introduced by the most recent tax reform.

Case Law of the Constitutional Court and Council of State

Annulment of the limit of 420 TVU per month for exempt income and deductions that may be subtracted from the withholding tax on labor incomes.

In Case Law S - 24047 of 2021, the Council of State declared the nullity of paragraph 3 of Article 1.2.4.1.6 of Decree 1625 of 2016, which stipulated that the sum of the values of exempt incomes and deductions that may be subtracted from the base of labor incomes subject to the withholding tax could not exceed 420 Tax Value Unit - TVU per month.

The referred article indicates the concepts that are tax-exempted or that can be deducted from the tax basis of the withholding tax on labor incomes. In its third paragraph it specified that the sum of these deductible concepts could not exceed the limits of each of these tax benefits, nor the percentage limit of 40% of the total labor income or the absolute value of 5,040 TVU per year, that is 420 TVU per month, in accordance with the provisions of Article 336 of the Colombian Tax Code.            

The Council of State considered that the application of the limit of 420 TVU per month on eventual contributions to Savings for Construction Development accounts (AFC by its Spanish acronym) or to Pension Funds that exceed the 420 TVU limit would restrict the benefits associated to such contributions, and, to that extent, that the accused regulation would entail an inequitable effect for that segment of savers. Thus, it declared null the paragraph "that is to say, four hundred and twenty (420) monthly Tax Value Units – TVU".

Nullity of the temporary limit of minimum 2 years of possession of assets subject to the tax normalization tax.

Article 48 of Law 1943 of 2018 regulated the normalization tax by establishing that taxpayers who had assets, other than inventories, not declared or declared for a value lower than the market value, could formalize those assets by declaring their total cost and paying a tax with a special and reduced rate, without giving rise to penalties or interest.

The normalization tax was further developed by Decree 874 of 2019, which in its first article added article 1.5.7.5 to Decree 1625 of 2016, Sole Regulatory Decree on Tax Matters. This article established that the assets subject to correction by the normalization tax are those that: (i) are not disposed of within the ordinary course of business, (ii) are not available for sale and (iii) have been owned for more than two years.

The Council of State, in Case Law no. 11001-03-27-000-2020-00001-00 (25115), considered that the time limit of possession of the assets subject to correction does not respond to any requirement with respect to these assets, since it is not an element that serves as objective evidence that the assets are fixed and not inventories. Additionally, it estimated that in Law 1943 of 2018 there is no evidence of the existence of this limit, so it declared the nullity of numeral 3 of Article 1.5.7.5 of Decree 1625 of 2016, added by Article 1 of Decree 874 of 2019, which required it.