Bogotá D.C., February 13th / 2023.
The Significant Economic Presence (“SEP”) is a new tax-attraction rule under which non-resident individuals and foreign legal entities will be deemed income taxpayers over their Colombian source income derived from trading or services activities with customers located in Colombia.
As of January 1st, 2024, these foreign non-residents persons (entities or individuals) who have a PES in Colombia will be subject to income tax on their Colombian source income derived from the sale of goods or the provision of services to customers or users located within the Colombian territory. This is so provided that certain requirements set forth by law are duly met. If such requirements not met, such foreign non-resident persons will not be, in principle, subject to any taxation in the country, irrespective of the analysis that must be done in each case (e.g., when it comes to consultancy, technical and technical assistance services).
Considering trading activities, according to section 20-3 of the Colombian Tax Code, foreign non-residents persons will have a SEP in Colombia when meeting all of the following requirements: Performing consistent interaction with users or clients located in Colombia, and during the fiscal year (previous or ongoing) such interaction (sale of goods to clients in Colombia) derive in gross income of at least 31,300 Tax Units (2023: COP$1,327,495,600 c. USD$277,000 approx.).
To such end, it is presumed (rebuttable presumption) that there is consistent interaction with Colombian customers when the foreign non-resident holds an interaction or marketing activity with 300,000 or more clients and/or users in Colombia during the fiscal year (previous or ongoing); or the foreign non-resident displays prices in Colombian Pesos (COP) or allows payments in COP.
Among others, the Colombian Tax Code sets forth the list of services considered to determine a SEP in Colombia: Online advertising services, digital content (mobile applications, music, and movies), intermediate platforms, as well as any other electronic or digital service aimed at users located in the national territory. However, this rule sets forth that, in addition to the electronic or digital services, a SEP would be created by any other service provided through a digital market to a user located in Colombia.
If the foreign non-resident person is deemed to have a SEP in Colombia either because of trading activities or services activities (as outlined above), income thereon will be deemed Colombian-sourced and, hence, subject to tax for income tax purposes. Foreign non-residents having a SEP in Colombia could opt for one out of two taxation mechanisms: Income tax withholding: 10% on gross payments made by the Colombian-based clients; or Income tax return filing: 3% on the gross income being accrued under the SEP to be assessed and paid by filing a year-basis income tax return in Colombia. Foreign non-residents opting for this mechanism shall ask to their customers to refrain to perform the 10% income tax withholding.
Any of these mechanisms would be applicable in a combined way to related parties based on the criteria set-forth by law (cf., section 260-1, CTC). To simplify the SEP taxation, foreign non-resident persons with PES in Colombia will not be subject to the formal obligations or duties applicable to tax residents such as electronic invoicing, third-party information reports, or tax withholding filings, collection or payments, among others.
Finally, even when the aforementioned rules will enter into force as of January 1st, 2024, and since it is essential to wait for the regulations issued by the Government in this regard, this does not prevent to perform the applicable tax planning measures for purposes to mitigate any adverse tax effects thereon.