Although the economical expectation for the years to come is overall positive, middle- and high-class Colombians are anticipating the outcome of the new tax reform proposed by the left-wing elected president Gustavo Petro.
Investing abroad - BITs and DTTs
According to Procolombia, North American, European, and Latin American markets are the most common destinations for Colombian companies and investors. For these purposes it is relevant to consider the Bilateral Investment Agreements (BITs) and Double Tax Treaties (DTTs) in force.
BITs are agreements establishing the terms and conditions for private investment by nationals and companies of one state in another state. These treaties aim is to protect investment abroad in countries where investor rights are not already protected through existing agreements. Colombia has 13 free trade agreements or agreements of economic cooperation.
DTTs are treaties between two or more countries to avoid international double taxation of income and property. The main purpose of DTT is to divide the right of taxation between the contracting countries, to avoid differences, to ensure taxpayers' equal rights and security, and to prevent evasion of taxation. Colombia has 11 double taxation treaties in force.
Investing abroad – United States
United States is an important trade partner for Colombia, underscored by the landmark 2012 U.S.-Colombia Trade Promotion Agreement that has supported environmentally and socially sound economic growth and employment opportunities in both countries. According to US Department of State, United States is Colombia’s largest trade and investment partner worldwide, and conversely, Colombia is the United States’ third-largest trade partner in Latin America, with two-way trade in goods and services totalling $29.9 billion in 2020. U.S.
Having a good tax planning.
The United States and Colombia does not have a DTTs that is in currently in force and the negotiation of an agreement that prevents double taxation is only in a very preliminary stage of discussion. Therefore, Colombian companies and investors that are planning to invest or start a new business in the United States shall consider that their income and capital gains will be taxable in both countries.
Tax Basis. Individuals are subject to personal income tax at a top rate of 39% in the United States and in Colombia, on the same income.
Corporations are subject to a corporate income tax of an average of 33% or a 20% withholding tax (varies considering the federal income tax and the state income tax) and 31% in Colombia on the same income (35% on 2022 according to the proposed tax reform).
Tax Residence. An individual is resident for tax purposes if he/she is present in the United States for more than 6 months in the tax year (continuous or discontinuously). Resident individuals are taxed on worldwide income, while nonresidents are taxed only on their effectively connected income to a trade or busines in the United States.
To avoid double taxation, for Colombian investors is recommended to be incorporated in the Unites States through a company.
Fabian Acosta Guevara
Cel. (+57) 302 347 0495
Cel. (+1) 786 598 1586
Co-author :Claudia Gabriela Romer
Co-founders of legalnova* (www.legalnova.co) a consultancy firm based in Miami, United States, and Bogotá, Colombia, that provides legal, accounting, and financial services to start-ups, investors, and multinational companies.