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TAXATION OF PRIVATE EQUITY FUNDS AND COLLECTIVE INVESTMENT FUNDS

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TAXATION OF PRIVATE EQUITY FUNDS AND COLLECTIVE INVESTMENT FUNDS

Private Equity Funds

Tax Rules for realization of benefits from Private Equity or Collective Investments Funds, would be modified  

 

Pursuant to the tax bill reform, Private Equity Funds and Collective Investment Funds would remain as non-taxpayers. Their beneficiaries or participants would be able to defer the realization of the income up to the distribution of profits, even if it happens in a taxable year other than that in which the respective fund accrued such profits, as long as : (i) the fund is closed, which means that its distribution occur at certain pre-established times, and its participation units are traded on a Colombian stock exchange; or (ii) no more than 20% of the fund is owned directly or indirectly, by the same beneficial owner, or members of the same family, and no beneficiary has control over the distributions. In other cases, the participant must realize the corresponding income in the taxable period in which it is accrued by the fund.

In any case, when a fund is created for the purpose of deferring income tax, the beneficiary will realize such income in the same year in which it is accrued by the fund, despite the fulfilling of the deferral requirements.

Profits accrued by the fund, not distributed and not realized by their beneficiaries, will be deemed realized for tax purposes in the taxable year in which the tax reform enters into force, provided that the requirements for deferral are not met.

Management companies must apply withholding tax when payments to the beneficiaries are made, unless the requirements for deferral are not met. In this case, management companies must apply tax rules applicable to mercantile trust agreement. For this purpose, management companies will have to confirm the origin of the benefit and the requirement for the tax deferral.