COLOMBIA IMPLEMENTS CONTROLLED FOREIGN CORPORATION RULES TAXING PASSIVE INCOME
Passive income obtained through foreign investment vehicles is now subject to taxation in Colombia in head of the Colombian controller
The approved law includes an anti-deferral regime for the Controlled Foreign Corporations (“CFC”), which establishes that domestic corporations and Colombian tax residents that hold, directly or indirectly, a share percentage equal or greater to 10% of the total equity of the CFC, shall compute in their income tax return the passive income obtained by such CFC. The passive income assigned to the Colombian taxpayer is the amount resulting from deducting out of the passive income the total costs and deductions associated with such income.
CFC’s are those entities that:
- Are controlled by one or more Colombian tax residents, according to the terms in the new legislation,
- Do not have their tax residency in Colombia.
CFC’s include investment vehicles such as corporations, trusts, collective investment funds, other fiduciary businesses and private interest foundations, incorporated with operation or domiciled abroad, regardless if they are considered to be legal entities or not, or if they are disregarded for tax purposes or not.
If the passive income of the CFC represents 80% or more of the total income, it will be legally presumed that its total income, costs and deductions will generate passive income subject to taxation for the controllers.
A list of items of income that are considered passive income is included, including dividends, interests, income derived from intangibles assets, income derived from the sale of assets that generate passive income, real estate lease income, amongst others.
This new regime is established in article 139 of law 1819 of 2016.