Taxation in Agriculture

Chapter 9. Colombia

Abstract

This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.

9.1. Overview

Colombia imposes taxes at national level and subnational level (departmental and municipal). National taxes apply to all residents and non-residents who carry out activities in the Colombian territory. Table 9.1 provides an overview of taxes applied in Colombia.

After 50 years of armed conflict, Colombia is rebuilding its agricultural economy. There are 2.7 million farmers of which 45% live in poverty. Preferential tax treatment is available to the agricultural sector and is aimed at encouraging investment and establishing farming businesses to promote post-conflict rural development. Subsidies paid to farmers are not included as income for tax purposes and annual municipal property taxes on farmland are levied at reduced rates.

The most significant reform of the Colombian tax rules in the last 30 years took place in 2016 with the main objective being to tackle high levels of tax evasion. Reforms increased the VAT general rate, established income tax applicable to dividends, simplified individuals’ taxation, and reduced corporate income tax rate to improve competitiveness. Reforms as of the end of December 2018 have resulted in changes to tax rates applicable from 1 January 2019.

Table 9.1. Overview of taxes applied in Colombia

Taxes	Description	Rates
National Taxes
Income and capital gains tax corporate level	Income tax is imposed on profits and gains resulting from ordinary and extraordinary income. Colombian companies or entities, and permanent establishments of foreign companies are taxed on worldwide income; foreign companies are only taxed on Colombian-source income	Corporate Income Tax: 33% (2019), 32% (2020), 31% (2021), 30% (2022 and following years) Capital Gains: 10%
Individual income tax and capital gains	Residents are taxed on worldwide income; non-residents are only taxed on Colombian-source income. Income received by individuals should be separated into three baskets depending on the type of income: general (labour, capital and non-labour), pension, and dividends (interests or financial yields, rentals, royalties, etc.). Capital gains tax is levied on inheritance, gifts and the sale of fixed assets held by the taxpayer for a period of 2 years or more.	Residents: The tax rate for general and pension baskets may be 0%, 19%, 28%, 33%, 35%, 37% and 39%. For dividends basket may be 0% or 15%. Non-residents: a 35% general tax rate applies. Capital Gains: 10%
Dividends	The income tax applicable to dividends will be levied on profits generated. For resident individuals, there will be a rate of 0% or 15% depending on the amount of dividends to be paid. If the profits that are being distributed as dividends were taxed at the level of the company, the rate of 0% or 15% will be applicable when dividends are distributed to individuals deemed as residents for Colombian tax purposes. If profits distributed as dividends were not taxed at the level of the company, these profits will be taxed first at the general rate applicable in the year of distribution rate and the profit remaining after this tax will be subject to the rate mentioned above. When the taxpayer receiving the dividends is a Colombian company or a non-resident alien, either individual or company, there will be a 7.5% rate if the profits being distributed as dividends were taxed at the level of the company. If profits distributed as dividends were not taxed at the level of the company, these profits will be taxed first at the general rate applicable in the year of distribution and the profit remaining after this tax will be subject to the general 7.5% rate mentioned above.	Resident Natural Person: 0% or 15% if taxed at the level of the company the general rate Non-Resident Natural or legal Person: 7.5% Legal Person: 7.5% In every case, if not taxed at the level of the company: 33% (2019), 32% (2020), 31% (2021), 30% (2022 and following years), and then 0% or 15% or 7.5% will apply first
Sales Tax (VAT)	VAT is imposed on the sale of goods and imports and the provision of services within the Colombian territory.	Different rates apply depending on the type of service and goods: 0%, 5%, or 19%
Consumption tax	Imposed on vehicles, telecommunications, the sale of food and beverages in restaurants and similar shops, and the sale of food and alcoholic drinks in bars and discos.	4%, 8% and 16%
Financial transactions (GMF)	Imposed on financial transactions when withdrawing resources from checking, deposit or savings accounts and cashier checks.	0.4% of the value of the transaction
Wealth tax	Applicable to individuals and companies with an equity higher than COP 5 000 million (USD 1 500 million approx.) by 1st January 2019 and will be charged until 2021.	Resident natural persons and Companies: 1%
Local taxes
Industry and commerce tax (ICA)	Levied on income derived from industrial, commercial or services activities carried out in a municipality.	From 0.2% to 1.4%
Property or real estate tax	Imposed on the ownership, usufruct or possession of real estate property. This tax is charged by the municipality where the property is located.	Between 0.1% and 3.3%
Registration tax	Imposed to documents like contracts, legal acts, bylaws and more, registered with the chambers or the Registry of Public Deeds.	Between 0.1% and 1% depending on the act.

Source: DIAN, February 2019

9.2. Income taxation

Individuals are liable to tax in Colombia in respect of their (source of) income and capital gains. Resident individuals are subject to tax on their worldwide income, whereas non-resident individuals are subject to tax only in respect of their Colombian source income. Income received by individuals is classified into three baskets depending on the activities generating the income as follows: general (labour, non-labour and capital), pension, and dividends.

With regard to capital gains, the Colombian Tax code has established a tax rate of 10% which is applied to gains from the liquidation of a company, selling business assets held by the taxpayer for a period of two years or more and gains derived from inheritances, legacies, donations, life insurance and spousal forced shares.

Farmers and agro-food companies are subject to the general income taxation system. However, there is a special way to calculate taxable income derived from biological assets based on the International Financial Reporting Standards and this is the method applied in Colombia. Further, agriculture enjoys a number of tax reliefs, including:

• Income derived from the sale of electrical energy generated from wind, biomass, solar or agricultural residues is exempted from income tax for a 15-year term.

• A preferential tax rate of 9% for new perennial crops cultivated before taxable year 2014. The special tax rate applies for ten years after the start of the crops’ production and it is applicable to rubber, palm oil, cocoa, citrus trees and other fruit trees.

• Taxpayers who invest in agricultural companies, listed on the stock market, have the right to deduct the value of the investment as a tax credit, which may not exceed the 1% of the income tax.

• New companies established in one of the Zones Most Affected by Conflict (ZOMAC), as determined by the Colombian Government, will have temporary tax rate reliefs for a period of 10 years. Micro and small companies will have preferential rates of 0% (applied over the period 2017-21), 25% (applied 2022-24) and 50% (applied 2025-27). Medium and large companies will have preferential rates of 50% (applied over the period 2017-21) and 75% (applied 2022-27). Farmers and agro-food companies will benefit from this tax incentive because most of the zones affected by conflict are rural and, therefore, a big part of the new companies established will develop agricultural activities.

• Coffee growers have a deemed tax basis for labour costs equivalent to 40% of the taxable income obtained by the coffee grower (which is a tax deductible cost).

• Payments made for the purchase of goods or products from agriculture origin made through the Colombian Mercantile Exchange, will not be subject to withholding tax, independent of the value.

• Subsidies and incentives paid to farmers by the government as part of the programme Rural Capitalization Incentive (ICR) are not considered taxable income.

• Taxpayers are able to deduct from their income tax the VAT paid for productive real fixed assets used in agricultural or industrial production.

• Income derived from investments that increase the production of the agriculture sector is exempt from income tax for the following ten years. One of the requirements to apply this exemption is a minimum investment of 25 000 tax value units (equivalent to USD 260 000 approx.)

9.3. Property taxation

The ownership, as well as the usufruct, of real estate (referred to in domestic law as immovable property) is subject to an annual real estate tax, which is levied by the municipality or the district where the property is located. In most cases, the tax base is the property’s official valuation (avalúo catastral), however, certain municipalities have introduced a self-assessment system for real estate tax. Each municipality or district sets its own real estate tax rate between 0.1% and 3.3%, depending on the location and use of the property.

The tax rate for small rural property used for cattle or agriculture must only be between 0.1% and 1.6%.

Transfers of property by gifts, inheritance or sale may generate capital gains, which fall under income taxation as described above.

The transfer of fixed rural assets, new or used, intend to agricultural activity are not subject to the immovable national consumption tax, which is levied at a general rate of 2% on transfers which value exceed 26 800 tax value units (equivalent to USD 280 000 approx.).

9.4. Tax on goods and services

Value Added Tax (IVA) taxes apply to the sale of tangible goods, immovable property and intangibles related to industrial property, which have not been excluded from tax by law. VAT taxes also apply to the provision of services within the national territory and the importation of tangible goods that have not been excluded by law. The taxpayer can credit against the VAT payable, the VAT paid on goods and services purchased for the production of the goods or services provided.

The general rate is 19%. However, some goods and services benefit from lower IVA rates of 5% (processed coffee, corn and rice for industrial use, cotton) and some are excluded altogether (non-processed coffee, seeds, energy). No IVA is charged on the majority of farm inputs and agriculture outputs (both, domestically produced and imported).

9.5. Environmental taxes

There are no tax incentives to encourage the provision of environmental goods. However, companies who invest in preserving the environment or in mitigating the environmental impact of their activities have the right to discount 25% of their investment as a tax credit for income tax purposes. When the investment is undertaken in order to comply with environmental regulations, companies do not benefit from the discount.

The direct and indirect costs incurred by a landowner to maintain natural forest ecosystems can be deducted in the income tax return. This is in recognition of the environmental and social benefits derived from these forests.

9.6. Tax incentives for R&D and innovation

The Colombian Tax Code stipulates that taxpayers who invest in research, technological development or innovation projects, considered as such by the National Council of Tax Benefits in Science, Technology and Innovation (CNBT) are eligible to apply a 25% discount of their investment; such discount is applied directly to the due tax. This investment will also be deducted from the tax base in the taxable year in which the investment was made, what constitutes another benefit for the taxpayer. These tax benefits apply to the income tax. There is no difference on the type of taxpayer, the provision establishes that it applies to all persons, either legal or natural.

Taxpayers who make donations to research, technological development or innovation projects, considered as such by the National Council of Economic Politic and Social, can deduct the amount of the donation (with a limit) in the income tax return in the taxable year in which the investment was made.

9.7. Other taxes

In Colombia, pension savings are an obligation for all employees; the law requires each employee make a pension contribution of 16% of their monthly wage. However, the burden of this contribution is distributed between the employer (12%) and the employee (4%). When the monthly wage is over four times the current minimum monthly labour wage the employee must pay an additional rate of between 1% and 2% towards the Solidarity Fund. In the case the individual is an independent employee, they are required to assume the whole value of the contribution.

Individuals may choose between two pension regimes and may voluntarily save for their pension through a voluntary pension scheme.

Contributions made by the employer, are deductible for income tax purposes. Employees’ contributions are considered exempt income for income tax purposes. The voluntary contributions made to pension funds and to the account for the promotion of construction (AFC), are exempt income. However, all contributions must not exceed 30% of the individual’s annual income and in all cases, they cannot exceed 3 800 tax value units (equivalent to USD 40 000) per annum. All contributions exceeding either of these values are fully taxable.

There are no exemptions applicable to agriculture for the pension saving schemes.