COLOMBIA: TAX TREATMENT ON DIVIDENDS AND PARTICIPATION DISTRIBUTIONS
On July 11th, the official publication of Decree No. 1103 brought significant amendments to Decree No. 1625 – Single Tax Regulations. These changes impact the tax treatment of dividends and participations distributions for resident and foreign individuals, entities, and undivided estates starting from January 1st, 2023.
Key Aspects:
- Distributions to Resident and Foreign Individuals, Entities, and Undivided Estates:
- Subject to the general Income Tax rate of 35% (or 9% – 15% – 38% – 40% – plus applicable additionals), unless considered non-taxable or occasional income.
- Mega investment projects meeting article 235-3 requirements and signing a tax stability contract until 12/31/2022 are subject to a 27% rate during the contract term, meeting specified regime conditions for each taxable year.
- Distributions to Non-Residents:
- Subject to a special 20% withholding rate (article 245 of the Tax Code), unless considered non-taxable or occasional income.
- Mega investment projects meeting article 235-3 requirements and signing a tax stability contract until 12/31/2022 are subject to a 27% rate during the contract term, meeting specified regime conditions for each taxable year.
- Distributions to Residents:
- Income Tax Withholding calculated on the gross dividend amount, with a 0% – 15% applicable withholding rate. Exceptions apply for mega-investments.
- Distributions to Domestic Entities:
- A 10% special Income Tax withholding rate (article 242-1 of the Tax Code) applies for non-taxable or non-occasional income, included in the general Income Tax base.
- Not applicable when distributions are made to specific recipients, such as non-taxpayer entities, registered economic groups, or controlled entities.
- Taxable Profits:
- For distributions related to taxable profits, general withholding rates of article 240 of the Tax Code apply.
- Mega investment projects’ distributions have an applicable withholding rate of 27%.