Doing business in Colombia: Taxation and Payroll

Tax Figures

Income Tax (Personal Allowance)

Ordinary income tax regime upto UVT 1090 is tax exempt.

UVT 0-1090: 0%
UVT 1090 – 1700: 19%
UVT 1700 – 4100: 28%
UVT 4100 – above: 33%

UVT – (Unidad de Valor Tributario or UVT). Value of each UVT is equal to 29,753 Pesos in fiscal year 2016.

Tax Returns Supplied

Yes

Employers Social Security and statutory contributions

Employers are required to make the following contributions as a % of the employee’s salary.

General pension system 12%
General health social security system 8.5%
General labour risks system: between 0.348%-8.7%

The ceiling for calculating contributions that have to be paid by is minimum 25 minimum legal wages.

Employees Social Security and statutory contributions

Employees must contribute the following social security contributions as a % of their salary.

General pension system 4%
General health social security system 4%
General labour risks system: between 0.348%-8.7%

The ceiling for calculating contributions that have to be paid by is minimum 25 minimum legal wages.

Payroll

There are specific rules in Colombia depending on whether your company employs residents or non-residents. The key concerns for a company that needs to comply with tax laws in Colombia are net taxable income, social security contribution, value added tax (VAT), corporate income tax, specific business tax (SBT), value added tax (VAT), and property tax. Moreover, international treaties to avoid double taxation, international social security agreements, free trade agreements and special tax regimes for specific industries or sectors can make an indirect impact on a company’s tax environment.

Remote Payroll

A remote payroll in Colombia is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Colombia.

Thus a non-resident company is permitted to process payroll for Colombia residents who are on its payroll. Another option for a non-resident company to payroll its employees in Colombia would be to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in Colombia under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a commitment to Colombia may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Thai payroll, and can fulfill all tax, withholding, and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Thai employment laws.

Setting up payroll in Colombia

Employee Information Required

Personal information (name, date of birth, postal address, place of relevant details)
Passport
Bank statements proving sufficient funds are available for the stay
Proof of health insurance coverage

Tax Registration Requirements

Individual taxation depends on:

Source of income
Nationality
Whether or not the employee is a Colombian resident

As per Law 1607 of 2012, the residence is the physical permanence in Colombia continuously or discontinuous sly for more than 183 days for a period of 365 consecutive days.

Natural persons (local or foreign), domestic residents are subject to income tax in respect of their local source of income, and capital gains on both national and foreign source. Foreigners residing in Colombia are subject to income tax in respect of their local source of income and the foreign source of income from the first day of their continuous or discontinuous residency in Colombia. The filing date for individual income tax return is based on the last 2 digits of the individual’s tax identification number (NIT).

Tax resident employees must pay tax on their worldwide income based at progressive rates. The Colombian tax system is expressed in terms of (unidad de valor tributario) (UVT). A new alternative individual income tax system has been introduced, IMAN and IMAS.

IMAN – Individuals with income less than UVT 1,548 are exempt from IMAN. If the individual annual taxable income is more than UVT 13,643 the tax rate is 27%. Tax return will be closed to any tax audit 2 years after it has been filed.
IMAS – For resident employees earning less than UVT 2,800 and a net worth below UVT 12,000, IMAS provides an optional method of calculating income tax. It calculates tax on a flat rate based on alternative sources of taxable income. It starts with UVT1.08(flat rate) when the tax payer receives an alternative taxable income of UVT1,548. Tax return will be closed to any tax audit 6 amonths after it has been filed.
Non residents are only subject to their Colombian source of income. The tax rates are the same as for residents. Non residents are subject to a flat income tax rate of 33%.

Social Security Registration

Register the employer and employee we itself with the Colpensiones or a private fund. The company must affiliate itself with the pension system and must submit a form that indicates employee affiliation to the pension system.

Article 3 of Decree 2390 of 2010 created a unified form to self-assess and pay social security and payroll contribution. The unified form can be submitted electronically but not in person to the Governmental Learning Service (Servicio Nacional de Aprendizaje, or SENA), the Colombian Family Institute (Instituto Colombiano de Bienestar Familiar, or ICBF) and the Family Compensation Fund (Caja de Compensación Familiar).

Documentation Required for New Employees