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Colombia: Living There - Tax Issues

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Living There

INDIVIDUAL TAXATION

Residents are taxed on their worldwide income. Income of married couples are assessed and taxed separately.

Resident foreigners are taxed only on their Colombian-sourced income for the first four years of their stay in the country. After this period, resident foreigners are taxed on their worldwide income.

INCOME TAX (Impuesto de Renta)

Income is taxed at progressive rates. Income tax is levied on tax value units (unidad de valor tributario, UVT), which is annually adjusted by the retail price index. The UVT for 2008 is equivalent to COP22,054 (US$9).

A presumptive minimum income is annually calculated at the rate of the taxpayer’s net worth. The amount by which the taxpayer’s deemed income exceeds his net income calculated under ordinary rules may be deducted from his gross income over the next five years.

RENTAL INCOME
Income from leasing real property is considered as ordinary income and taxed at progressive rates. Rental income is subject to 3.5% withholding tax, which is considered as advance tax payment. This tax can be credited against the taxpayer’s income tax liability when he files his tax return.

Taxable rental income is computed by deducting income-generating expenses (such as administrative expenses, insurance, realtor or leasing agent fees, taxes, maintenance and repairs) from the gross rent. Property taxes are also deductible.

CAPITAL GAINS
Capital gains from selling real property are considered as ordinary income and taxed at progressive rates. The taxable gain is computed by deducting the following from the selling price: acquisition costs (as revalued by the consumer price index), costs of transferring ownership, and improvement costs.

Capital gains earned through a resident’s fixed assets (houses, apartment, vehicles, chattels, and implements) are subject to special taxation. If the property was sold within two years of acquisition, the capital gains are taxed at progressive rates. Profits generated through sale of the property held for more than two years is subject to a special capital gains tax rate of 1%, withheld at source.

In transfer of the taxpayer’s homes, a reduction in the 1% withholding tax rate is applied if the property was acquired from 1978 to 1986. The reduction rates are as follows:

WEALTH TAX (Impuesto al Patrimonio)

Wealth tax is an annual tax imposed on individuals who exceed a certain amount of wealth. Wealth tax is levied at 1.2% on the taxpayer’s net worth in excess of the threshold amount, which is COP3,000,000,000 (US$1,188,119) until 2010.

PROPERTY TAX

Real Estate Tax (Impuesto Predial)

Property taxes are levied on the cadastral value of the properties as assessed by the municipalities. The rates of the unified property tax on the aggregate value of the land and buildings range between 0.1% and 1.6%. In Santa Fe de Bogotá, Colombia’s capital, the property tax range from 0.002% to 0.015%.

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