The significant economic presence rules were enacted as part of Colombia’s 2022 tax reform; however, the decree issued on November 27, 2023, takes into account the provision of digital services and sets out the final regulations for taxpayers.
Non-resident entities are considered to have significant economic presence in Colombia, and therefore are subject to certain taxes, if they have gross revenues of more than 31,300 tax value unit (approximately USD297,000) from transactions carried out in Colombia or engage in systematic interaction with the Colombian market.
The decree sets out various definitions related to the application of the rules, including the interpretations of “digital services”, “client”, “user” and “digital interface”. It also lays out the criteria to determine when non-resident entities’ customers are considered to be located in the national territory of Colombia.
Non-resident entities with significant economic presence in Colombia will be able to choose between two tax mechanisms. They can be taxed at a 10 percent withholding on the gross income of a transaction. Alternatively, they can choose to declare and pay a 3 percent rate income tax. If they choose the latter, the entity must register to obtain a tax identification number allowing them to file tax returns.
Global consultancy EY notes that “Potentially, [significant economic presence] rules could not apply under double-taxation treaties and future international treaties on digital economy taxation.”
The significant economic presence rules come into force from January 1, 2024.
Source: Step
