The 2024 tax reform in Colombia introduces a series of substantial changes that impact financial entities and banks with operations in the country. Among the main changes are the imposition of a surtax on corporate income tax, a minimum tax (Minimum Tax Rate – TTD), measures to formalize payments and promote electronic invoicing, and other fiscal provisions that directly affect these institutions. Below is a detailed analysis of the most relevant changes and their impact on the financial sector.
1. Surtax Applicable to Financial Institutions
The reform introduces a 5% surtax on the general corporate income tax rate applicable to financial institutions, including banks, insurance companies, stockbroker firms, and other players in the financial sector. This surtax is in addition to the general corporate income tax rate, which for a corporation is 35%.
Starting from 2025, the tax system will shift to marginal tax rates based on the level of taxable income (TNI), as outlined in the following table:
Taxable Net Income (TNI) and Marginal Rates:
Marginal Rate Evolution:
- TM1: 34% in 2025, 33% in 2026, 32% in 2027, 31% in 2028, and 30% thereafter.
- TM2: 34% in 2025 and 33% thereafter.
Additionally, the 5% surtax will be applied on top of these marginal rates for financial entities, which means the effective tax rate could reach 39% in 2025 for banks and other financial institutions.
Impact of the Surtax:
- Higher Tax Burden: The combination of marginal rates and the surtax imposes a considerable fiscal burden on financial entities, affecting their profitability.
- Investment Disincentives: The increase in the effective rate may discourage investment in the financial sector in Colombia compared to jurisdictions with lower tax burdens.
- Competitive Effects: Facing a more burdensome tax regime, banks could face additional challenges in competing on equal terms with non-financial sectors
2. Minimum Tax
The reform introduces a minimum tax of 20% on adjusted financial profits, applicable to both financial institutions and other entities. This tax ensures that companies pay a minimum level of income tax, regardless of the tax credits and deductions they may apply.
Minimum Tax Calculation:
- Adjusted Tax: Net income tax plus tax credits and passive income taxes.
- Adjusted Profit: Accounting profit adjusted by non-taxable income, exempt income, and other factors.
- The law does not contemplate a rule to consider the effects of temporal differences between accounting and tax figures. This may be very relevant in the case of a bank.
If the resulting rate is lower than 20%, entities must pay an Additional Tax to reach the minimum tax rate.
Implications for Banks:
- Double Taxation Risk: This tax does not comply with OECD standards under the Pillar 2 rules, which could lead to double taxation for financial institutions operating in multiple jurisdictions.
The Colombian minimum tax is not only higher than the OECD’s top-up minimum tax rate (20% vs. 15%), but it does not fully comply with OECD standards, which may also prevent it from being credited in the parent company’s country of residence. This could further exacerbate the tax burden
on multinational financial institutions. - Administrative Burden: Banks will have to calculate both the Colombian TTD and international tax requirements, increasing the complexity of tax compliance.
- Reduction of Tax Benefits: Tax credits and deductions that would normally apply may effectively be nullified by the minimum tax.
3. Measures for Payment Formalization and Reducing Cash Use
One of the reform’s goals is to reduce the use of cash in commercial transactions by incentivizing electronic payment methods through limiting tax deductions for cash payments and promoting the use of electronic invoicing. This measure are the following:
a. Deduction Limitations: Only up to 20% of payments made in cash are deductible, with an annual limit of 20,000 UVT.
b. Incentives for Electronic Invoicing: A 1% deduction for purchases with electronic invoicing, increasing to 5% in 2026 and 3% in 2027.
Some of the benefits of these measures are the following:
- Increased Formalization: Adopting electronic payments strengthens banking services and promotes the use of formal financial services.
- Improved Tax Control: The traceability of electronic payments facilitates tax control and reduces the risks associated with tax evasion.
- Development of New Financial Products: This more formalized environment could create opportunities for banks to develop new financial services tailored to small businesses and individuals who formalize their activities.
4. New Equity Tax on Non Productive assets
The 2024 Tax Reform introduces a new equity tax that targets non-productive assets held by companies. This tax aims to penalize the accumulation of assets that are not actively generating income or contributing to the company’s core business activities. Non-productive assets can include real estate, art, or other investments that do not have a direct relationship with the company’s income generation.
The tax rate for this equity tax is set at 1.5% on the value of the non-productive assets. According to the Government, this measure is intended to encourage businesses to either make more efficient use of their assets or liquidate non-productive ones, aligning with the government’s broader goals of increasing economic productivity and reducing tax evasion through asset shelters.
For financial institutions, this tax may create additional burdens, particularly for banks that hold large portfolios of non-income-generating assets. It may prompt a strategic re-evaluation of asset holdings to minimize the impact of this additional tax obligation.
5. Other Significant Proposed changes
a. Increase in Capital Gains Tax: The capital gains tax rate increases from 15% to 20%, affecting entities that earn income from asset sales or transactions not related to their core business
b. Elimination of the Requirements of the General Anti-Avoidance Clause: Several limitations on the general anti-avoidance clause are removed, giving tax authorities more discretion to identify tax evasion or avoidance schemes. This could increase legal and tax risks for financial entities.
d. Reward for Reporting Tax Evasion or Avoidance: The reform introduces a 20% reward for citizens who report tax evasion schemes that result in an increase in taxcollection.
e. Increase in Presumed Interest for Loans Between Companies and Shareholders: The increase in the presumed interest rate for loans between the company and its shareholders may exceed market standards, generating additional costs for entities.
f. Few Incentives for Renewable Energy and Sustainable Tourism: Despite the growing importance of these sectors, the reform offers very few incentives to encourage investment in renewable energy projects and sustainable tourism, which could discourage financial entities from financing these emerging sectors.
Por
José Andrés Romero
jose.romero@romerosl.com