Colombia: Tax authority issues guidance on application significant economic presence rule
Tax authority’s ruling addresses several taxpayer questions regarding the significant economic presence provisions
The Colombian tax authority issued Ruling No. 100208192-890, providing an official interpretation on the application of the significant economic presence (SEP) rule introduced by Law 2277 of 2022.
The SEP rule, effective January 1, 2024, establishes a new nexus criterion for corporate income tax liability for nonresident companies selling goods or providing qualified digital services to Colombian clients. The tax authority’s ruling addresses several taxpayer questions regarding the SEP provisions in the Colombian Tax Code (CTC) and the Unique Tax Decree (UTD).
- Nonresidents with SEP registering during the year must include income from January 1 of the registration year in their SEP corporate income tax return.
- Nonresidents with SEP must make advance payments upon registering in the Unique Tax Registry (RUT) and follow bimonthly deadlines. For instance, registration on November 1, 2024, requires an advance payment for November-December, payable in January 2025.
- Withholding tax paid before registration can be credited against the annual SEP corporate income tax liability.
- Nonresidents opting for withholding tax by clients/users instead of advance payments are not required to make bimonthly payments, even if registered in the RUT.
- SEP-related income recognition depends on whether the nonresident keeps accounting books. If so, income is recognized on an accrual basis; otherwise, it is recognized upon payment receipt.
- For cancelled, annulled, or rescinded transactions, the taxpayer shall evaluate if an income has been realized and therefore if it can increase its equity to determine if it can be excluded from SEP corporate income tax calculation.
Read a November 2024 report prepared by the KPMG member firm in Colombia