In Colombia, employers have several tax responsibilities. These include social security contributions, payroll taxes, withholding income tax, and corporate income tax.

Social Security Contributions

Employers are required to contribute approximately 20.5% of the monthly salary, which is about 75% of the total contribution. The total contribution amounts to 28.5% of the monthly salary. The breakdown of contributions is as follows:

• Pension Insurance (AFP): 12% (employer) + 4% (employee)
• Health Insurance (EPS): 8.5% (employer) + 4% (employee)
• Solidarity Pension Fund: 1% - 2%
• Professional Risks Insurance (ARL): 0.348% - 8.7% (employer only)

Payroll Taxes

There is an additional tax of 9% on salaries above 10 minimum monthly wages. The basis for the tax is 100% for ordinary salaried employees and 70% for integral salaried employees.

Withholding Income Tax

Employers are responsible for withholding income tax from employee paychecks. The amount withheld is based on the employee's income tax bracket.

Corporate Income Tax

The general rate for corporate income tax is 35%. However, there is a surtax of 3% for financial institutions with taxable income over 120,000 tax units, making the total rate 38%.

Employers are required to register with the social security system and the tax authorities. Payroll taxes and social security contributions must be paid on a monthly basis. Late payments can result in penalties and interest charges. The Colombian Labor Code and Decree 2375 provide detailed guidance on these matters.

In Colombia, income tax applies to various forms of earnings such as salaries, wages, bonuses, commissions, and self-employment income. The country operates a progressive income tax system. There are certain exemptions available, such as a portion of employment income (up to 25%) and dependent deductions.

Social Security Contributions

Social security contributions in Colombia include:

• Pension Contributions: Contributions are mandatory for all employees. The total contribution is 16% of the monthly salary.
• Health Contributions: These contributions cover the public health system. The total contribution is 12.5% of the monthly salary.
• Labor Risk Insurance: These contributions vary depending on the company's occupational risk level.

Other Deductions

• Voluntary Pension Funds (AFP): Employees can contribute to private pension funds on a voluntary basis, offering potential tax benefits.
• Union Dues: If an employee is a member of a union, union dues might be automatically deducted.

How are Deductions Made?

Employers in Colombia are responsible for withholding the necessary taxes and contributions from their employees' salaries. These are then submitted to the relevant tax authorities.

Additional Notes

Tax laws and regulations can change, so it's important to refer to the Colombian tax authorities (DIAN) for the most up-to-date information.

Value-Added Tax (VAT), known as Impuesto al Valor Agregado (IVA) in Colombia, is a consumption tax applied to the sale of goods and services. It's a crucial source of revenue for the Colombian government.

Standard VAT Rate

The standard VAT rate in Colombia is currently 19%.

Reduced VAT Rates

Certain essential goods and services are subject to a reduced VAT rate. These include:

• 5% VAT Rate: Basic food products, some agricultural inputs, certain medications, and some tourism services.
• 0% VAT Rate: Public transportation, health and education services, financial services, and exports.

VAT-Exempt Services

Key categories of VAT-exempt services in Colombia include:

• Health and Education Services: Services rendered within the public and private health and education systems.
• Financial Services: Financial transactions such as loans, deposits, and insurance activities.
• Public Utilities: Basic public services like water, sewage, and some forms of energy.
• Exports of Services: Services exported outside of Colombia.

VAT Registration

Businesses providing taxable services in Colombia must register for VAT if they meet certain thresholds.

VAT Filing and Payment

Registered businesses are required to file periodic VAT returns and make payments to the tax authorities. The filing frequency depends on the taxpayer's assigned tax regime.

Businesses operating within specific Special Economic Zones (ZESEs) may be eligible for a reduced income tax rate. For example, companies located in the Departments of La Guajira, Norte de Santander, and Arauca could enjoy tax exemptions followed by reduced rates as per a 2019 tax reform. Additionally, certain ZESEs might provide exemptions from some duties or taxes.

Free Trade Zones (Zonas Francas)

Companies operating within Free Trade Zones (FTZs) enjoy a preferential income tax rate of 20%. Goods imported into and exported from FTZs may be exempt from customs duties.

Tax Incentives for Specific Sectors

Businesses within the tourism sector, such as hotels and new tourist attractions, may be eligible for income tax deductions. Tax deductions and exemptions are available for investments in agricultural projects. Companies in the technology and creative industries enjoy tax breaks like income tax deductions for investments. Businesses involved in renewable energy projects may receive incentives such as accelerated depreciation of assets and income tax deductions for investments.

Other Tax Incentives

Large-scale investment projects deemed of national interest might receive preferential tax treatment, including income tax deductions and exemptions. Tax benefits exist for companies that generate new job opportunities in specific regions or sectors. Businesses engaged in qualified R&D activities may have opportunities for tax deductions.

Important Considerations

Specific eligibility criteria and conditions apply to each tax incentive. An application and approval process is usually required to take advantage of these incentives. It's important to be aware that tax laws, including incentives, are subject to change.