The tax reform bill proposes the taxation of dividends distributed as of taxable year 2017.
The system of dividend taxation would be modified from year 2017 onwards. Currently, the general rule sets that profits taxed at the corporate level are not taxable for the shareholders when distributed as dividends.
Profits that were subject to taxation at the corporate level, distributed as dividends to Colombian companies and organizations, would remain untaxed at the shareholders level.
However, when those dividends (out of profits that were taxed at the corporate level) are distributed to both non-resident individuals and companies, they will be subject to withholding at a rate of 10%.
Furthermore, when distributed to individual Colombian residents, the dividends would be subject to taxation according to three different tax brackets. For dividends that do not exceed approximately USD 6.000 the applicable rate would be 0%. Dividends on a bracket that goes from USD 6.000 up to USD 30.000, the rate would be 5%. Finally, if dividends exceed USD 30.000 the rate would be 10%.
The applicable rate for the distribution of dividends out of profits that were not subject to tax at the corporate level would increase to 35% when distributed to both resident and foreign entities and individuals. This rate would also be applicable to dividends received from foreign companies.
A withholding system for dividends has been proposed introducing a (i) 10% withholding tax on outbound distribution of dividends and, (ii) a progressive schedule for Colombian tax resident individuals (proposed amendment to Section 342 of the Tax Code).
