By Adrian Rodriguez P. (*)
On late December 2014, the Colombian Congress enacted Colombia's most recent Tax Reform Act (the "2014TRA"), adopting a number of measures dealing with Unreported Foreign Held Assets ("UFHA"). As part of this new measures, the Lawmaker introduced a 3-yr. relief regularization regime available through FY2017, allowing non-compliant taxpayers to come forward and declare all UFHA by paying a one time "Regularization Tax" on newly-reported FHA.
Pursuant to the Colombian income and capital gains tax residency rules, Colombian tax residents (wether National or Alien) are taxed on worldwide income, capital gains and property. Therefore, Colombian tax residents must report all of their assets whether located in or outside Colombia.
The 2014TRA, adopted a FHA special purpose tax reporting form, plus a 200% penalty on the assessed tax liability during the course of an audit for UFHA. Although the new FHA reporting form is mandatory as of FY2015, the penalty will only "kick-in" as of FY2018. The reason for the 200% UFHA Penalty delay, is the 3-yr. sunset of the Regularization Facility at the end of FY2017.
The Regularization Tax varies depending on the year in which the taxpayer comes forward declaring her UFHA. 10% for FY2015, 11.5% for FY2016, and 13% for FY2017.
Despite the fact, that the Regularization of UFHA should prevent the Colombian Tax Service from initiating any audits on the UFHA for previous fiscal years, the taxpayer will not be excused from the current 4-year Wealth Tax on the newly reported FHA, as applicable, that in its top bracket has a rate of 1.5%; therefore when considering the sum of both the Regularization Tax and the applicable Wealth Tax, the total price tag for the taxpayer should be up to 16% on the newly-reported FHA, depending on the taxpayer's wealth tax bracket.
FY2015 10% Regularization, plus [(up to) 1.5% Wealth Tax times 4 years] equals 16%; FY2016 11.5% Regularization, plus [(up to) 1.5% Wealth Tax times 3 years] equals 16%; FY2017 13% Regularization, plus [(up to) 1.5% Wealth Tax times 2 years] equals 16%.
Remember that Alien tax residents are subject to the Colombian wealth tax, only as of the 5th yr. of tax residency.
Please bear in mind that the Regularization of UFHA does not equate to the legalization of such property for non-tax purposes, with the notable exception of foreign investment regulations in which the Lawmaker expressly provided for an amnesty from any penalties, otherwise applicable for a related breach of the Colombian foreign investment regulations for unreported investments with the Colombian Central Bank.
It is worth mentioning that on August 26, 2015, the Colombian Constitutional Matters Court adopted a favorable ruling (C-551), green-lighting the Statutory Regularization Regime. Interested taxpayers should also bear in mind that depending on their specific fact pattern and circumstances, there may be other "non-statutory" alternatives outside of the scope of the above commented Regularization Facility that should be explored on an individual basis.
The comments in this publication are not intended to constitute legal or tax advice; therefore, any interested party should seek independent qualified tax advice from Colombian tax attorneys admitted to the practice of law in that jurisdiction. This publication contains the author's views on the above-discussed topics, which may not necessarily coincide with my Firm's official position, and may not be shared or accepted by administrative or judicial authorities or any other person or authority in Colombia.
*[Mr. Rodriguez has over 20 years of experience in the fields of international taxation, international investments and M&A. He holds LL.M degrees from both NYU in the U.S. in International Taxation (02'), and "Universidad del Rosario" in Colombia in Colombian Taxation (95'). He received his Colombian law J.D. from "Universidad de Los Andes" in Colombia (94'); and he is licensed for the practice of law in Colombia (since 95') and in the U.S.A in New York and Illinois (since 03'). He is currently a Partner with the Colombian law firm Lewin & Wills, while having past substantial work experience with the law firms of Sidley Austin in New York (07' – 09'), Baker & McKenzie in Chicago (02' – 04') and Arthur Andersen in Colombia (93' – 95'). Mr Rodriguez can be reached at [email protected] - cover photo 2016 © Adrian Rodriguez P.]
Colombian Regularization Facility for Unreported Foreign Held Assets in it's 2nd Yr.
ARTICLE29 November 2016
By Adrian Rodriguez P. (*)