Colombia issues changes to Significant Economic Presence rules that will lead to taxation of foreign companies

28 June 2024

At the beginning of this year Colombia implemented changes to its Significant Economic Presence (SEP) rules for foreign companies. These rules allow for taxation on profits made by foreign companies without a physical presence in Colombia if they have a connection with the Colombian market through a digital presence (e.g., sale of digital services like online advertising and e-books) or interaction with local customers, including e-commerce sales of goods.

Specifically, SEP applies when a non-resident company (or related parties):

• Obtain gross annual revenues of more than 31,300 Tax Value Unit (approximately £226,000) from transactions carried out with customers and/or users located in Colombia.
• Has a systematic and deliberate interaction with the Colombian market, which is presumed to occur if: (i) an interaction or marketing deployment is maintained with 300,000 or more customers and/or users located in Colombia, or (ii) there is the possibility of displaying prices in Colombian pesos (COP) or payment in COP is allowed.

If a non-resident meets these requirements, all income generated in Colombia will be considered Colombian-sourced, and the non-resident will become an income taxpayer in the country.

They will then pay income tax either via:

• Registering with the Columbian tax authorities to file and pay income tax directly – In this scenario they will be subject to an income tax rate of 3% on the gross amount received from the sale of goods and/or services to Colombian customers/users. 
• Tax payment via a withholding tax at source – If they do not register as a taxpayer, they will become subject to a 10% withholding tax on the gross amount received. This tax will be withheld by business customers or if the businesses are selling to consumers, by the financial institutions including banks and credit card companies or payment gateways such as PayPal.