Hacking Colombia: Income Taxes

Many expats living here don’t file annual income taxes with the DIAN, Colombia’s tax authority, and have been here for years and sometimes decades. How do they do this?

DISCLAIMER: Colombian Dreaming is in no way advocating breaking laws or tax evasion. If you actually use any of the methods described here it is your sole responsibility and not ours.

Why do they do it?

Why would anyone break the law and risk fines, jail time, or even deportation? First and foremost because they think they can get away with it. It could also be sheer ignorance or because it’s too complicated. Colombian paperwork is seldom simple and always in Spanish, therefore intimidating for many expats. You typically need a local tax accountant to file even if you owe nothing. Some may not be aware of their tax obligations here and only file in their country of origin. Pensioners living here aren’t keen to pay hefty taxes when their pension is tax free back in the old country.

That said, millions of native Colombians don’t file their tax returns even if required to. These people may be engaged in or employed by unregistered or illegal businesses. This is a long standing problem in Colombia and it explains why sales taxes (IVA), income tax deductions at source, as well as other consumer and business taxes are critical to government coffers.

When are you required to file income taxes?

Everybody who is required to file must do so somewhere between August 9 and October 19. Your own deadline is based on the last 2 digits of your NIT (your Colombian tax number, see further down). Here’s an article from Semana that give you the dates or you can use this free tool on the Cambio website. Just enter the last 2 digits of your NIT in the box at the right bottom of the page and click consultar.

Key Words and Expressions

Renta : Income. Does NOT mean rent!
Declaración de renta tributaria: income tax return
Impuesto: tax
Persona natural: An individual, as opposed to a company (persona jurídica)
Hacienda : ministry of finance (minhacianda: minister of same)
UVT: Unidad de Valor Tributario. Used to calculate your tax rate rather than pesos. The value of the UVT can change up or down. For the 2021 tax year, one UVT is worth 36,308 COP

What Triggers the obligation to file?

If you’re living in Colombia 180 days or more in a calendar year, you’ve met the first but not the only condition for having to file an income tax return here. Filing does not mean you’ll actually pay any taxes. The actual triggers can be any of the following (current tax law):

You have Colombian assets worth 163,386,000 or more pesos. This is gross value regardless of liabilities.
You had 50,831,000 or more pesos of any kind of Colombia-based income, or purchases, or bank deposits or investments. While we’re not absolutely sure, we think it isn’t cumulative between types of transactions but rather an either/or (it would be very weird otherwise!)

As you can see from the above, it’s not just income that triggers an income tax declaration as would happen in most other countries, but also spending money, owning assets, depositing or investing money!

You can use this free online tool on the cambio website to calculate your income tax and it includes questions about the above to see if you must file. This is the same link we provided earlier but this time click the “iniciar calculadora” button on the left bottom of the page. You need a pretty good command of Spanish to get through it, but if you don’t, have someone who does help you and have your tax data handy.

Getting a NIT number

You’ll need a NIT, Colombia’s tax number, in order to file any kind of income tax return, whether it be personal or for business. If you don’t have one, see links at bottom of this page in More Online Resources. Their guides include videos, but of course, it’s all in Spanish!

What are the tax rates in Colombia?

For business, the 2022 tax year rate is 35%, up from 31% in 2021. Not a number that attracts foreign investment!

For individuals (personas naturales) for the 2021 tax year, there is a progressive tax rate ranging from 0 to 39%. Figuring out which bracket applies to you means converting your income into UVT (see Key Words and Expressions above). Rather than make you suffer through this process, there’s a pretty complete tax calculator available free online on the Cambio website — we’ve mentioned it twice already in previous sections!

The cédula and activity tracking

If you’re going to actually live in Colombia, getting a visa that allows you to do so and then a cédula de extranjería (CE) is an inescapable fact. You have to provide a CE number for just about all financial transactions. Without it you need a return ticket every time you enter Colombia and your stay is limited to 90 days per tourist via and 180 days per year. Think of it as a “green card”. Don’t have one, you’re potentially an illegal immigrant!

Through your cédula number the DIAN can track all of your financial activity. Use it to open a bank account here, buy property or a car and the DIAN knows about it! Give out your cédula number to any merchant who asks for it and there’s the possibility that merchant can provide that data to the DIAN, or can be compelled to.

Transactions that are under the radar

Here’s what some foreigners do to stay under the radar besides never giving out their cédula number. Again, we do not advocate tax evasion!!

Make most of their purchases in cash.
Pay their rent in cash
Use foreign credit cards (still traceable if the DIAN wants to, however)
Pay their bills in cash (if the bill is for a service where you used your cédula the point is moot!)
Get a Colombian native to use their own cédula to obtain services for them
Don’t buy property, only rent. Since for expats buying property is all cash, it’s impossible to hide.
Use Airbnb rentals long term (costly!) or rent directly from an owner who doesn’t require a cédula.
Obtain cash through ATMs using their foreign bank cards

If you’re paying for something like rent to an individual’s bank account in cash through a lottery counter, an ATM, a payment service or even a bank teller, no cédula is required. For more details about paying bills, read our guide here.

Double Taxation?

A hotly debated topic on expat social networks is double taxation, that is being taxed in one country for income you already paid tax on in another. What they usually seem to forget is that as a rule, your world income is reportable and taxable in the jurisdiction where you have your principal residence. That is, where do you spend most of your time living? Is it Colombia or the old country?

Depending on your “old” country, you may or may not have to file a yearly income return, or at least a final tax return, once you become a full time resident of another country. For Americans, the obligation to file an annual tax return is until death! Additionally, any income in the old country may and probably does trigger reporting and tax obligations there.

There most certainly are accommodations made for taxes paid in another jurisdiction under any country’s tax regime. However, income that isn’t taxable in one may be taxable in another, for example, pensions and inheritances.

This topic is far too complex and specific to a given country’s tax laws and any tax treaties they may have with Colombia, therefore far beyond the realm of this guide! A local tax accountant and one in the old country will be better placed to address your own tax situation.

Tax Accountant vs Tax Lawyer

If you’re not up to the task of figuring out your tax liabilities in potentially 2 different countries, then you’ll inevitably need solid tax accountants. Your Colombian accountant should be experienced with handling expat accounts. They may and probably will charge more for their services than regular tax accountants. You can get leads through Colombian expat social networks or websites that are aimed at expats in Colombia. Colombia Dreaming will soon be providing some resources in that regard, after we’ve done our own research! Before you hire any accountant, always do your due diligence. They should provide a free initial consultation and you can use this opportunity to plumb the depths of their knowledge!

A tax lawyer is required either when you’re in a dispute with the DIAN (Colombia’s IRS) or have a complex financial situation that goes beyond the capabilities of your tax accountant. As the name implies, they’re lawyers, so expect Colombian lawyerly rates, and a bit more if they specialize in expat cases.

The importance of having a good tax accountant cannot be emphasized enough!

More Online Resources

NOTE: There is a new government in Colombia which is in the process of reforming the income tax regime and clamping down on tax evasion. New tax laws may come into effect for the 2022 taxation year (2023 filing)

NOTE: This guide is, to the best of our knowledge, accurate. It will be expanded and updated as needed.

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