On August 24th, 2021, the Ministry of Finance submitted the Report for the First Debate on the Social Investment (Tax Reform) Bill to the Congress of the Republic. Yesterday, the First Debate was held in the Congress and the Report was approved. Learn about the main proposals and amendments introduced to the articles of the Bill:

1. Measures to increase revenues:

• The proposal to reduce to 0% (currently 5%) the withholding tax applicable to the foreign portfolio investment in public or private fixed income securities, or financial derivatives with underlying fixed income securities, is eliminated.
• The creation of the complementary tax on tax normalization for possession of omitted assets or non-existent liabilities as of 1 January 2022, at a rate of 17%, is maintained.
• The proposal to increase the income tax rate for legal entities and foreign entities to 35% (currently 31% by 2021) is maintained, as well as the 3% surtax for financial institutions.

2. Mechanisms to combat tax evasion:

• The georeferencing system to be used by notaries to determine the commercial value of real estate is eliminated.
• Mechanisms are established for the valuation of assets (goods and companies) administered by the Special Assets Company, with the aim of achieving disposal at a more appropriate market price.
• A cause is added for the automatic refund of balances in favor originated in income tax and VAT for producers of VAT exempt goods entitled to a bimonthly refund, provided that the deductible taxes generated by the exempt operation are supported by an electronic invoice.

Measures for economic reactivation

3. Modifications to the VAT-free day

• New items are included within the set of goods subject to VAT exemption (e.g. cookers, household appliances that use combustible gas or solar energy for their operation, among others).
• The obligation to issue an electronic invoice is established as a requirement for the exemption to apply, and the deadline to issue it if the sale is made by e-commerce is extended to 11:59 am of the following day.

4. Fiscal support measures

• A state contribution to companies affected by the national strike of 20% of one minimum legal wage is created to support the payment of labor obligations to employers for the months of May and June 2021. This measure requires that potential beneficiaries demonstrate the need for the support by certifying the existence of a decrease of twenty percent (20%) or more in their income compared to the income obtained in March 2021.
• Transitional reduction of penalties and interest rates for the subjects of obligations administered by the DIAN and with respect to taxes, fees and contributions of the territorial order, whose enforceability has materialized during the validity of the COVID-19 sanitary emergency or because of it.
• The DIAN (Tax Authority) and the territorial entities and regional autonomous corporations are empowered to carry out conciliations in contentious-administrative processes in tax, exchange, and customs matters.
• The DIAN and the territorial entities and regional autonomous corporations are empowered to terminate by mutual agreement administrative proceedings in tax, customs and exchange matters.
• The DIAN and the territorial entities are empowered to apply the principle of favorability in the collection stage, within the collection process at the request of the taxpayer, responsible party, declarant, withholding agent, joint and several debtor, subsidiary or guarantor, as of June 30th, 2021, who has tax obligations that are enforceable.

5. Construction for taxes

• The mechanism of construction for taxes is extended to territories with high poverty rates, which totally or partially lack infrastructure for domestic public services and those located in non-interconnected areas.

6. Orange Economy.

• The date of incorporation of companies is extended until June 30th, 2022, as a requirement to qualify for income tax exemption.
• The period of application of the benefit is reduced from 7 to 5 years.

7. SIMPLE taxation regime

• The gross income limit is increased as a condition for being a taxable person and accessing the regime from 80,000 UVT per year to 100,000 UVT.
• The regime's rate threshold is adjusted.
• The date for joining the unified tax for the SIMPLE Regime is modified to the last day of February of the taxable year.

8. Audit benefit

• For taxable periods 2022 and 2023, the possibility is established of reducing the statute of limitations applicable to income tax returns (to 6 or 12 months, as the case may be), for those taxpayers who increase their net income tax by a minimum percentage (35 or 25%, respectively) in relation to the immediately preceding year.

Final note

The above issues were those that were included in the articles of the Report for First Debate; however, there are other proposals that could be the subject of discussion in the second debate at the request of the congressmen, such as:

• Tax on high salaries, especially those financed by the treasury.
• Modification of the general income tax rate for legal entities as follows: Micro 15%; Small 20%; Medium 25%; Large 35%.
• Add 5 percentage points on the general tax rate, being in total (40%), for the years 2022, 2023, 2024 and 2025.
• 50% limit on deductions for legal entities.
• Increase of the marginal rate of tax on dividends.
• Wealth tax.
• Modification of rates on capital gains.