From the tax point of view, permanent establishments and branches of foreign companies in Colombia must comply with a series of substantial and formal obligations depending on the particular situation and characteristics of the corporate entity. For the purposes of this letter, we draw attention to the following:

1. Income tax. Foreign companies having a permanent establishment or branch in the country will be subject to income tax on occasional income and profits of national source attributable to such establishment or branch. In that sense, in order to determine the assets, liabilities, capital, income, costs and expenses attributable to a branch, an attribution study must be prepared in accordance with the principle of full competition taking into account the functions, assets, personnel and risks assumed by the company through the establishment or branch. Likewise, permanent establishments and branches of foreign companies must keep separate accounting records for each establishment and/or branch they have in the country.

2. Transfer pricing regime. In accordance with the transfer pricing regime, for the taxable year 2020, the permanent establishments or branches of foreign companies, taxpayers of income tax, shall present a local report and a master report, when they celebrate or carry out operations with related parties from abroad and/or related parties located in the free trade zone. Likewise, when the related parties carry out operations with individuals or foreign entities in benefit of the branch or the Permanent Establishment. Additionally, income taxpayers that carry out operations with related parties abroad or with related parties domiciled in free trade zones must file a transfer pricing information return if they have (i) gross assets, as of December 31, 2020, greater than or equal to COP$3,560,700,000 (about US$1,041,340) or, (ii) gross revenues greater than or equal to COP 2,172,027,000 (about US$635,217). They must also submit the transfer pricing documentation, consisting of the Local Report and the Master Report, in case they comply with the limits established to be obliged to submit the information statement and at least one same type of operation as of December 31st, 2020 is equal to or greater than COP$1,602,315,000 (about US$469,039). The due dates to file the informative declaration and transfer documentation for fiscal year 2020 expire in July of the current year (i.e., 2021). However, it is important to note that branches and permanent establishments that carry out transactions with individuals, companies or entities domiciled or resident in non-cooperative, low or non-taxable jurisdictions; as well as with entities belonging to preferential tax regimes, must file the transfer pricing information return, regardless of whether they exceed the income or equity caps mentioned above, and must prepare the local transfer pricing report if the total transactions as of December 31, 2020 are equal to or exceed COP$356,070,000 (about US$104,122). Additionally, certain taxpayers may be required to file the submit the Country by Country Report if its group’s gross revenue for FY 2020 is equal to or greater than 80,000,000 UVT (COP$ 2,853,600,000,000, about US$822,581,589). This report should contain information regarding the global allocation of income and taxes paid by the business group, along with certain indicators regarding its economic activity at the global level, among other relevant information. The due dates to file the Country by Country Report for FY 2020 expire in December 2021. However, there are multiple exceptions to the obligation to submit this report, including the failure of the parent company to submit the Country by Country Report in its country of residence, but this will have to be analyzed on a case-by-case basis.

3. Validity of the Electronic Signature. Per sections 2 and 4 of Resolution 70 of 2016 issued by the DIAN, the Electronic Signature Instrument (ESI) system is valid for 3 years since the date of issuance or renewal of the ESI is completed. According to the migration schedule of the Digital Mechanism to the ESI, the first dates ended in November and December 2016, so the first expirations already began to apply. We suggest an internal confirmation of the deadline in your case for this renewal process. This verification is very important since the deadlines for withholding tax and VAT are approaching and, if the ESI is not renewed in time, there could be complications in their submission.