COVID-19: Insolvency Tax Benefits

Through Legislative Decree 560 of 2020, the Ministry of Commerce adopted transitory measures regarding the insolvency regime.

The aforementioned, with the purpose of mitigating the economic effects derived from the spread of COVID-19, seeking business recovery and preservation.

The Ministry of Commerce, Industry and Tourism, through Legislative Decree 560 of April 15, 2020, adopted transitory measures regarding the insolvency regime with the purpose of mitigating the extension of the effects on the companies affected by the economic crisis derived from the spread of COVID-19. Thus, these measures are aimed at the recovery and preservation of companies as sources of employment, through rescue mechanisms provided for in the decree law in question.

Next, we will address the tax benefits in insolvency matters set by Decree 560 of 2020, which seek to alleviate burdens such as withholding at source and presumptive income. Let’s see:

Withholding tax

Those companies that are admitted in corporate reorganization processes or that have entered into a reorganization agreement and are executing it in accordance with the provisions of Law 1116 of 2006, as from April 15 and until December 31, 2020, will not be subject to withholding or self-withholding at the source as income, without prejudice to the tax resulting from the respective private or official liquidations.

“companies subject to reorganization or in the process of doing so shall be exempted from liquidating and paying the advance payment of income tax corresponding to the taxable year 2020”.

Additionally, companies subject to reorganization or in the process of doing so will be exempted from liquidating and paying the advance payment of income tax corresponding to the taxable year 2020.

Withholding at source for VAT

Until December 31, 2020, companies admitted in reorganization processes, or those that have entered into this type of agreements and are in the process of executing them, will be subject to 50% VAT withholding at source. Such withholding will be made by all withholding agents acquiring goods or services from these companies.

Presumptive income

Debtors who have been admitted in reorganization processes or who have an agreement are not required to liquidate presumptive income for the taxable year 2020.

Source: Actualize