Income tax return: Important news for individuals

Law 1943 of 2018, Court rulings issued during 2019, multiple decrees issued between 2018 and 2020, as well as several resolutions issued by the Dian are among the rules to be taken into account for this delicate process.

In the preparation and filing of the income tax return or simple regime for the taxable year 2019 of individuals and illiquid successions do reach effects in the liquidation of the income tax or simple regime for the taxable year 2019.

In addition, together with the changes introduced with Law 1943 of 2018 and its regulatory decrees, the effects of some rulings of the Constitutional Court such as C-520 of November 5, 2019 should also be taken into account, with which it was provided that self-employed workers who must use the general tax return may include costs and expenses within such tax return (and without any limit) to associate them to their earned income.

In this regard, it is important to highlight that, thanks to the reduction in the ceilings of annual consumption, annual consignments and annual purchases with credit cards made by Law 1819 of 2016 (all of them set at 1,400 UVT, $47,978.000 during taxable year 2019), what was verified is that the universe of natural persons filing income tax returns was increased from 2,500,000 for taxable year 2016 to 2,900,000 for taxable year 2017 and to 3,212,000 for taxable year 2018 (see bulletins 219 of October 23, 2018 and 139 of October 24, 20198 issued by the Dian).

Therefore, that same amount of filers can be expected for the ordinary regime return for taxable year 2019, since even the Dian, by first receiving between April and June 2020 the immense amount of exogenous tax information for taxable year 2019 (required with Resolution 011004 of 2018), will have enough data to discover who are obliged to declare income under the ordinary regime for taxable year 2019. In addition, it is important to remember that Article 6 of the Tax Statute -ET- continues to allow resident individuals who are not obliged to file income tax returns, but to whom withholdings at source have been made for any concept during the taxable year 2019, to file their returns voluntarily, which would allow them to declare balances in favor and request a refund. It is even important to highlight that some 2,700 persons have joined the simple regime for the taxable year 2019, and therefore they were automatically obliged to file for the first time the annual tax return of such regime.

Additionally, the new resolutions of the Dian that are related to this issue should be taken into account, such as the issuance of Resolution 000071 of October 28, 2019, with which the instructions of Resolution 000052 of October 2018 were modified and it was provided that, for the taxable year 2019, the new format 2517 version 2 will have to be used for the tax reconciliation of the taxable year 2019 (which will only be used by individuals and resident illiquid successions obliged to keep accounting, or that keep it voluntarily, and that have remained in the ordinary regime; it will not apply to those who have voluntarily transferred to the new simple regime).

Therefore, for the preparation and filing of the 2019 taxable year income tax return of resident and non-resident individuals and for the preparation and filing of the 2019 taxable year simple regime annual return of individuals (which will be due between October 22 and 28, 2020; all individuals who will file such returns (whether they do so on a mandatory and/or voluntary basis) must again take into account a large number of important rules, such as:

1. The preparation and filing for the first time of the new annual return of the simple tax regime that will have to be used by the more than 2,700 resident individuals that during 2019 voluntarily availed themselves of such regime (see Dian Resolution 000081 of November 27, 2019 and 000018 of March 3, 2020). In this regard, it is clear that the Dian will have to design a new form for such type of return (form that will be totally different from form 110 to be used by non-resident individuals and form 210 to be used by resident individuals). The new annual return of the simple regime for the taxable year 2019 will be due this time during October 2020.

2. The application of the new ordinary income scheduling for resident individuals and illiquid successions (obliged or not to keep accounting), in which only three schedules will be used (general, pensions and dividends) instead of the five schedules that were used until the taxable year 2018 return (labor, capital, non-labor, pensions and dividends).

“the calculation of the 40% limit to which all the different deductions and exempt income intended to be subtracted within the general tax return will have to be made in a special way within the general tax return.”

This will also imply making complex calculations such as the limitation of costs and expenses associated with capital and non-labor income, so that the excess of such costs and expenses do not end up affecting labor income in the general tax return. In addition, the calculation of the 40% limit to which all the different deductions and exempt income to be subtracted from the general tax return must be made in a special manner within the general tax return. Additionally, it must be taken into account that, within article 241 of the ET, only one table (which will only be applied to the general taxable income added to the pension taxable income), since the second table that was only used to be applied to the capital income taxable income taxable income added to the non-labor income taxable income taxable income taxable income was eliminated.

In addition, the new versions of articles 242 and 245 of the ET will be applied, which raised the taxation on taxed and non-taxed dividends of 2017 and following years received by individuals and resident and non-resident illiquid inheritances.

3. The use of a new version of the 2517 format (which changed from version 1 to version 2). This will imply that the Dian must prescribe this time a new tax prevalidator for the preparation and filing of such format. In addition, this time the format will have to be prepared and filed prior to the filing of the respective income tax return. And only in the case of large taxpayers, they will be allowed to file it in August 2020 after having filed their income tax return in June 2020, since the Dian is still delayed with prescribing such prevalidator and adapting its Muisca platform to receive the format.

4. The elimination (at least during the taxable year 2019) of the benefit of the income not taxed by inflationary component of the financial yields obtained in financial entities. And the elimination of the restriction (at least during the taxable year 2019) of the non-deductible expense for inflationary component in interest paid to financial entities.

5. The elimination (at least during the taxable year 2019) of the exempt income for representation expenses in the salaries of judges and prosecutors. And the non-subjection to the 40% limit within the general taxable income for exempt income formed with some special income received by members of the public force (police and military) and professors of public universities.

6. The application of the new literal e) of paragraph 5 of article 240 of the ET, added with article 80 of Law 1943 of 2018, which establishes that, individuals who receive hotel income that was exempt for the time when the hotel was built, may continue to subtract such income as exempt, for the years in which the respective benefit was given to the hotel, and without such exempt income having to be subject to the limit of 40% within the general taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer’s taxpayer.

7. The application of the control to the underwriting in the sale of real estate contemplated in article 90 of the ET, after being modified with article 53 of Law 1943 of 2018.

8. The application of the new article 303-1 of the ET, created with article 28 of Law 1943, which establishes that life insurance indemnities will now be “occasional gains” (since until 2018 they were 100% exempt “ordinary income”; see article 223 of the ET, repealed with article 122 of Law 1943 of 2018). However, from that “occasional gain” only 12,500 UVT (about $428,375,000 in 2019) may be subtracted as exempt income. The rest will be taxed at the traditional rate of 10%.

9. The decrease in presumptive income for the 2019 taxable year.

“overdue income tax returns for taxable years 2018, 2017, 2016, 2016, 2015 and 2014 that are pending to be filed may also be filed and paid extemporaneously.”

10. The use of the audit benefit established in Article 689-2 of the ET. Said benefit will apply only to individuals and illiquid successions (residents or non-residents, obliged or not to keep accounting records) that have remained in the ordinary regime (it will not apply to those that have been transferred to the simple regime). In addition, overdue income tax returns for taxable years 2018, 2017, 2016, 2016, 2015 and 2014 that are pending to be filed may also be filed and paid extemporaneously, complying with the same requirements of article 689-2 of the ET, and obtaining the same audit benefit.

11. The correct definition of the liquid assets as of December 31, 2019 and the decision of whether or not to answer for the new wealth tax for the years 2020 and 2021, created with articles 43 to 49 of Law 2010 of 2019, or whether or not to carry out during 2020 the tax normalizations contemplated in articles 53 to 60 of Law 2010 of 2019. In addition, the definition of whether or not to answer for the presentation of the declaration of assets abroad as of January 1, 2020.

12. The obligatory nature or not of answering for the presentation of the informative declaration of transfer prices (form 120). Something that will correspond to some taxpayers, among them, the residents that during 2019 made operations with third parties located in any of the 37 territories considered by the Colombian Government as “non-cooperating jurisdictions or of low or null taxation”.

13. Handling of the industry and commerce tax (and its complementary of notices and boards) either as a “deduction” or as a “tax discount”.

14. Elimination of the deduction for VAT on the purchase of real productive fixed assets and the use of the new tax discount for VAT paid on the purchase or construction of real productive fixed assets.

15. Practical application of the new thin capitalization calculations of Article 118-1 of the ET (modified with Article 55 of Law 1943 of 2018 and regulated with Decree 1146 of June 2019). Said rule places a limit on deductible interest paid or credited on account to those who are economic related parties of the taxpayer, but demands other special requirements when the interest has been cancelled to third parties who are not economic related parties.

16. Taxation of individuals who have availed themselves of the benefits of “mega-investments”.

17. The use of the new form 210 for the taxable year 2019 that the Dian will have to prescribe between April and May 2020. This form will have to be designed in a special way, since it will have to be used to apply the new tax return of ordinary income distributed in only three tax codes. In addition, non-resident individuals and illiquid successions will have to use the new form 110 for taxable year 2019 prescribed by Dian Resolution 000023 of March 18, 2020.

18. The use of a new special format to detail the values carried to the line “other deductions” of the income tax return, and with which the rule of article 574-1 of the ET (created with article 94 of Law 1943 of December 2018 and ratified with article 106 of Law 2010 of 2019) can be complied with.

19. The definition of what will happen with the deferred tax at the end of 2019, and with the calculation of the 2020 income tax advance payment and the balance in favor of the 2019 taxable year return, if the resident individuals of the ordinary regime decide to transfer during 2020 to the new simple regime (which was ratified with article 74 of Law 2010 of 2019).

20. The immediate application of all the changes in tax procedure that were carried out with Law 2010 of 2019. Such tax procedure changes do affect the filing of the income tax return or simple regime for the taxable year 2019. Such changes include the modification to article 588 of the ET (opportunity to validly correct returns), 641 of the ET (special untimeliness penalties for the declaration of assets abroad), article 117 of Law 2010 of 2019 (which set a special period of finality for returns in which losses are liquidated or losses are offset), article 434A of Law 599 of 2000 (Penal Code, imprisonment for the crime of omission of assets or inclusion of non-existent liabilities) and article 434B of Law 599 of 2000 (Penal Code, imprisonment for the crime of tax fraud or tax evasion).

Source: Actualícese