Special Tax Regime: Taxable Year 2017

On this occasion we highlight what associations, corporations and foundations that as of December 2016 belonged to such regime and those that until taxable year 2016 were non-taxpayers of income tax and ended up becoming taxpayers of this tax must take into account.

The aspects related to the special tax regime -RTE- were among those that most underwent changes with Law 1819 of 2016, especially around the requirements to be met by entities wishing to obtain such qualification and the conditions to be followed to continue being part of this regime; to know in detail such novelties you can consult our editorials entitled Special tax regime has new changes after the approval of the tax reform and Special tax regime and its greater control according to tax reform.

Its regulation finally took place on December 20, 2017, with the issuance of Decree 2150 by the Ministry of Finance and Public Credit (let’s remember that the draft decree had been released since June 2017). Throughout the five articles of said decree, the changes made by the reform to issues such as the income tax of the entities of the special regime, the donations desired to be given to such entities and the taxation of commercial or mixed co-ownerships that exploit their common areas were regulated, as highlighted in our special Special Tax Regime and Co-ownerships: government issued its regulation.

For this occasion we will highlight those aspects that RTE entities must take into account for the 2017 taxable year.

Permanence request.

“they may continue to belong to said regime if they comply with the permanence application process, which may be carried out until April 30, 2018.”

Non-profit associations, corporations and foundations that as of December 2016 already belonged to the special tax regime, may continue to belong to said regime if they comply with the permanence application process, which may be carried out until April 30, 2018; the above, also applies to entities that until taxable year 2016 were non-taxpayers of income tax, but ended up becoming taxpayers of this tax.

Donations to entities classified in the RTE.

According to article 1.2.1.1.4.6 of DUT 1625 of 2016 if taxpayers made donations to the types of entities mentioned above (associations, corporations and non-profit foundations that as of December 2016 already belonged to the special tax regime and entities that until taxable year 2016 were non-taxpayers of income tax and ended up becoming taxpayers of this tax; see transitory paragraphs of article 19 of the ET), these will be understood to have been made to entities in the RTE. However, if the donations were destined to entities created between January 1 and December 31, 2017, these will enjoy tax benefits for the 2017 taxable year as long as such entities manage to qualify as belonging to the special regime.

Tax equity as of January 1, 2017

Although article 1.2.1.1.5.1.23 of the DUT of 2016 establishes that the entities taxpayers of the RTE must treat assets and liabilities according to the rules of Chapters I, II and III of Title II of Book One of the Tax Statute, the same establishes an exception for non-profit associations, corporations and foundations that as of December 2016 already belonged to said regime, this is how the first transitory paragraph of the article in mention establishes the procedure to be followed by this type of entities to determine their tax equity of January 1, 2017.

For the case of entities that until taxable year 2016 were non-taxpayers of income tax, but ended up becoming taxpayers of income tax, it is necessary to attend the procedure provided in transitory paragraph 2 of article 1.2.1.1.5.1.1.23 of the DUT of 2016.

Equity increase for the taxable year 2017.

“if for the taxable year 2017 they experienced equity increases due to the application of the tax reform and Decree 2150 of 2017 these will be understood as an increase due to justifiable causes.”

Both non-profit associations, corporations and foundations that as of December 2016 already belonged to the special regime and those entities that until the taxable year 2016 were non-taxpayers of income tax and ended up becoming taxpayers of this tax, if for the taxable year 2017 they experienced equity increases due to the application of the tax reform and Decree 2150 of 2017 these will be understood as an increase for justifiable causes (see article 1.2.2.1.5.1.25 of DUT 1625 of 2016).

Compensation and readjustment of tax losses

Transitory paragraph 1 of article 1.2.1.1.5.1.1.26 of DUT 1625 of 2016 provides that tax losses accumulated as of December 31, 2016 not offset by non-profit associations, corporations and foundations that as of December 2016 already belonged to the special regime, are not subject to the offsetting term of article 147 of the ET and cannot be fiscally readjusted; this same treatment will apply to cooperatives and other entities assimilated to cooperatives.

On the other hand, entities that until taxable year 2016 were non-taxpayers of income tax, but ended up becoming taxpayers of income tax will not be able to offset their accumulated losses as of December 31, 2016.

Other treatments to be taken into account

Article 1.2.1.1.5.1.1.34 of DUT 1625 of 2016, stipulates the requirements to be met by non-profit associations, corporations and foundations that as of December 2016 already belonged to the special regime so that the permanent allocations constituted with the net profit or surplus of the taxable years prior to 2017 have the tax treatment corresponding to such taxable years. For its part, Article 1.2.1.1.5.1.35 of the same decree establishes the conditions for the treatment of the balances of the investments constituted as of December 31, 2016 by the entities that until the taxable year 2016 were non-taxpayers of income tax, but ended up becoming income taxpayers.

Source: Actualize