What’s new in the 2021 tax reform

Since President Iván Duque began his term in office in 2018, at least 7 norms have been issued that could be considered tax reforms due to their significant impact on the national tax system.

We tell you details of the Social Investment Law 2155 of 2021, the eighth reform of the president.

The present Social Investment Law 2155 of September 14, 2021 is formally the third tax reform of President Iván Duque; however, since he has issued at least seven other norms that could be considered tax reforms due to their significant impact on the national tax system since he began his term in 2018, we could say that this is, in fact, the eighth tax reform of the president.

This law began its legislative transit on July 20, 2021, being a very distant version of the bill filed on April 15, 2021, which, due to the national strike it generated, was withdrawn on May 2, 2021 by order of the President.

Among other changes, this law modifies the general income tax rate for legal entities, cuts public spending and authorizes different subsidies for the population, as follows: The following lines detail the main changes that Law 2155 of 2021 introduces to the national tax system.

Income tax rates for legal entities

The Social Investment Law 2155 of 2021 appeals to the solidarity of the business fabric, through the dismantling of the process of reduction of the general rate that began in the taxable year 2019.

Thus, the corporate rate on income of 30% that was projected to take effect for the years 2022 and following was raised through Article 7 of the Social Investment Law to a fixed 35%, i.e., no scale based on the size of the reporting entities is contemplated.

Transitional surtax for the financial sector

The new tax reform, Law 2155 of 2021, contemplates in paragraph 8 of its Article 7 a surtax or additional levy that would apply only to financial entities that have a taxable income equal or higher than 120,000 UVT ($4,356,960,000, according to the value of the UVT of the year 2021). Such special rate will apply between the years 2022 and 2025.

In this regard, it is also valid to specify that the surtax will be collected through an advance payment of 100%, calculated on the taxable base of the income tax paid by the taxpayer for the previous taxable year.

In addition, the surtax would be paid in two equal installments according to the terms to be subsequently established in the corresponding tax calendar.

ICA Discount

Article 65 of the Social Investment Law 2155 of 2021, in which all the validity and derogations are detailed, orders the elimination of paragraph 1 of Article 115 of the Tax Statute -ET-, which indicated that as from the year 2022 the tax discount for payment of the ICA would amount to 100%.

By virtue of the foregoing, in order to strengthen tax revenues and have a more efficient balance between territorial and national taxes, for the taxable year 2022 said tax discount for ICA will remain at 50%.

Income tax through invoicing

Among the many proposals included in this reform, the Government implements different mechanisms to fight tax evasion; among them, the official determination of income and complementary tax through invoicing, which is included in Article 14 of Law 2155 of 2021.

With this measure, the Dian is authorized to establish the invoicing of income tax, which will constitute the official determination of the tax and will be enforceable. Therefore, taxpayers will be notified of the income tax payable officially assessed by the tax administration.

According to the regulation, the taxable base and all other elements for the determination and liquidation of the tax would be established in accordance with the provisions of the ET, according to the information obtained from third parties, the electronic invoicing system in accordance with the provisions of article 616-1 of the ET and other mechanisms contemplated in the same statute.

Tax normalization tax

In order to encourage taxpayers to declare and formalize omitted assets and/or non-existent liabilities, the Social Investment Law establishes in its articles 2 to 6 a transitory tax normalization tax that is caused by the possession of such assets or liabilities as of January 1, 2022. The tax rate will be 17%, 2 percentage points higher than the rate applicable in the year 2020.

In addition, when taxpayers effectively repatriate the omitted resources from abroad and invest them with the intention of remaining in the country, they may take as taxable base only 50% of such omitted resources.

The complementary normalization tax will be subject to an advance payment of 50% of its value, which will be paid in the year 2021 and will be calculated on the estimated taxable base of the omitted assets or nonexistent liabilities of the taxpayer at the time of the entry into force of Law 2155 of 2021.

Simple taxation regime

Articles 41, 42, 43, 56 and 57 of the tax reform, Law 2155 of 2021, make four modifications in the operation of the simple taxation regime.

Article 41 of Law 2155 modifies numeral 2 of article 205 of the ET to extend the coverage of the regime in question. Before the law in question, the threshold to access the regime was limited to 80,000 UVT ($2,904,640,000 with the value of the UVT of 2021), but it was increased to 100,000 UVT ($3,630,800,000 with the value of the UVT of 2021).

2.The extension of such coverage requires the updating of the rate tables established both for the liquidation of the advance payments and for the consolidated annual return. Thus, in all the tables for the liquidation of the unified annual tax the last range will no longer be from 30,000 UVT to 80,000 UVT, but from 30,000 UVT to 100,000 UVT; while for the bimonthly advances the last range will no longer be from 5,000 UVT to 13,334 UVT, but from 5,000 UVT to 16,666 UVT. In both cases the same rates are maintained.

Article 43 of Law 2155 of 2021 modifies subsection 1 of article 909 of the ET to extend the term for taxpayers who have been carrying out activities and are registered in the RUT to opt for the SIMPLE. Said term, which until this year was limited to January 31, was extended until the last business day of February of each year.

Articles 56 and 57 of Law 2155 of 2021 establish that for the taxable year 2022 taxpayers of the simple tax regime whose activity is the sale of food and beverages will not be liable for VAT or the national consumption tax -INC-.

Solidarity Income Program

Article 20 of Law 2155 of 2021 reactivates a provision aimed at reinforcing poverty reduction through monetary transfers; therefore, the current scheme of the Solidarity Income Program is extended until December 2022, with the possibility of making extraordinary transfers.

The law also authorizes the modification of the program’s targeting criteria based on the most recent poverty indicators obtained from the Sisbén IV reports or the instrument that takes its place.

From July 2022 the amount of the transfer will take into account as a variable the number of people in each household and their classification in the Sisbén.

Formal Employment Support Program -Paef-.

Through its Article 21, Law 2155 extends the validity of the Formal Employment Support Program (Programa de Apoyo al Empleo Formal -Paef- until December 2021.

The benefit will apply up to a maximum amount of 50 employees as stated in the contribution for the month of March 2021, being this the verification date.

If employers who have less than 50 workers at the verification date expand their payroll above this number during the program’s term, they may continue to receive the corresponding benefit for up to 50 workers.

Similarly, if at the time of application the employer already has more than 50 employees, it will not lose access to Paef, but the benefit will be limited to that amount.

In addition, paragraph 3 of Article 21 contemplates that the National Government may extend this initiative until December 2022 at the latest, depending on the behavior of the economic indicators, especially the unemployment rate and the budget availability as of December 2021.

In the event that such extension is granted, only the same potential beneficiaries will be retained as those with a maximum of 50 workers as of March 2021.

On the other hand, Article 25 of Law 2155 of 2021 allows worker cooperatives to be beneficiaries of Paef and the incentive for the creation of new jobs, as long as they comply with the pertinent requirements.

Incentive for the creation of new jobs

Article 24 of Law 2155 of 2021 creates an incentive for the creation of new jobs that will allow financing the labor costs of such employers until August 2023. The percentage of the benefit will depend on the age and sex of the new workers.

The incentive can only be received a maximum of 12 times per month. For applications after September 2022, the employer must apply and receive at least one contribution before September 2022.

Support to companies affected by the national strike

Article 26 of Law 2155 of 2021 authorizes the creation of a state contribution to support employers, legal entities, individuals, consortiums, temporary unions and autonomous patrimonies, with the purpose of contributing to the payment of their labor obligations for the months of May and June 2021.

The contribution will be 20% of the current legal monthly minimum wage -smmlv- for each employee, and to access it will be necessary to demonstrate a decrease of 20% or more in their income compared to those obtained in March 2021, in addition to the conditions and terms established in Decree 639 of 2020.

Days without VAT

The validity of the 3 days without VAT was limited until July 30, 2021, as so indicated in Article 160 of Law 2010 of 2019.

Therefore, in order to stimulate commercial activity and reactivate the economy, Law 2155 of 2021 renews, through its articles 37 to 39, the VAT exemption for 3 days per year for some goods; this activity may be reestablished by decree on an annual basis.

Consumers acquiring the goods subject to this benefit may make purchases in person or virtually, will require an invoice for their purchase (in the case of e-commerce purchases, the invoice may be issued until 11:59 p.m. of the day following the transaction) and may make the payment in cash or using debit or credit cards or other electronic mechanisms.

The goods to which the benefit would apply continue to be those established in Legislative Decree 682 of 2020, with the novelty that in point 3 computers and communications equipment whose price does not exceed 80 UVT are added; it is important to remember that this equipment is already currently excluded from VAT during the whole year, but up to a price not exceeding 50 and 22 UVT respectively.

1. Clothing whose sale price per unit is equal to or less than 20 UVT, excluding VAT.

2. Clothing accessories whose sale price per unit is equal to or less than 20 UVT, excluding VAT.

3. Household appliances, computers and communications equipment whose sale price per unit is equal to or less than 80 UVT, exclusive of VAT.

4. Sports equipment whose sale price per unit is equal to or less than 80 UVT, excluding VAT.

Toys and games whose sale price per unit is equal to or less than 10 UVT, exclusive of VAT.

6. School supplies whose sale price per unit is equal to or less than 5 UVT, exclusive of VAT.

7. Goods and supplies for the agricultural sector whose unit sales price is equal to or less than 80 UVT, excluding VAT.

In addition, it is important to specify that, as in the previous version of the initiative, the sale of the products covered by this exemption will not give right to refund or compensation.

Extension of the benefits of the Tourism Law

Paragraph 4 of Article 65 of Law 2155 of 2021 establishes the extension for one more year, until December 31, 2022, of two of the benefits contained in the General Tourism Law 2068 of 2020.

The provisions that will be subject to this extension are:

1. the transitory exemption from VAT for the rendering of hotel and tourism services to residents in Colombia, including meeting tourism, congresses, conventions and exhibitions, and entertainment, by those who have active registration in the national tourism registry and render their services in the exercise of the functions or activities that according to the law correspond to tourism service providers.

2. The transitory exemption of the payment of surtax or special contribution in the electric sector for the providers of tourist services.

Works for taxes

Article 34 of Law 2155 of 2021 modifies paragraphs 2 and 3 and adds a paragraph 7 to Article 800-1 of the ET to include new territories within the mechanism of works for taxes.

With this new provision, the companies that use the mechanism will be able to propose projects in territories that:

1. Have high poverty indexes.

2. Totally or partially lack infrastructure for the provision of domiciliary public utilities.

3. Are located in non-interconnected areas.

4. Are classified as orange development areas -ADN- according to article 179 of Law 1955 of 2019.

Incentives for orange economy companies

Article 44 of Law 2155 of 2021 makes several modifications to the tax incentive for orange economy companies; in the first instance, the term to access that was stipulated until December 31, 2021 was extended until June 30, 2022.

In addition, the term of exempt income from orange economy activities was reduced from 7 to only 5 years.

Finally, Article 65 of Law 2155 of 2021, regarding validity and repeals, orders the repeal of literal f) of numeral 1 of Article 235-2 of the ET, thus eliminating the requirement of minimum investment amount to access this tax incentive, which until now corresponded to 4,400 UVT ($159,755,200, applying the UVT of the year 2021).

Audit benefit

The audit benefit created by Article 105 of Law 1943 of 2018 and retaken by Article 123 of Law 2010 of 2019 is applicable until the year 2021; however, the Social Investment Law 2155 of 2021 through its Article 51 extends such benefit for the taxable years 2022 and 2023.

Therefore, income tax returns that increase their net tax by at least 25% will become final in 12 months, but those that increase it by 35% or more will become final in only 6 months.

Reduction of penalties and of the Dian interest rate

Article 45 of the Social Investment Law 2155 of 2021 establishes a reduction of 20 % to the penalties that are liquidated in independent administrative acts and their updates.

Likewise, it indicates a reduced interest rate for the calculation of delinquent interest with the Dian; this will be only 20% of the current bank interest rate for the modality of consumer and ordinary credits. In this regard, it is valid to remember that as a general rule, currently such rate, according to article 635 of the ET, corresponds to the usury rate in force determined by the Superintendence of Finance of Colombia for the modalities of consumer credit minus two (2) points.

These reductions will apply to the tax obligations paid until December 31, 2021, and also for the payment facilities subscribed until the same date with respect to the obligations that are in arrears in payment as of June 30, 2021 and whose non-compliance has been caused or aggravated as a consequence of the pandemic generated by the COVID-19.

Reduction of penalties, interest and updating of debts with the Dian.

The Social Investment Law 2155 of 2021 establishes the possibility of reducing the value of debts in favor of the Dian or the UGPP depending on the phase in which the discussion of the tax or obligation is.

Thus, Article 47 contemplates the terms and conditions for the proceeding of the reductions when the taxpayer’s debt is still in the phase of administrative action (formerly known as governmental channels), while Article 46 of the same law regulates similar benefits for taxpayers whose process has advanced to the contentious-administrative jurisdiction.

Source: Actualícese