📜 The Colombian government has issued a new decree (Decree 2039/2023, available in Spanish here: https://shorturl.at/juCDQ) that regulates the concept of “Significant Economic Presence” (SEP) as a nexus criterion for Corporate Income Tax (CIT) liability. This targets non-resident entities that provide digital services or sell goods online to Colombian clients or users.
Some of the key points of this decree include:
✅ A non-resident selling goods and/or services will be regarded as having SEP in Colombia (1) if they deliberately and systematically interact with clients/users in the Colombian market and (2) if they earn in the previous or current year gross income of at least 31,300 UVT in these types of transactions (for 2024, the amount of 1 UVT has been set by the local tax authorities as COP 47,065, which is approximately USD 12).
✅ The expression “deliberate and systematic interaction” is defined by the decree as either (a) maintaining a connection with or deploying marketing efforts towards 300,000 local customers/users in Colombian territory or (b) selling goods/services in COP or allowing payment for those goods/services in COP.
✅ A non-resident providing services to Colombian clients/users will be liable to pay local CIT if those services are listed in the decree. Some examples include online advertising, those of digital content providers, streaming and intermediation services.
✅ If a non-resident falls under the definition of SEP, they are entitled to elect to pay tax following one of two regimes: (1) a 10% WHT on the gross income earned in Colombia or (2) a 3% CIT declared by the non-resident on their gross income earned in Colombia.
✅ The decree defines “clients”, “users”, “digital interface” and “digital services” for purposes of the application of the SEP. “Digital services”, for instance, are defined as those provided through the Internet or an electronic medium which require minimal human involvement per service provider and are impossible to guarantee without some sort of IT infrastructure.
✅ The decree also defines criteria for labelling a client or a user as “located in Colombian territory”. Some of these include their domicile and whether they used credit/debit cards issued in Colombia.
The new decree is applicable as of January 1st, 2024. Colombia has been the most vocal proponent of a Digital Services Tax (DST) ever since discussions around Pillar 1 began at the level of the OECD – OCDE. This is not an unexpected development considering the publication of Law 2277 of 2022 a year prior (available in Spanish here: https://shorturl.at/lrWY8) – some of the highlights above can actually be found in Art. 57 of this Law. That said, the fact that the country is regulating this legal provision signals a clear decision to impose unilateral taxation on revenues Colombia believes belong to them and should be taxed locally. It will be interesting to see whether this becomes a tendency for other LatAm countries in 2024. 🌎
