Study for the allocation of income and capital gains to permanent establishments and branches

Gabriela Mancero

September 11, 2015

Law 1607 of 2012 incorporated major changes in the way they should be taxed permanent establishments and branches, defining the guidelines for this type of establishment, so it is important to know the legal framework and conduct a proper study.

According to Article 20-1 of the National Tax Code, the term permanent establishment «a fixed place of business located in the country, through which a foreign company, either company or any other foreign entity, or individual without residence in Colombia, as appropriate, is wholly or partly carried on. »

This rule also clarifies that permanent establishment may be when the person or foreign company in Colombia has a dependent agent who has or habitually exercises, authority to conclude binding acts to abroad.

Foreign Companies in Colombia

On the other hand, foreign companies in Colombia are defined in the Commercial Code in Title XVIII, in Articles 470 et seq. Are then the foreign companies incorporated under the law of another country and with its headquarters abroad.

Art. 470 states that all branches of foreign companies to develop permanent activities in Colombia are subject to the supervision of the State, which is exercised by the Banking Superintendency or Societies, according to its purpose.

Thus, Article 471 mentions the requirements for a foreign company can undertake permanent business in Colombia.

Furthermore, Article 472 explains the contents of the resolution or act in society that agrees under the law of their primary residence establish permanent business in Colombia,

Similarly Decree 3026 December 27, 2013 regulated this figure, and clarifies the scope of the concepts of foreign company fixed place of business and exclusive activities and preparatory, which do not result in the existence of a permanent establishment in Colombia.

Precisely Article 20-2 of the Tax Code, the precise way in which natural persons should be taxed without residence in Colombia and foreign companies as having a permanent establishment in the country, which provides:

«Non-resident individuals and legal entities and foreign entities having a permanent establishment or branch in the country, as appropriate, Shall be taxpayers of income tax and complementary with respect to income and capital gains from national sources that are attributable to the permanent establishment or branch, as appropriate, in accordance with what is established in this article and the provisions regulating it. The determination of such income and capital gains will be made based on criteria of functions, assets, risks and personnel involved in obtaining the aforementioned income and capital gains. »

It should be noted that the foreign company will not have an establishment in the country where the activity is carried out by the same purely preparatory or auxiliary character.

I also related to profits corresponding to income and capital gains from national sources attributed to permanent establishments or branches in Colombia, they are transferred to the respective companies involved abroad, clarifies that will have the treatment applicable to dividends, as provided in Articles 48 and 49 of the ET

Changing the calendar Taxation

Having a tax calendar defined benefit taxpayers positive way, so the Government issued Decree 427 of 2015 by which established a major change to the taxation of branches and permanent establishments in Colombia (modifying the tax schedule established by means of Decree 2623 of December 17, 2014).

With the issuance of this decree, it is understood that branches and permanent establishments (except those providing regular services of air, sea, road or water transport) are subject to the same deadlines as other people legal.

In short branches and other permanent establishments should be ready attribution studies of income and profits corresponding to fiscal year 2015, before April next year.

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11 septiembre, 2015