February Newsletter 2024

Tax treatment of foreign companies with significant economic presence – PES

As of January 1, 2024, the provisions of Law 2277 of 2022, regulated by Decree 2039 of 2023, will be implemented with respect to non-residents with significant economic presence (PES) in Colombia.

Under this new regulation, if a non-resident individual or entity not domiciled in Colombia chooses to declare and pay income tax at a rate of 3% on all gross income derived from the sale of goods and/or the provision of digital services from abroad to users in the national territory, they may request the NON-application of the withholding tax mentioned in paragraph 8 of Article 408 of the Tax Statute.

In this regard, IF they choose to declare income tax using the form, they must comply with certain requirements, including registration in the Single Tax Registry (RUT) with the responsibility of declaring income tax and supplementary taxes. To this end, you must comply with the provisions of Articles 1.6.1.2.1 O. and 1.6.1.2.11. of this Decree. When registering or updating the Single Tax Registry (RUT), taxpayers must choose: – Not to apply withholding tax on income and supplementary taxes as provided for in paragraph 8 of Article 408 of the Tax Statute.

On the other hand, in the case of payments or credits for the sale of goods and/or provision of services made by non-residents with significant economic presence in Colombia who do not prove such status, a withholding tax of 10% will be applied on the total value of the payment in favor of customers and/or users in the national territory.

Regardless of the choice between the two alternatives mentioned above for payments to non-residents with significant economic presence (PES), as of the date hereof, the costs and expenses associated with these digital advertising services provided from abroad may be considered as deductions and tax credits derived from such operations, without being subject to limitations such as foreign expenses, as established in Article 122 of the Tax Statute.

To do so, supporting documentation must be available, including the Tax Identification Number (RUT) that evidences the decision not to withhold at source because the foreign supplier has opted to pay the 3% rate on income, or the 10% withholding on costs and/or expenses if they have not opted for the aforementioned voluntary payment. If the PES company does not issue an electronic sales invoice for the related transactions, a supporting document must be issued in accordance with the above regulations.

The services referred to in this new regulation are as follows:

1. Online advertising services,
2. Digital content services, whether online or downloadable, including mobile applications, e-books, music, and movies.
3. Free transmission services, including television programs, movies, music streaming, multimedia transmission, podcasts, and any form of digital content.
4. Any form of monetization of information and/or data from users located in the national territory that has been generated by the activity of those users in digital markets.
5. Online intermediation platform services.
6. Digital subscriptions to audiovisual media, including, among others, news, magazines, newspapers, video, and games of any kind.
7. The management, administration, or handling of electronic data, including web storage, online data storage, file-sharing services, or cloud storage.
8. Services or licensing of online search engines, whether standardized or automated, including customized software.
9. The provision of rights to use or exploit intangible assets.
10. Other electronic or digital services intended for users located in the national territory.
11. Any other service provided through a digital marketplace intended for users located in the national territory.

The national government issues a decree that improves the regime for administrators, providing greater transparency and legal certainty to minority shareholders.

On January 30, 2023, the Ministry of Commerce, Industry, and Tourism issued Decree 0046, which partially regulates Article 23 of Law 222 of 1995. The main objective of this update is to improve transparency in the actions of administrators, establishing clear criteria for compliance. It seeks in particular to benefit minority shareholders, who could suffer the consequences of unfair behavior on the part of administrators.

Additionally, the decree serves as a tool to facilitate corporate governance for the benefit of society, considering the interests of the partners. In this context, the decree provides definitions for concepts such as conflict of interest and competition with the company, along with a detailed procedure for disclosing them and obtaining shareholder authorization. In general, it establishes a regime aimed at strengthening corporate management.

The significant change introduced by this decree lies in the reinforcement of directors’ duties towards minority shareholders, with the aim of promoting more responsible and transparent companies, thus strengthening their corporate governance.

The government modified the regulations for the acquisition of mining concessions and limited activities in environmental reserve areas

The national government, through the Ministries of Environment and Sustainable Development, signed Decree No. 0044 of January 2024, which establishes the criteria for declaring and delimiting temporary natural resource reserves as part of a mining and environmental management plan.

The regulation, which came into effect on January 30, 2024, establishes guidelines to be taken into account for the declaration of natural resource reserves. These include the presence of ecosystems of environmental importance or conservation values and ecosystem services, taking into account environmental land use planning instruments or other tools designated by environmental authorities, as well as studies or technical information from SINA entities and other public entities. Thus, the delimited areas may result in the definitive restriction or exclusion of mining, in accordance with Articles 34 and 35 of Law 685 of 2001 or those that modify or replace it. Permanent closure programs may be geared toward rehabilitation, energy or productive transition to sustainable use, or any other of the purposes set forth in Article 47 of Decree Law 2811 of 1974, for which the competent authorities will coordinate.

The decree establishes the criteria by which the Ministry of Environment, in harmonious collaboration with entities in the mining and energy sector, will determine, define, and declare temporary reserves of natural resources.