New Tax Reform Project

We announce to our clients that today the draft tax reform bill was made public. The government insists it is not a tax reform but rather a financing law. However, the points highlighted below indicate that it is indeed a tax reform with significant changes. We also anticipate some of our comments:

Proposed Changes to Corporate Income Tax

• Gradual reduction of corporate income tax rates, with marginal and progressive rates ranging from 27% to 34% according to income level. This implies progressivity similar to personal income tax rates but could create a perverse incentive for business underdevelopment.
• Increase of the minimum tax rate to 20%. It is noteworthy that the Constitutional Court’s ruling on whether the 15% minimum tax rate is unconstitutional—because it taxes income and contributory capacity that the company has not yet received—will be known soon.
•  Increase in occasional profit tax rates from 15% to 20% and for prizes from games of chance from 20% to 25%.
•  Increase in income tax rates for the mining and energy sector.
•  Modification of presumptive interests recognized in loans between the company and the partner for tax purposes.

Proposed Changes to Personal Income Tax

• Increase in personal income tax rates. The maximum marginal rate rises from 39% to 41%.
• A limitation returns on the deduction for economic dependents. A dependent can only be deducted by one beneficiary of the deduction. The DIAN previously allowed concurrent beneficiaries in a 2023 ruling, but this reverses an economic reality: a child can be a dependent of both parents.
• Increase in the deduction for electronic invoicing in personal income tax. It rises from 1% to 5% in 2026 and 3% in 2027, making it a more attractive benefit. We recommend requesting invoices for purchases and paying electronically, especially since this deduction has become easy to apply as each user of the DIAN website can access a list of purchases eligible for the deduction.
• Stricter limits on the deductibility of cash payments.

Wealth Tax

• Application of wealth tax to corporations as well. This could create a high risk of double taxation. It is advisable to start tax planning now to avoid these effects.
• The wealth tax would begin to apply to liquid assets starting from $1.882 billion (currently it starts at $3.388 billion).
• Changes in the calculation of withholding tax for employees, aiming to align it as closely as possible to the actual tax payable. This is particularly important to prevent situations like those occurring now, where many employees have to take out loans to cover their tax liabilities.

VAT

• VAT on online games of chance. This preferential VAT treatment, which has long been sought to be eliminated, has become more urgent for the government with the sector’s growth.
• Increase in the VAT rate on hybrid vehicles. It rises from 5% to the general rate of 19%.
• VAT exemption for energy generation from non-conventional sources. This service would move from exempt to excluded, which is beneficial for the sector as they should be able to recognize the VAT paid as deductible and potentially request a refund.
• Exclusion of hotel services from VAT in small municipalities.

Other

• Creation of an income tax incentive for reporting tax and customs crimes. A creative measure, but it may face issues of application and constitutionality.
• Elimination of the Simple Tax Regime, which affects the progress made in formalization and simplification in recent years.
• Modifications to penalties for non-compliance with electronic invoicing regulations. There is even an incentive to voluntarily acknowledge non-compliance.
• Increase in the carbon tax rate.

We remain at your disposal to discuss these matters, anticipate the effects of these potential changes, and start working on tax planning now.

Please do not hesitate to contact Brick Abogados if you have any concerns or if you would like more information on the topic discussed above.

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This document is for informational purposes only and does not constitute legal advice, nor does it commit the responsibility or professional opinion of Brick Abogado