How Colombia’s latest tax reform affects multinational companies

Ahead of our next webinar on the impact of tax reform in Colombia, our experts discuss not only the changes made but also how it impacts multinational companies when doing business in Colombia.

The latest tax reforms are only a month old in Colombia, but experts believe this new reform could affect not only foreign direct investments but also economic growth due to the increase of the effective tax rate.

But how will the reform affect multinational companies - and is it truly a real challenge when considering Colombia for business growth?

The reform

Some of the changes made in the reforms include a new tax on wealth, a surtax on the existing CREE tax (income tax for equality), and new anti-evasion rules and mechanisms among others. There are also certain conditions and characteristics that companies must comply with in order to be taxed.

More debates are coming up

There are issues that are still under debate; some norms and regulations of the reform can be misunderstood unless you have the local knowledge to interpret the modifications.

Also, the Colombian government is analysing the Organisation for Economic Co-operation and Development (OECD) commentaries about Colombia’s need for tax reform.  In its last economic report, the OECD proposed changes to decrease corporate tax burden including a reduction on wealth tax and sales tax for investment goods. This year will still hold some changes in tax treatment in Colombia.

Colombia vs. other countries in the region

Even if Colombia has an effective tax rate greater (51%) than other countries in the region - such as Mexico (40.7%), Chile (27.2%), Peru (38.2%) - it is still the easiest country in which to do business in Latin-America according to World Bank report 2015, which ranks 34 out of 189 economies around the world. It also can be proved by the FDI increased in the last couple of years on the Latin-American investment trends.

Additionally, TMF Group’s Global Benchmark Complexity Report shows Colombia as one the least complex countries  to do business in the region. With Argentina, Brazil and Bolivia taking the top three most complex spots, Mexico was also top 10 at No 6, while Peru was No 16 and Chile No 19. Colombia is at 21 on the Index.

Andrea  Hernandez
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