It is possible that the proposed tax reform could reduce corporate income tax rates and increase individual income tax rates. The VAT rate also may be reduced. Taxpayers should continue to follow any updates on the potential tax reform.

On October 25, 2018, Colombia's Ministry of Finance issued a press release with new details about the upcoming tax reform bill.

According to the press release, the proposed tax reform would make various value-added tax (VAT) and income tax changes. Specifically, the proposed tax reform is expected to reduce the VAT rate from 19% to 16%. It also would:

• Increase the number of products subject to VAT
• Establish a VAT refund for low-income taxpayers
• Create a VAT exemption for imported capital assets

Additionally, the proposed tax reform is expected to make the following income tax changes:

• Progressively reduce the corporate income tax rate from 33%, plus a 4% surcharge in 2018, to 30% in 2022, with the elimination of the surcharge starting from 2019
• Progressively eliminate the presumptive income tax from 3.5% in 2019 to 0% in 2020
• Increase income tax rates from 33% to 36% for individuals with an annual income of more than USD $126,720

Other changes could include:

• Allowing a deduction of up to 50% of the turnover tax paid (i.e., a municipal tax applied to the gross income earned from industrial, commercial or service activities), and up to 100% of the banking transaction tax
• Renewing 112 duty-free zones, with the possibility of adding 19 new duty-free zones
• Establishing a "new stage" of legal stability contracts (i.e., an agreement between taxpayers and the government that sets a fixed tax rate for a certain period)

We expect more updates from Government officials in the following days, as the text of the proposed law is expected to be issued by the end of October. Once proposed, the bill will be debated and then approved by Congress, making it likely that previously mentioned proposals could be reflected in the final bill. (For more information on the upcoming tax reform, see Tax Alert 2018-2134.)

We will continue to keep you updated on the latest developments and on any changes in Colombian tax law.

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