On 1 September 2025, the Colombian government submitted to the Congress a tax reform bill (Financial Law) aimed at addressing a gap of 26.3 trillion Colombian Pesos (COP26.3t) (approximately US$6.5b) in the 2026 budget law, which is also currently under discussion in the Congress.

This Alert summarizes the most relevant proposals in the tax bill.

Corporate income tax (CIT)

Financial institutions, insurance and reinsurance companies, stockbrokers, among others, would be subject to a permanent 15% CIT surtax (currently 5% until 2027) for a total CIT rate of 50% (currently 40%), to the extent their taxable income exceeds 120,000 tax units (approximately US$1.4m).

The thresholds to apply the CIT surtax to certain extraction activities of nonrenewable resources would be reduced. In addition, for coal companies, the CIT surtax would be increased up to 15% (currently 10%), for a potential combined rate of up to 50%.

For nonresidents with significant economic presence (SEP) in Colombia that have opted to file an income tax return for these activities, the applicable rate on gross revenue would be increased to 5%, currently 3%.

Churches would be considered income taxpayers (generally subject to the 35% rate) on their commercial activities.

The withholding tax on dividends paid to nonresidents would be 30%, currently 20%.

The holding period to apply the reduced 15% capital gains rate on the transfer of fixed assets would be increased to four years; currently, a two-year holding period is required.

Certain rules for digital assets would be enacted :

• New regulations would establish that when digital assets are based on an underlying asset in Colombia, the tax treatment of the digital assets should follow the rules applicable to the underlying asset.
• The tax basis for self-formed digital assets would include all incurred costs, until the asset is available for sale. In the case of alienation of several fungible intangibles, with different tax bases, an average tax basis should be considered.
• It is proposed that digital assets could be subject to the tax rules on foreign exchange, which generally defers tax recognition until actual realization.
• Digital asset service providers that are domiciled or have operations in Colombia should report users that convert legal currency into digital assets, and vice versa.

Joint tax liability extending to the buyer of an indirect transfer is expanded to cases in which the seller does not file the income tax return for the indirect transfer. Currently, joint liability for the buyer only applies when there is a tax abuse and the buyer is aware of it. In addition, indirect transfers would now include transfers of digital assets that are referenced to or representative of assets located in Colombia.

A registration or change of shareholder made after a direct transfer of Colombian shares would be revoked if the income tax return for this transfer is not filed within the month following the transaction. In addition, the default on the filing obligation would result in joint liability for the Colombian company whose shares are transferred, as well as its legal representative.

Any structuring/restructuring in which foreign entities with an effective place of management in Colombia (Colombian tax residents) participate should be reported to the Colombian Tax Authority and included in the notes to the financial statements. Otherwise, such structuring/restructuring would be considered an abusive transaction.

Payments made to tax havens not subject to withholding tax but in compliance with transfer pricing regulations will no longer be deductible for income tax purposes. These payments will only be deductible when the corresponding withholding tax is applied.

To deduct local costs and expenses, income tax withholding would have to be applied at least before the income tax return is filed.

The cash payment amount allowed as deduction is reduced to the lower of (1) 20% of the total expenses (capped to 20,000 tax units, approximately US$249k) or (2) 18% of the total cost and expenses of the taxpayer. In addition, the total annual amount of cash payments to the same person/beneficiary that may be deducted is limited to 50 tax units (approximately US$622).

Value added tax (VAT) and national consumption tax

Some goods or services, currently excluded or zero-rated, would be subject to a 19% VAT. Affected services include: memberships, VAT on online gambling (currently subject to VAT under a temporary emergency rule), exportation of tourism services, cloud computing, hosting services and sales of immovable property. For the following goods, the general 19% VAT rate would apply: hybrid cars, diesel fuel (currently 5%, increase to 10% for 2026 and 2028, and to 19% from 2028) and gasoline (10% for 2026, 19% from 2027).

The VAT exclusion would be eliminated for courier and urgent shipments that are valued at US$200 or less and come from countries that have signed a Free Trade Agreement (FTA) with Colombia.

The national consumption tax rates are increased from 16% to 19% for certain vehicles, such as sport utility vehicles and pick-up trucks with a free-on-board (FOB) value exceeding US$30,000, as well as for some airplanes, motorcycles, yachts, etc.

Entertainment and cultural services, with a value exceeding 10 tax units (approximately US$100) would be subject to a 19% consumption tax.

Individual income tax

The ordinary income progressive rates would range from 0% to 41% (currently 39% is the highest rate). Dividends would be subject to the same progressive rate, and the 19% tax credit on the value of the dividends would be eliminated.

The deduction for up to four dependents (72 tax units each, approximately US$890) introduced in the last tax reform, would be revoked.

The special deduction for an amount equal to 1% of all kinds of payments that individuals make to acquire goods or services that are supported in electronic invoices would be 5% for 2026, 3% for 2027, and back to 1% from 2028 onward.

The elimination of the so-called "procedure #2" for labor withholding tax, which generally allows a lower withholding, is proposed.

The inflation component, which allows that some portion of interest on certain instruments, is neither taxed nor deductible (as it is deemed to relate to inflation) would be revoked

The capital gains rate on gambling and lotteries would be increased to 30% from the current 20%.

Benefits of renewable energies

The bill provides that "energetic transition bonds" could be issued for certified renewable energy projects. Those who acquire these bonds could deduct from taxable up to 50% of their investment made.

The current VAT "exclusion" for certified renewable energy projects' acquisition of equipment and services (local or imported) would become a zero-rated VAT activity. With this change, the seller of the goods or services could recover input paid VAT.

Tax on certain sales of hydrocarbons and coal

The 1% tax applied on the first sale or export of hydrocarbons or coal, which is currently applicable until 31 December 2025 (established under State of Internal Unrest in February 2025), would be permanent. Taxpayers who in the prior year had a taxable income up to 50,000 tax units (approximately US$622k) would not be subject to this tax. To calculate this s threshold, related parties should be considered. (For background, see EY Global Tax Alert, Colombian Government establishes temporary taxes amid State of Internal Unrest, dated 17 February 2025.)

Carbon tax

The bill proposes to increase the carbon tax from the current COP20,500 (approximately US$5) to COP42,609 (approximately US$10) per ton of carbon dioxide (CO2) equivalent.

Equity tax

The equity threshold for being subject to this tax is reduced to 40,000 tax units (approximately US$498k). In addition, tax rates are increased up to 5% (currently the highest rate is 1.5%, and it is expected to be reduced to 1% in 2027).

Taxes on beer, liquor and tobacco

Beer, liquor and similar products would be subject to excise tax as follows: (1) 30% ad valorem tax, considering the final consumer price, plus (2) COP1,000 for each degree of alcohol in a liter, or proportionally (e.g., COP330 for each degree of alcohol in a bottle of 330 cc). In addition, the applicable VAT would be increased from 5% to 19%.

Cigarettes and manufactured tobacco would be subject to excise tax as follows: (1) 10% over the price to the public, plus (2) COP11,200 for box of 20 units (or proportionally) or COP891 for each gram of chopped tobacco or similar.

For derivatives and substitutes for cigarettes, the excise tax would apply as follows: (1) 30% over the price to the public, plus (2) COP2,000 for each milliliter.

The COP values mentioned above would be updated annually with inflation plus 4%.

Other measures

A normalization tax is proposed to be reintroduced, aimed at addressing tax returns that have omitted assets or claimed nonexistent liabilities as of 1 January 2026. The tax rate would be 15%.

For public utility companies, the maximum amount of each contribution due to the Regulatory Agencies and the Superintendence of Public Utilities would be increased from 1% to 1.5% of operating expenses. However, for companies subject to the surveillance of the Agency for Food and Medicines (Invima), a new contribution would be created, which could be up to 0.8% of the operational and investment expenses of the surveilled companies.

Several transitory measures are introduced that would reduce penalties and interest in different situations to the extent payments are made within the first months of 2026 (the deadlines vary depending on the benefit).

The current shorter-term statute of limitation for income taxpayers who opt to pay an additional percentage of income tax would be revoked.

Implications

These measures, if approved, would affect Colombian taxpayers as well as foreign investors in the country in several ways, including affecting the cost to operate, applicable taxes and repatriation costs. It is important to assess the potential economic implications and alternatives to address them. In will also be important to keep track of the tax reform bill and its developments and changes during the legislative process.