14 September 2026 Colombia clarifies reinvestment requirement under Colombia-Spain tax treaty dividend provisions
On 1 September 2026, the Colombian Tax Authority (DIAN) issued Tax Opinion No. 015313 (internal 1605), reconsidering its long-standing position in Official Letter No. 48261 of 2012 regarding the taxation of dividend distributions under the Colombia-Spain Double Taxation Agreement (DTA or treaty). Article 10 of the Colombia-Spain DTA allocates taxing rights over dividends. The Protocol to Article 10 contains a special rule applicable when dividends distributed to a Spanish resident derive from profits that were not taxed at the corporate level in Colombia and are therefore subject to the additional dividend tax under Colombian domestic law. In Tax Opinion 015313, the DIAN concludes that the reinvestment requirement in the Protocol to Article 10 of the DTA applies only to the portion of the dividend corresponding to the additional dividend tax component, and not to 65% of the distributed dividend. This revised interpretation eliminates the prior administrative approach that effectively required withholding followed by a refund before treaty relief could be obtained. In Tax Opinion No. 48261 of 2012, the DIAN interpreted the Protocol as requiring the Colombian company to withhold 35% of the dividend, while the Spanish investor reinvested the remaining 65% for at least three years. After the reinvestment period, the investor could request a refund of the withheld amount. In practice, the treaty benefit operated as withholding followed by a deferred refund mechanism. Through Tax Opinion No. 015313, the DIAN clarifies that the reference in the Protocol to "such part" that should be reinvested to obtain the benefits relates solely to "the part corresponding to the 35%" additional dividend tax component. Accordingly, the reinvestment requirement applies only to that portion and not to the after-tax dividend as a whole. The DIAN further notes that the treaty must be interpreted according to the ordinary meaning of its terms and in good faith under Article 31 of the Vienna Convention on the Law of Treaties. Based on this analysis, the DIAN concluded that the Protocol does not support a requirement to reinvest 65% of the distributed dividend. The practical effect of the revised interpretation is illustrated below. The chart depicts a Colombian company's $1,000 dividend distribution that derives from profits not previously taxed at the Colombian corporate level; the recipient is a Spanish tax resident.
The DIAN's revised position may provide greater certainty for multinational groups that hold Colombian investments through Spanish entities. The analysis may extend beyond Spanish investors, considering that the provisions the DIAN examined in the Colombia-Spain DTA are similar to those in the Colombia-Chile DTA. In any case, the application to particular circumstances would depend on the relevant treaty text and facts. The new interpretation reduces cash-flow uncertainty but requires a comprehensive review of Colombia-Spain investment structures, focusing on the tax origin of profits, the reinvestment mechanism and the supporting evidence required to claim treaty relief. In practice, groups should review planned and pending distributions and their cash-flow implications. Further, groups should consider reviewing prior distributions in which the approach taken followed the prior interpretation.
Document ID: 2026-1948 | ||||||||||||||||||||||||
