As the deadline for corporate tax filing approaches, it is crucial that companies in Colombia have the support of qualified public accountants to efficiently carry out this process. Filing taxes is not only a legal requirement, but when managed correctly, it can minimize tax liability and ensure that the company meets its fiscal obligations effectively.
Differences Between Financial and Tax Information
One of the most common sources of confusion for business owners is the difference between financial information and tax information reported in the tax return. This arises because the tax authorities, represented by the DIAN (National Tax and Customs Directorate), have specific criteria for recognizing certain expenses, which can result in discrepancies with the company’s financial statements. These adjustments are made according to current tax regulations and are designed to prevent practices that could be deemed tax evasion.
Examples of Common Adjustments
Below are some of the most common adjustments that affect tax returns:
Limitation of expenses not supported Electronically:
- Electronic Invoicing: Since 2021, expenses that must be supported by electronic invoices are subject to specific limits. If a company made purchases using physical invoices or receipt books, it can only deduct up to 20% of those expenses, a percentage that will decrease to 10% in 2022. It is essential for all companies to adopt the electronic invoicing system to avoid penalties and fiscal limitations.
- Electronic Payroll: The DIAN also requires payroll expenses to be electronically supported. Employers with fewer than 10 employees had an additional deadline to report December 2021 payroll electronically. Those who fail to meet this requirement risk having their payroll deductions rejected.
Thin Capitalization and Loans Between Related Parties: Financial operations between related companies are also subject to tax limitations. In the case of loans between related parties, the deductible interest is limited to the result of multiplying by three the average net worth of the previous year. This mechanism is intended to prevent thin capitalization, where companies excessively finance operations through debt relative to capital, potentially reducing the income tax payable.
Cash Payment Limitations: Colombia's tax regulations also restrict the use of cash in business transactions as part of DIAN’s strategies to combat tax evasion. According to Article 771-5 of the Tax Code, since 2021, cash payments are subject to a fiscal limit of 40% of the payment amount, provided they do not exceed 40,000 UVT, and 35% of total costs and deductions. This means that companies conducting transactions outside the financial system may encounter difficulties in deducting those payments in their tax returns.
Tax Benefits and Their Importance in Planning
The Colombian tax system offers several tax benefits and incentives aimed at promoting investment, innovation, and business development. While these benefits can significantly reduce the amount payable in the tax return, they are contingent upon meeting specific requirements and correctly applying tax regulations.
Some of the most common benefits include:
• Incentives for Investment in Research and Development (R&D): Companies that invest in research, development, and innovation projects can access significant tax deductions, provided the projects meet the government’s stipulated requirements.
• Tax Credits for Hiring People with Disabilities: Companies that create jobs for individuals with disabilities may also benefit from tax incentives that reduce their tax burden.
• Exemptions for Free Trade Zones and Industrial Activities: Companies located in free trade zones or engaged in activities that have a high impact on industrial development can benefit from reduced income tax rates, as long as they comply with the relevant legal obligations.
The Role of Public Accountants in Corporate Tax Filing
Public accountants play a crucial role in the tax filing process for corporate entities. They are not only responsible for preparing and submitting the return but also for advising companies on the correct application of tax regulations, leveraging tax benefits, and mitigating risks associated with tax audits.
Conclusion
Corporate tax filing in Colombia is a process that requires strategic planning, up-to-date knowledge of tax regulations, and the support of experienced professionals. The difference between an efficient return and one that incurs penalties lies in the company’s ability to comply with tax requirements, mitigate risks, and capitalize on available tax benefits.