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Worried about the tax system

Hi to everyone! My husband and I run a successful advertising agency, serving to local and international clients based in Puerto Rico. Due to the critical political climate in the US (PR is a dollar based colony of the US), it's mounting debt plus the crisis in PR (that just declared bankruptcy) we a have growing sense or urgency to relocate as soon as possible. Medellín, Colombia is one of the destinations on our radar. We have done a ton of research and as a matter of fact just returned from a 3 day conference to speed our relocation. However, I am curious as to the tax system for expats in Colombia. You can only live there six months of the year or all of your income, even the one not generated in Colombia, is taxable. How do you guys deal with this issue?

I deal with it by paying my taxes.
shocking, but yeah some of us just pay in to the systems.

Your response is both rude and unhelpful. I pay plenty of taxes in the US. My simple question is about double taxation or taxation after 6 months in assets not gained in Colombia. Understood?

seems like you already know the answer; - so why worry?
after the 6 months, you are considered a resident and in the eyes of DIAN, its time to file.

If you are paying plenty in the US, you won't pay here as all that is part of your filings with DIAN will show how much you are paying over there and offset anything you may owe here.

I'm with atreyes5. Colombia used to top my list then I read some things about double taxation on all income worldwide. Your second post seems to indicate that Colombia will not apply double taxes if you can show that you've already paid taxes elsewhere. I'd love to know where I can find more specifics about that.

Speaking for myself, I'm not trying to dodge paying taxes. I actually don't mind paying taxes in the US because I get genuine value in the form of roads, schools, libraries, police, firefighters, etc. For the same reasons, I would not mind paying taxes in Colombia if I lived there long enough for it to be required. What I don't want is to pay taxes to both countries on the same income.

I believe that gets to the heart of what atreyes5 was asking as well.

Although your mileage will vary, -yes, if you are paying USA income taxes, that amount will be applied to what you would pay here and more often than not its a clean wash. 

Just find yourself a local accountant in Colombia do deal with DIAN, you do not need some fancy email marketed "expat" accountant. You just need a good person in Colombia and a good one in USA. 

Me, I live a simple life and TurboTax has been my accountant in the USA since 1999 when you had to buy a CD ever year, print out and mail in.
but anyway,
another option for US Citizens, living in Colombia and earning USA Based income is to simply file FEIE and that gives you the first 100k in USA total free of income tax -But that then makes that same 100k completely open to income tax in Colombia with DIAN. -BIggest benefit to that would bet that deductions are more "interesting" in Colombia so you need to check your situation to see which works out better for you

here are some god links with more info to dig in to;

9 Tax-related To-Dos for New US Expats

The Ultimate Tax and Money Guide for Digital Nomads

You should not assume it will be a "clean wash" with taxes you pay in the US wiping out what you might owe in Colombia.  Especially if you pay little or no taxes in the US, then there's virtually nothing to deduct from Colombian taxes.

Note that the FEIE (Foreign Earned Income Exclusion) is available only for wages or self-employment income earned for services performed outside the US and may not be used for pension or annuity payments, including social security benefits.  See:
https://www.irs.gov/individuals/interna … -exclusion

Each of us has a different situation but income tax in Colombia for now is in 3 brackets:  19%, 28% and 33%.  The numbers below are approximate as they vary with the exchange rate (I used 1 USD = 2887 COP) and the UVT (Unidad de Valor Tributario) which for 2017 is some 31,859 COP: 

If your income is under about $1285 USD/month you pay nothing (< 1400 UVT).  That's under $15,420 USD/year.

Income more than about $1285 USD/month but less than about $1560 USD/month is taxed at a 19% rate  (> 1400 to 1700 UVT).  That's from greater than $15,420 USD/year to $18,760 USD/year.

Income more than about $1560 USD/month but less than about $3770 USD/month is taxed at a 28% rate  (> 1700 to 4100 UVT).  That's any income greater than $18,760 USD/year to $45,240 USD/year.

Income more than about $3770 USD/month is taxed at a 33% rate (> 4100 UVT).  That's any income greater than $45,240 USD/year.

So someone whose income is $30,000 USD/year in the US, that's $2500 USD/month, would probably pay no income tax in the US.  But in Colombia without finding some deductions that may or may not be completely above-board (especially if all your income is US-derived and none of it earned in Colombia) they would pay about $2500 per year in income taxes - that's hardly a "clean wash" - it's an effective tax rate of about 10% compared to 0% in the US and represents a month's worth of income.

Here are several links specific to taxes in Colombia.  You are considered a "tax resident" of Colombia and subject to Colombia income tax if you spend a total 183 days or more in-country in any 365 day period.

https://en.wikipedia.org/wiki/Taxation_in_Colombia

https://home.kpmg.com/xx/en/home/insigh … e-tax.html

" Especially if you pay little or no taxes in the US, then there's virtually nothing to deduct from Colombian taxes."

like I said... your mileage will vary.

ch33br0h :

" Especially if you pay little or no taxes in the US, then there's virtually nothing to deduct from Colombian taxes."

like I said... your mileage will vary.

The point is, you will always pay more in Colombia because the marginal tax rates are both higher and kick in at lower levels of income than the US tax rates.  So for $50K income per year, once you've paid the US taxes for that, you will still owe additional taxes in Colombia because of the 33% rate.  If your income is $100K you are in the 25% tax bracket in the US - but in Colombia you are in the 33% tax bracket and would pay tax to Colombia to make up the difference.

On $100,000 income a single individual in the US would owe about $17,000.  In Colombia you'd owe about another $6000 more.  This is only a "bare bones" calculation using only US and Colombian tax rates and cannot include every deduction that an individual may be able to use.

I don't think there is any ordinary income situation where if you do pay taxes in the US, you won't also pay some more taxes in Colombia - but the reverse is not true:  You may be liable for taxes in Colombia but not have to pay any at all in the US.

That is a useful clarification. So there is not a 100% overlap. It seems that Colombian taxes on US (or other non-Colombian) income is only applied to that portion not already taxed elsewhere. Though your tax bracket is calculated based on your total gross income.

Am I reading all that correctly?

JeffKontur :

That is a useful clarification. So there is not a 100% overlap. It seems that Colombian taxes on US (or other non-Colombian) income is only applied to that portion not already taxed elsewhere. Though your tax bracket is calculated based on your total gross income.

Am I reading all that correctly?

I'd go to the KPMG link I posted and then to the Sample Tax Calculation which shows for at least one year a salary of 300 million COP (say, about $100K USD) with a gross income of 453 million COP pared down to about 339 million COP taxable income - but this is for a person working there and receiving various deductions and allowances and benefits like a bonus/aguinaldo that would not be available to someone on Social Security, for instance.

The total Colombian tax liability is about 93 million COP on a base salary of 300 million COP...that's a lot.

The bottom line is this is all only a rough guide and you should consult tax professional(s) for paid opinion(s) for your individual situation who know Colombia tax law and can back up their findings.  I did so for my modest income nowhere near $100K/year and for now decided that not becoming a tax resident of Colombia is a good option for me.

The tax issue is a potential concern for me.  I receive SSDI monthly in the amount of $1200.  I don't file for taxes in the US as I'm not required to.  As I'm planning on a retirement visa for Colombia, will I be required to pay taxes there?

JTK88000 :

I receive SSDI monthly in the amount of $1200.  I don't file for taxes in the US as I'm not required to.  As I'm planning on a retirement visa for Colombia, will I be required to pay taxes there?

Dear JTK,

Welcome to the Colombia forum.

If you live in Colombia most of the year starting in late 2017 or early 2018, you would be a tax resident liable to file a return for the tax year that is payable in August or September of 2019.

Your monthly Social Security income will probably be sufficient to qualify you for a pensioner TP-7 visa.

Ipso facto, the Colombian government will know about this income from your visa application, which income can theoretically be taxed as part of your worldwide or taxable foreign income.

However, there are exclusions, tax breaks and other tricks that a tax professional would know about.

I recommend that you get a tax opinion from a Colombia tax professional in advance if this matter is a factor in your decision whether to live in Colombia during most of one or more calendar years.

cccmedia in Medellín

Your response and welcome are most appreciated.  The subject at hand is a murky one and the recommendation to seek an opinion from a tax professional in Colombia is prudent advice. 

In evaluating the issue by use of UVT against my income, I may be subject to a 19% tax on my SSDI income. 

There appear to be other factors in play; type of visa, residency status and exchange rates-all are to be considered-enter a tax professional.

I have submitted questions to the local Colombia Embassy and am awaiting a reply. 

It may be wise to land in Colombia in tourist status, get my bearings, and consult with a tax pro--then, if necessary, apply for the TP-7 from scratch.

Any other input on this thread would be greatly appreciated.

JTK

JTK88000 :

The tax issue is a potential concern for me.  I receive SSDI monthly in the amount of $1200.  I don't file for taxes in the US as I'm not required to.  As I'm planning on a retirement visa for Colombia, will I be required to pay taxes there?

As cccmedia said, get a professional opinion.  Get several.  But you probably will not be liable for any taxes, since the 19% tax rate starts at about $1232 USD per month, and below that there is no tax liability. 

But see new information below, as of 2018 and maybe sooner this looks to change - Colombia is trying to raise taxes on everybody to pay for ambitious social programs that they can no longer fund with oil money, with the drop in oil prices.

Currently anyone earning under 1400 UVT has 0 income tax liability, where for 2017 one UVT (Unidad de Valor Tributario) is equal to 31,859 COP.  So that's anyone earning under 31,859 * 1400 = 44,602,600 COP per year which is 3,716,883 COP per month which at the current exchange rate of 1 USD = 3017.33 COP, comes out to about $1232 USD per month - so $1200 USD per month is under the tax threshold, just barely.

You can find a bit more about the Colombia tax system here, and also doing searches for "Colombia tax" and the like:

https://en.wikipedia.org/wiki/Taxation_in_Colombia

It does look like the information in the above is outdated - I'm now reading that there will be 6 tax brackets of 0%, 10%, 20%, 30%, 33% and 35%, replacing the former tax brackets of 0%, 19%, 28% and 33%. 

From http://www.garrigues.com/sites/default/ … a-2016.pdf

SE MODIFICAN LOS
TOPES PARA
OBLIGADOS A
DECLARAR RENTA

A partir de 2018, serán declarantes de
renta personas naturales con ingresos
brutos anuales iguales o superiores a
1000 UVT. Adicionalmente, el tope de
otros requisito pasa a 1400 UVT, entre
los que se cuenta el valor total de las
consignaciones bancarias.

Trabajadores con ingresos superiores a $29.753.000,
estarían obligados a declarar; con lo cual son mas los
trabajadores obligados a cumplir los deberes
formales, aunque en algunos casos no se determine
impuesto a pagar.

The above says that as of 2018 anyone earning 29,753,000 COP per year or about 822 USD per month, will be obligated to file an income tax return.  So it is possible you'd be liable for paying some income tax - probably not a great amount, but enough to warrant getting a professional opinion.

Thanks for supplying that data.  As I'm tentatively planning Colombia for early next year, hopefully there will be more information posted about this seemingly vague situation.

For all the wonderful selling points and reasons to live/work/retire in Colombia, taxation is rarely-if ever-discussed.  To be fair, it's a broad subject, fairly complex, and ever-changing.  Not a popular topic for bloggers and vloggers to advertise, I suppose.

I'm curious if the Embassy of Colombia in Bangkok will shed any light in the subject.

As an aside-with rough numbers, 20% of my income is $240/month.  That's what I'm renting a home (without utilities) for in Thailand.

Apples and oranges for sure but, food for thought.

$240 USD is a bit over 725,000 COP.  Depending on where you rent, you could also rent a house in Colombia, or a spacious apartment which many prefer for the greater security and convenience.

Here are some links for property rentals.  For many you can choose the department, the city and/or suburb or area, and house or apartment.  Smaller cities can be much cheaper than larger cities.

https://www.fincaraiz.com.co/apartamentos/arriendo/

http://www.metrocuadrado.com/

Going through an agency you may need a fiador in order to rent, who will legally guarantee payment to the landlord.  This is not always the case if you deal directly with an owner, and here is a link for that:

https://www.olx.com.co/q/directamente/c-363

Many apartments and houses are never posted on-line.  If you just walk around an area you can see For Rent signs in windows (En Arriendo, Se Alquila).

You may want to consider renting short-term via airbnb for a month or more in your area of interest, before finding a longer-term rental.

https://www.airbnb.com/s/Colombia?s_tag … ide%5B%5D=

That's very helpful stuff-I've been looking at Colombia for quite a while.  Thanks for the links and the fiador information.  It's only this past week that the potential tax issue has come onto my radar.

I mentioned the $240 because if I am, in fact at some point faced with a tax bill of 19 or 20% in Colombia, that's basically what I'm paying for a 3 bedroom single family house in Chiang Mai.

Based on what I can learn this week, I'll either apply for a TP7 visa and tackle the tax issue in Colombia head on, or visit as a tourist for half the year and the other half in Thailand.

I'm leery of getting entangled in tax issues in Colombia given the economic factors in play.  The new year may also bring news of a modified tax bracket system.

It all still seems worth giving a try.

$1200 USD/month is just $378 more than $822 which would be where the 10% bracket begins.  Depending on where the 20% bracket kicks in, you could pay as little as about $38/year in Colombia income tax on $1200 USD/month.  And that would be only in 2018 and going forward.

If and when I find out more I'll post it.  For 2017, at least, this link indicates that if you're below the 1400 UVT per year level (about $1232 USD/month), no taxes are owed:

https://www.ambitojuridico.com/bancocon … en-el-2017

OsageArcher :

$1200 USD/month is just $378 more than $822 which would be where the 10% bracket begins.  Depending on where the 20% bracket kicks in, you could pay as little as about $38/year in Colombia income tax on $1200 USD/month.

Given the cost of flying back and forth between South America and Thailand -- and the inconvenience of it -- the tax burden in this case may be so low that it makes living in Colombia year round the obvious choice.

cccmedia in Medellín

While I agree that traveling between continents is both costly and time consuming, that living in Colombia is the "obvious choice" remains to be seen-respectfully.

As Colombia has endured recent tax reform/hikes/restructuring and expecting more, the (foreseeable) future is, at best, uncertain. 

As Colombia shares taxpayer information with the U.S., there is a concern of sparking a fire where one has not existed before.

I'm not opposed to paying taxes in principle, as an American, it's a way of life.  I do however, believe that understanding what or how much is being taxed is fair game. 

There are other practical issues to be addressed.  I've been advised that not only should one tax professional be approached for an opinion-there should be several.  Different 'experts' often provide differing counsel and opinions.  Add in to the mix language barriers, fees, time of year, new laws, and one gives pause. 

As for Thailand, it's my understanding that the U.S. and Thailand have a tax treaty in place which is favorable to my position-as simple as it is.

As of today, I have yet to receive a response from the Embassy of Colombia, so we'll see what comes of that, if anything at all.

To sum up, taxes in Colombia are not a deal breaker per se, but merely honest questions being asked from afar.

Legitimate input and insight is most appreciated.

JTK

JTK88000 :

I've been looking at Colombia for quite a while....

It all still seems worth giving a try.

Apparently you are aware that if you do visit Colombia for about 180 days, you will avoid tax residency, so your foreign income will be safe from Colombia taxes. 

So come for about six months in early 2018 .. and if you like it, you can decide whether it's worth staying on with a TP-7 visa.

Based on your posts to date and Brother Archer's favorable tax analysis above, it seems unlikely that tax liability will ultimately be the deciding factor on whether you eventually move here or not.

cccmedia in Medellín

Well, this is some distressing info that I had not counted on. My SS income is about $25000/yr and I pay little or no US tax on that.  Ill likely pay 28%  on it here. Yikes.  My pensionado visa is in process now, I have sent no fees or relinquished my passport yet. I will cancel my visa application and put up with BS in the US and remain a tourist in Colombia.
Probably too many social services and FARC payoffs to be made and guess whos paying??

I would check out some other routes. Check out Ecuador, because if you are a Equadorian passport holder, like 6 months en colombia and 6 months in nearby Ecuador, you automatically qualify for a Colombian visa due to their "like mindedness theory" i which they do liberally give unto those who liberally give unto them. Just read on that. dont remember where. I think it was under visa requirements. The beaches in ecuador rival colombia including Santa MArta. Esmeraldas is cool and nice. Salinas has a great expat community. They are closely linked as you study the history of Colombia.   They also give visas for teaching English here and usually the income is given as non-taxable living stipend. That is what i was sold anyhow.

Midnightrider951 :

My SS income is about $25000/yr and I pay little or no US tax on that.  I'll likely pay 28%  on it here. Yikes....

I will cancel my visa application and put up with BS in the US and remain a tourist in Colombia.

Dear Midnight Rider,

Welcome to the Colombia forum.

I received a Colombia professional's tax opinion a while back saying that if I owed no federal tax in the USA, I would not be obligated to pay tax to Colombia as a tax resident (I've been here since December 2016).

You may be obligated to pay less tax than you think if you become a Colombia tax resident.  I recommend that you get a tax opinion for your case.

You don't need to get multiple tax opinions IMO unless you are dissatisfied with the first one.

cccmedia in Medellín

Midnightrider951 :

Well, this is some distressing info that I had not counted on. My SS income is about $25000/yr and I pay little or no US tax on that.  Ill likely pay 28%  on it here. Yikes.  My pensionado visa is in process now, I have sent no fees or relinquished my passport yet. I will cancel my visa application and put up with BS in the US and remain a tourist in Colombia.
Probably too many social services and FARC payoffs to be made and guess whos paying??

You will not pay 28% on the whole amount - Colombia's system is a marginal tax rate system.  You would pay 19% on anything over about $1230 USD/month up to around $1450 USD/month, and then 28% on everything over the $1450 USD/month.  These are just off the top of my head and are approximate.  It ends up being somewhere around a 12% to 15% tax overall, perhaps no more than $3000 tax on $25,000.  But you have to do the math, using the UVT limits for the marginal tax rates.  You can read about the UVT and the current marginal tax rates here:
https://en.wikipedia.org/wiki/Taxation_in_Colombia

But wait, there's more - I don't think the new tax reform is set in stone yet, but they want to do away with the 4 rates they have now - 0%, 19%, 28% and 33% - and instead have 6 rates, 0%, 10%, 20%, 30%, 33% and 35%.  And the bad news is, you'd end up paying more under the new system because they want to lower the threshold of where the new 10% rate would kick in, at 1000 UVT instead of the 19% starting at 1400 UVT, and where all of them kick in.  This would be starting in 2018.  Yes, this is due to their ambitious social programs including for the FARC and also because their revenues have dropped drastically with the falling oil prices.  And you know, the government never can get along with less, they always need more.  Only the people are expected to get along with less!  Just like in the US...

By all means get a professional paid opinion.  One firm that may be able to do this is Langon Colombia:
http://langoncolombia.com/
You could email Alan Gongora who is a partner with them, and find out more.  His email is
agongora[at]langoncolombia.com 
But I encourage you to do some research yourself first.  Although cccmedia got an opinion that said he would not be liable for any taxes, I got an opinion from the same firm and it said I would be liable.  My situation is probably closer to yours, than is cccmedia's.

And there is always the possibility of spending less than 183 days in Colombia in any 365 day period to avoid their taxes altogether.

handymantulsa :

if you are a Equadorian passport holder, like 6 months en colombia and 6 months in nearby Ecuador, you automatically qualify for a Colombian visa due to their "like mindedness theory" i which they do liberally give unto those who liberally give unto them. Just read on that. dont remember where.

If one is an "Ecuadorian passport holder" (note spelling correction), that means the person has achieved citizenship in Ecuador -- which involves becoming a resident there first and which takes years.

Is there really a Colombia visa "automatically" available to Ecuador passport-holders under a "likemindedness theory"?  I doubt it.

Dubious, unsourced statements about how to obtain a Colombia visa are rarely useful.

cccmedia

Well, $3000 vs. $7000 on $25000 is significant, the question now becomes, what benefit do I receive for my $3000/year in taxes?  Free or discounted healthcare? Discounted metro fares? A hearty handshake? None of the above.  If absence makes the heart grow fonder, ill love Colombia even more when I return in 180 days. Ciao baby.

OsageArcher :

And there is always the possibility of spending less than 183 days in Colombia in any 365 day period to avoid their taxes altogether.

The KPMG site presented a fairly thorough overview.  Thanks for the post. 

It made me wonder - because a "resident's" worldwide income is taxed and that income includes not only wages and salary, but dividends, interest income and capital gains and because IRAs and 401(k)s, etc. are creatures of U.S. tax laws and ERISA - I'm assuming that even dividends and interest and capital gains in these tax-deferred vehicles are taxable too (even if not distributed from the IRA)!  Ouch!  No mention in the article that they are exempt!

Capital gains are taxed in Colombia at 10 percent.

However, if you do not sell assets contained in an IRA, any increase in value is arguably not a realized gain.

-----

FYI, foreign inheritance income is considered a capital gain in Colombia .. and is theoretically subject to the 10 percent tax.

That reduced cap-gains tax is just one of the wrinkles in Colombian tax law.  Accountants here have had years to figure out the "wiggle room" in the tax regulations, which is why getting a tax opinion is important if spending more than 183 days a year in the country might be the way you want to go.

cccmedia in Medellín

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