Clarifying Tax on U.S. Expats in Colombia

I've read through some summaries of the taxation of U.S. expats in CO and am still unclear on some points.  I'm hoping to clear up a couple of items here.

There is apparently a determination of a presumptive minimum income of 3% of all assets, and a 1% tax on persons with assets above $1.5 million (the wealth tax).

My first question is whether the wealth tax applies to all assets, or only to the amount in excess of $1.5 million.  If it's applied to all assets, it would be helpful to know which assets count toward to "total asset" count.  I wonder, for instance, whether conversion of some lump sum amount into an annuity would enable a person to avoid part or all of the wealth tax.

Second, is the income tax on the 3% of assets (presumptive income) collected in addition to tax on other income (like, in my case, SSDI and dividends), or is it taxed as an alternative to other income (presumably to ensure that high-net-worth, but low income, persons don't escape taxation)?

All in all, taxation appears to be a major issue for expats in Colombia.  I wonder it it's been a deal breaker for others considering retirement there.

Absolutely,  i arrived in Colombia with the intension of buying a condo and stay there permanently with my wife. After talking with two different colombian attornies I beat a hasty retreat from the country just days ahead of the 183 day deadline for being forced to become tax resident. At that piont you arent double taxed as others like to say, to misslead you. the inconvienent truth if you are an American you're really quadrupled taxed. How do i come up with quadrupled, simple math. Start by double taxing any worldwide income you already paid to the US tax man. Then add taxes for items not taxed in the US tax system: 50% to 100% of your Social security is not taxed in the US. Income from IRAs, Roths or other retirement instruments like annuities.
Income impuned items. Assets the colombia government attaches income to just because you own an asset.
If you are the average baby boomer who has worked his entire life, you own things. The. Colombian have life time obcesssion with tax evasion,  the government thinks likes this. If you were paying your proper tax you never could have amassed these assets so they impune income on what you own. Im not even talking wealth tax yet, this is still just income im refering to.
I confirmed this with two attornies in Medellin while i was there. Im not a rich person by US standard, but I would pay 30K in extra tax to the colombian government . My income comes from a small pension,an my social security. I do have some assets like two retirement IRAs, one roth and one std. Nothing like the 1.5 million that triggers the wealth tax, still the small amount of income they generate would have me paying an extra 30k to the Colombian tax man. When people tell me how cheap Colombian is I remind them, it takes a lot cheap to make up for 30k of extra taxes

windboater :

the inconvienent truth if you are an American you're really quadrupled taxed. How do i come up with quadrupled, simple math. Start by double taxing any worldwide income you already paid to the US tax man. Then add taxes for items not taxed in the US tax system: 50% to 100% of your Social security is not taxed in the US. Income from IRAs, Roths or other retirement instruments like annuities.

I don't doubt that poster Windboater was given information by supposed expert(s) that makes him think he would be quadruple-taxed and could not deduct federal taxes paid in the USA from hypothetical Colombia tax obligations.

However, I have talked with enough tax attorneys and accountants in Colombia -- and read enough of the posts of Osage Archer, our most learned member on this issue -- to know that these two assertions are just not true.

cccmedia

It is true, however, based on my information, that Colombia taxation is more onerous for some Expats and potential Colombia residents .. than USA taxes.  I decided a while back that I would not live in Colombia full-time for that reason.

For other Expats, for instance those whose primary income is so-called earned income and is deductible up to $100,000-plus US, it's not a deal-breaker.

Perhaps Brother Archer will stop by and further educate us.

Colombia's tax laws are complicated and have been changed various times.  For instance, the wealth tax has not applied every year .. and does not necessarily impact most Expats, anyway.  Attorneys and accountants have varying interpretations of the many sub-chapters in the law.  It is often worth the trouble for an Expat to get a gratis opinion from multiple professionals before deciding on the residency issue due to potential personal taxes.

cccmedia

cccmedia :

Perhaps Brother Archer will stop by and further educate us.

Ha ha I am not educated myself, especially about taxes in Colombia!  Everyone's situation is different, but several things are true:  Although Colombia has tax brackets like the US, and there are deductions you can take from your income, the taxes are higher percentage-wise and starting at lower income levels than in the US.  So that an income in the US which might not have any taxes owed, would have to pay some taxes in Colombia.

Nevertheless many expats find that given a good tax accountant (you should try several to make sure they know the laws), the tax burden is not as onerous as it seems on first inspection - and the lower cost of living, pleasant weather and pleasant people more than make up for it.

The tax laws here for ex-pats are complicated but hiring a certified Colombian tax advisor will explain what your potential tax liability will be is crucial. Everyone's situation is different. There is no rule that it will be a cookie-cutter approach for everyone and the laws change.
We live in Medellin and have several Expat friends, and we all use the same tax advisor. No one we know is complaining about their tax liability here. The low cost of living including health care is a gift. The little tax we pay is a privilege to be here.
Do your homework with boots on the ground with an in-person consultation. Posting here will only get answers that are all over the board.

cccmedia,


Agree!

OsageArcher :
cccmedia :

Perhaps Brother Archer will stop by and further educate us.

Ha ha I am not educated myself, especially about taxes in Colombia!  Everyone's situation is different, but several things are true:  Although Colombia has tax brackets like the US, and there are deductions you can take from your income, the taxes are higher percentage-wise and starting at lower income levels than in the US.  So that an income in the US which might not have any taxes owed, would have to pay some taxes in Colombia.

Nevertheless many expats find that given a good tax accountant (you should try several to make sure they know the laws), the tax burden is not as onerous as it seems on first inspection - and the lower cost of living, pleasant weather and pleasant people more than make up for it.

Totally agree!

I certainly agree that there is room for conjecture. The two attornies I contacted didnt even agree on all the taxes themselves. So lets talk specifics,  its far to easy to get lost generalities. Lets try to nail down where we might disagress so other will get the straight dope they are looking for.
Does Colombia government tax your US social security or pensions at 100%. (Yes)
Do they Tax, year over year, increases in the values, of your US based retirement annuities, IRAs, (roth and traditional) HSA health savings accounts and saving accounts? (Yes)
Do they add the total balances of all those accounts and any fiscal assets you own to your basis for calculating your wealth tax liability, if applicable. (Yes) .
Does the US government allow you to deduct Colombian tax liability on your US returns. Maybe but who care, if you're a poor american Like me, I pay so little in taxes in the US, any saving from that deduction couldnt come close to making up for the extra 30K in taxes I'd have to pay to Colombia.(true).
Does the US government provide to colombian authorities full disclosure on all US Citizen's accounts and assets whenever they request it. (Yes)
Has the Colombian legislature ever passed a law that subjects Colombian citizens to incarceration for tax evasion.  (not as far as I know)

Please let me know specifically where the information is incorrect and I will do my best to correct my posts and reply.
Thank you

windboater, I do not know your financial position - but if you are convinced that you would pay $30K or more a year in taxes to Colombia, then I'd say you should not become a tax resident of Colombia! 

I'm sure you know the wealth tax, the impuesto al patrimonio, is at a 1% level, for those who have assets that total 5000 million COP or more (a bit less than $1.4 million USD). That 1% is too much in my opinion but one could live with that especially if those assets can be structured to earn a larger percent than that each year.  Plus there are deductions you can take including for your home, as much as about 480 million COP which is over $130K USD at today's exchange rate.  See:
https://www.gerencie.com/impuesto-al-patrimonio.html

It sounds like you would be a good candidate for spending less than six months each year in Colombia, to avoid the fact that you become a tax resident of Colombia if/when you have spent more than 183 days in-country in any 365 day period.

Flying back and forth to Colombia - USA twice a year would make only a small dent in the $30K you'd save by not becoming a tax resident.  And you could have the best of both worlds!

You get no disagreement from me, Colombia is a beautiful place with wonderful caring people.
Did you see my post regarding specifics of the tax situation? While I dont have all the accounts I mentioned I wanted people ti get the full picture.

Yes, the attorneys both told me there would likely be deductuons but they wouldn't make a significate difference in the amount I had to pay. Most are capted at amounts reasonable for the average Colombian lifestyle. Example: wife  planning to attend university and pay out of county tuition level,. Thats deductible but the deduction might be based on in country tuition. With the out of country tuition being twice the cost of incountry, the benifit is hardly worth the paperwork. Thanks

I came to the same conclusion, buy Im not going to be visiting colombia for 6 months a year. Id rather go somewhere I can live full time. Getting to old for the instability and traveling. This became very evident once corona closed all exits down. We had a choice of being steaded in istanbul or Dubai. We findly got to Taiwan. Now there is place. Healthcare rated much higher than the US . National heath care insurance at 30.00 per month. Exchange rate at 30 to the dollar. NO tax on social secirity or any income from outside the country. its a major culinary destination with all asian cuisines amply represented. Rents are cheap but buying is like manhatten. The only bad part.

Wow, you must think im some high roller. As I said me income is small by us standards. My comments are applicable to the  average boomer us retiree on Social Security. A small pension and Social security. That's it. Referring to the Colombian tax tables, that puts me in the highest or possibly the second highest tax bracket. And anything you pay is on top of what you already pay to the us government. Im no long concidering Colombia for myself based on the tax situation, im only trying to save others from blowing alot of money on a trip to Colombia only to be disapointed that they cant afford to stay.

Perhaps you are not aware that just like in the US, Colombia's tax system is a graduated one?

You pay a percent based on income, but there are brackets - the highest bracket of 33% is paid only on your annual income that exceeds 4100 UVT, about $40,000 USD (at today's exchange rate).  The 28% bracket starts for annual income over 1700 UVT (about $16.7K USD) and the 19% bracket starts at 1400 UVT ( about $13.7K USD).

Plus whatever tax you already paid to the US can be deducted from your Colombian tax bill.

So, for instance, someone whose annual Adjusted Gross Income was $50K USD would owe about $10,000 USD.  But that's without taking into account any deductions at all, and not taking into account any US taxes paid, so your tax bite would be less to Colombia. 

An expat who receives a Social Security pension of, say, $32K USD per year, who doesn't pay any US taxes, would end up with a Colombia tax bill around $4K or less - that's also before Colombia deductions.

Someone who would have to pay $30K in taxes in Colombia is not low income by US standards, especially since taxes paid to the US are deductible from the Colombia tax bill.  You would have to have an income probably greater than $150K USD per year to owe Colombia $30K, especially since your US taxes would be subtracted from your Colombia tax.

For the benifit of the people intending to go to Colombia with the intension of staying, Im trying to provide real life specifics. I guess this comes down to your objective. My objective is to proved a real world view of tax situation one could expect to pay if they choose Colombia as a place to live. I dont doubt their maybe an american who makes 32K on social security alone and is not subject to the myriad of other tax gotchas situation common to American's who are by no means rich.  Sure in that narrowly tailored situation  He may only pay 4k in taxes to Colombia.
This egnores all the specific other sitation I detailed earlier.
The average american boomer surely owns somthing they can tax. An IRA, a roth IRA, a pension, healthsaving account, medical saving account, retirement annuity, saving account. Or assets that increase in value each year: boat, car, house,  burial plot all of which are subject to impuned (assumed, undeclaired income- taxes) . we are still just talking about income tax not weath tax.  If you have 32k in Social security plus only one or more of the these others, you will not be pay 4k to Colombia, in my case close to 30k. Again not rich! In fact after the basic 24000 standard deduction for 2 , i pay little if any income tax in the us. So as for a deduction for taxes paid in the us is worthless. Its a hard pill to swallow, that Colombia expect 30k for income, done of which had any to do with Colombia.  Not rich! Not subject to the wealth tax.

windboater :

The average american boomer surely owns somthing they can tax. An IRA, a roth IRA, a pension, healthsaving account, medical saving account, retirement annuity, saving account. Or assets that increase in value each year: boat, car, house,  burial plot all of which are subject to impuned (assumed, undeclaired income- taxes) . we are still just talking about income tax not weath tax.

What you say is simply not correct.

An IRA or other account is not taxed - not until and unless you make withdrawals, and then it becomes income.  Just as in the USA where the IRS does not tax these things unless and until they become income (exception:  although in the USA a withdrawal from a Roth IRA would incur no Federal income tax, in Colombia it could be counted as income - but unless it shows up on your Adjusted Gross Income on your 1040, it won't be).

And contrary to what you claim, your boat, your car, your house etc. are NOT subject to income tax in Colombia - due to the simple fact they are NOT income.  By the way, with perhaps only a very few special exceptions,  a boat or car do not increase in value each year but go down, and depending on location and condition that may unfortunately be true for a house, too.

If you would please post the applicable Colombia tax laws and documents, or link to them, that you think say the things you claim they say, we can see if we can straighten this out for you.

They didnt give me any documents as they would have been in Spanish. I think the confusion may come from how the law maybe executed vs what the law actually say. Lets look at your comments about taxing increases in the value of IRAs. You said the IRA isnt taxed by a Colombia  because it doesnt increase the AGI and that is how they choose to evaluate income. Well that might be true but Colombias agreement with the US government gives them the right to look as deeply as they like into all aspects of your income and assets.  Just because they my decide to only focus on the AGI and not the increase in value of your IRAs etc doesnt mean they dont have the right to tax IRA, they simple have choosen not to look it that xriction for now though their tax laws give them the right to do so and to tax them. according to both laywers I spoke with
The colombian government does not recognize the tax free or tax deferred status of any retirement account in the US owned by you. To them any income of yours, world wide  is fair game. In the us they calculate the increase in value of your ira etc, but because its tax free or tax deferred, they dont add the amount to your adj gross income. To the Columbians it just income, and therefor taxable with or without a withdrawal.
Im not saying your assets all go up invalue every year. Im simply stating if they do go up in value the colombians have the right under their laws to tax that increase as income. They brought up a curious fact about Diran. They get an idea about of what you should own in taxes, then assess different taxes to come to the level they think you should pay.  Lets say you have lots of income, but only a few assets. They may access all the income and go easy on your assets. In my case with little income but some assets they will pull out all the stops on the assets, until im paying the 30k they think I should be paying. What they explained is a very subjective inforcement regime im not very comfortable with because it leaves you unable to know or budget. Have you heard of this?

I'm sorry, but your post is simply mistaken in so many ways, as well as mis-stating what I posted.  There are so many mistakes I cannot address them all.

There is no Colombian government agency called Diran.  It's called DIAN, the Dirección de Impuestos y Aduanas Nacionales.

As I pointed out to you, the Colombian tax system is very much like the USA tax system.  They are both graduated marginal tax rate systems with tax brackets that go up in percent the higher your income.  They both assert the right to tax world-wide income of tax residents.  They both have an INCOME tax.  They both require yearly filing, for those who qualify, the USA in April, Colombia beginning in August. 

A good overview of Colombia's tax system is here:
https://en.wikipedia.org/wiki/Taxation_in_Colombia

Your IRA is NOT taxable in Colombia "with or without a withdrawal" as you assert.  Your IRA in the USA, and also for Colombia tax purposes, is NOT counted as income unless and until you make withdrawals.  Then it's income as far as Colombia is concerned, but not until then.  You also seem to confuse the concept of INCOME with assets - they are not the same.

In any case I think you are making a wise decision not to relocate to Colombia.  Your misunderstandings and mistaken conceptions coupled with little to no knowledge of Spanish could make life there very difficult for you.

The problem seems to be what appears to be two conflicting regulations:

1. Pension income is exempt from taxes.
2. All income of foreign residents is subject to tax, and foreign pensions are not called out as exemptions.

It is not uncommon to find Colombian tax accountants that will say that the foreign pensions are exempt.

One thing to keep in mind is that DIAN is getting more aggressive in collecting taxes and it doesn't seem like much of a stretch to think that Colombia could scan their databases and match up CE cedula numbers and DIAN forms with an entry on line 41.

golferfred :

The problem seems to be what appears to be two conflicting regulations:

1. Pension income is exempt from taxes.
2. All income of foreign residents is subject to tax, and foreign pensions are not called out as exemptions.

#1 is not correct.  #2 is not correct either, since you put two conditions together and assert they are both true.  Only "...foreign pensions are not called out as exemptions", the second condition, is true.

1.  The only pension income exempt from tax in Colombia, is from a COLOMBIAN pension up to a 1000 UVT monthly limit, obtained through the COLOMBIAN pension system.  This link explains that and cites the applicable Colombian laws and decretos and DIAN statements:

https://www.gerencie.com/pensiones-exen … ombia.html

2.  Not ALL income of foreign residents is subject to tax, unless it is over a limit - a low limit, to be sure, but that blanket statement is not correct.  Income in Colombia for any tax resident, whether a foreigner or a Colombian, is taxable only if it exceeds 1400 UVT, which is 47.978 million COP for 2019.

https://www.pulzo.com/economia/quienes- … 0-PP817380

This is coming to a beat a dead horse issue. GET A TAX ADVISOR!!

sailcompania :

This is coming to a beat a dead horse issue. GET A TAX ADVISOR!!

Yes, you can choose to believe all types of rumors that people put out on the internet, or you can look at the Colombian government DIAN links and other Colombian links dedicated to explaining their tax system...and yes, getting a tax advisor is necessary, but they are not all equally knowledgeable - you must do your own research since everyone's situation is different.

But doing your own research does not mean reading official links but still coming to some conclusions other than what the sources plainly say...

Totally agree. You have to do your homework to find the right tax advisor. We are very happy with ours.

OK.

Nit-pick away. I'm out.

golferfred :

OK.

Nit-pick away. I'm out.

I don't think pointing out incorrect information that could lead to an expensive mistake for someone qualifies as nit-picking.  You're entitled to your own opinion, of course.

OsageArcher :
golferfred :

OK.

Nit-pick away. I'm out.

I don't think pointing out incorrect information that could lead to an expensive mistake for someone qualifies as nit-picking.  You're entitled to your own opinion, of course.

Exactly!  :top:

golferfred :

DIAN is getting more aggressive in collecting taxes...

Says who?

Expats and prospective Expats rely on sites such as expat.com in making their decision on which country to move to or live in.  It's as important a decision as most Expats make.

So when someone posts unequivocally that Colombia has been "getting more aggressive in collecting taxes," a reliable source or reliable statistics should be cited.  Those are lacking in Golfer's assertion, which Golfer presented as fact, not opinion. 

So I dismiss the assertion as false and misleading for Expats unless Golfer can show us a valid reason to consider it to be reliable.

cccmedia

cccmedia :
golferfred :

DIAN is getting more aggressive in collecting taxes...

Says who?

Expats and prospective Expats rely on sites such as expat.com in making their decision on which country to move to or live in.  It's as important a decision as most Expats make.

So when someone posts unequivocally that Colombia has been "getting more aggressive in collecting taxes," a reliable source or reliable statistics should be cited.  Those are lacking in Golfer's assertion, which Golfer presented as fact, not opinion. 

So I dismiss the assertion as false and misleading for Expats unless Golfer can show us a valid reason to consider it to be reliable.

cccmedia

Totally agree cccmedia.

It is true that in general, DIAN, the tax collection agency, has been tightening up across the board in the matter of collecting taxes - but as far as I can tell, no special efforts are (yet) being made to target expats.  The Colombian government and politicians continue to promise more than they can deliver, which calls for spending more than what they take in - so in general they have been trying to get even more blood from the turnip than ever before.

This 2018 newspaper article points out that some serious jail time, even more than 10 years, is now possible, whereas before the penalties were not so stiff for tax evasion:

https://www.eltiempo.com/economia/finan … bia-300924

Wherever money is concerned in Colombia, you can be sure that there are efforts underway by individuals or groups to get some of it, legally or illegally.  In 2017 nine officials of DIAN itself,  were sent to prison to serve sentences ranging from 7 to 13 years for schemes to rob tax money collected from the IVA ( "Impuesto al valor agregado o añadido", Value Added Tax, also commonly referred to as "impuesto sobre las ventas"):

https://www.eltiempo.com/archivo/documento/CMS-16797526

Thanks for the info.

The confusion there os easy to explain. Colombia doesnt tax pensions. The catch is they dont tax their own pensions. Colombian pension are not tax. So many people see this and say "great they dont tax my pensions. They dont tax Colombian pensions! Us pensions are fair game! Windboater

You can choose what you like but I dont see the Colombian tax being anything like the US system. Yes you can point to minor similarities but its the tax that matters.  After the 12000 x2 standard deduction for my wife and I . My tax bill is "0".  In Colombia I would pay 30k in Tax on the same exact income from the US. These are hardly equivalent systems.

The limits are so low that any minimum is meaningless for an american.

windboater :

You can choose what you like but I dont see the Colombian tax being anything like the US system. Yes you can point to minor similarities but its the tax that matters.  After the 12000 x2 standard deduction for my wife and I . My tax bill is "0".  In Colombia I would pay 30k in Tax on the same exact income from the US. These are hardly equivalent systems.

That you cannot see how Colombia's and the USA's tax systems are similar, the main difference being that Colombia's tax brackets start at a lower income and with higher percentages, just shows that you are not very good at analysis.

You assert you'd pay $30K in Colombia.  Sorry, I'm not buying it unless you prove it.

There is no way that if you pay ZERO in the USA, that your tax bill would be $30K in Colombia.

You cannot make such an outrageous statement without proof.  Show your work.  Back it up.  Anyone can say anything, but if they don't back it up it's just unsupported allegations.

Yes the best situation for moving to Colombia is to have few , if any asset, and on income from the US and all your income should be earned from  oversea sources so you can take advantage of the 100000us income tax deduction. Unfortunately for many that leave us out. Its really not a place for retirees as its reputation would suggest.

That is earlier said than done.  I was just there for six months and asked everyone I met. Part of the problem is the language barrier.  The two attorneys I did finely meet with spoke english and provided the informations I have detailed here. If I am to believe the others on the site, the informations they provided to me was 100% wrong.
Feel like sharing?
Thank you

Fine you post your taxes and ill post mine. We got a deel

Fine you post your taxes and ill post mine. We got a deel. You first!

windboater :

Fine you post your taxes and ill post mine. We got a deel. You first!

In post #14 above I already gave several examples of the approximate Colombia tax for someone with a $32K per year income, and also a $50K per year income - and those are before other possible deductions.

The $50K per year income could have up to a $10,000 tax bill - but that's before taking any possible deductions to income that Colombia tax laws allow.  Thus the extrapolation, that for you to have a $30K tax bill, you'd need an income of $150K per year or more.

Did you read the overview of Taxation in Colombia which link I posted in #18 above?  You can figure your approximate tax using the tax table shown.  Your actual tax paid would be less depending on deductions you might be able to take.  Here is the link, again:

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

You claim you'd pay $30K in taxes yearly in Colombia, when you say you pay nothing in the USA - when you make such a claim, it is up to you to prove it.  No one gets a pass, to be able to make an outrageous statement without any proof.  That is why I give examples and link to official sources where possible.

Where is YOUR proof?  You have given none. You have simply made assertions that you've never backed up.

It's moot anyway, isn't it?  You have ruled out Colombia because you think you'd owe way too much.  Many other expats who are tax residents in Colombia have found that just isn't so.

Yes I read all your posts but your examples were way to symplistic to represent a real person or provide any insight into the myriad of tax situations they could find themselves in in Colombia. While these narrowly defind example might sway the opitions of other long term users on the system,  Using such a narrowly define example to prove your point, that taxes are not a problem in Colombia just misleads rather than provide helpful clarification.
In my third post, did you read that? I gave a breakdown of many different taxes that a US expat could face singularly or even all at once. While you respond with generallites, I think people thinking of Colombia would prefer the whole situation not some contrived smilly face. I've given specifics as the legal experts gave it to me this year. Have you actually spoken to any experts in the last 5 years. You know In Colombia things change yearly.
We have come to the end, This is my last post on the subject, so have a field day but remember people will ultimately make up their minds as to the correctness if the information they received here.

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