Editor’s Note
This article provides a foundational overview of Colombia’s Value Added Tax (VAT), explaining its application as a consumption tax and its significance to the national economy. For the latest rates and detailed regulations, readers should consult official government sources.
The Value Added Tax (VAT) is a levy applied to all goods and services purchased in Colombia. It is charged at each stage of the economic process, from production and importation to distribution. This tax does not directly affect people’s income, but rather what they consume. All Colombians must pay it when acquiring products or services.
Its importance to the national economy is vital. In recent years, according to data from the Organisation for Economic Co-operation and Development (OECD), VAT’s share of total Colombian tax revenue has fluctuated around 30%, making it one of the pillars of the tax structure.
VAT in Colombia has a long history since its implementation in 1963. The National Tax and Customs Directorate (DIAN) is the entity responsible for the administration, control, and collection of VAT in the country. This levy is a crucial source of income for the government, as it is used to fund essential public programs and services.
In Colombia, the general VAT rate is 19%, but there are reduced rates of 5% for some basic products like food and medicine, and 0% for educational services and exports.
In an effort to alleviate the tax burden for lower-income families, essential household basket products such as bread, potatoes, onions, tomatoes, and others are exempt from VAT (0%), according to experts from Saber Más, Ser Más, the financial education program initiative of the Colombian Banking Association and Financial Entities (Asobancaria). This means these products have no additional surcharge on the sale price.
Meanwhile, cold cuts, sausages, and other similar products fall into an intermediate category, with a VAT rate of 5%.
On the other hand, products considered luxury items, such as vehicles, watches, and jewelry, are taxed at the general VAT rate of 19%.
The classification of products into these categories can be complex and subject to change.
Calculating VAT is a systematic process involving several steps. First, the tax base is determined, which is the value of the good or service before taxes. Then, the corresponding rate (19%, 5%, or 0%) is applied to this tax base to calculate the VAT payable.
When buying a t-shirt, for example, the VAT payable will be 19%. Suppose it costs 30,000 COP (tax base: the amount on which taxes are calculated). To this figure, the general rate (19%) would be added: which would be 5,700 COP. Therefore, the final price would be 35,700 COP.
In Colombia, companies that trade in taxable goods or services, as well as natural persons who participate in commercial, industrial, or service activities subject to this tax, are obligated to file the Value Added Tax return. Additionally, importers of goods must also comply with this tax obligation.
The frequency with which the declaration must be filed varies depending on the size and profile of the taxpayer:
Bimonthly: Taxpayers who have obtained gross taxable or exempt income equal to or greater than 92,000 Tax Value Units (UVT) (i.e., $3,340,336,000). Large Taxpayers, those engaged in the export of goods and services, as well as those who carry out exempt operations, are also obligated. New VAT taxpayers must also comply with this obligation, except for taxpayers registered in the Simple Taxation Regime, who have an annual frequency for declaring this tax.
The figure of new taxpayers corresponds to those individuals or companies that must charge and pay VAT from a specific date because they exceed an income limit, carry out certain commercial activities, import goods, or sell on digital platforms.
For example, an entrepreneur who has just opened an online store selling clothes and accessories is a new taxpayer because in their first year of operation their gross income exceeds the established limit to be considered a VAT taxpayer. In this way, they must register with the DIAN’s Single Tax Registry (RUT), issue invoices to their customers including the corresponding VAT (19%), declare and pay the collected VAT, and keep an accounting record of their operations taxed with this levy.
Quarterly: [Note: The original text seems to be cut off here. The translation stops as the content ends abruptly.]
