Income tax return for alienation of international investments in Colombia

The Colombian tax legislation provides that any foreign investor alienating, at any title, his economic investments registered in Colombia must file income tax return, which must show liquidation of income and remittance taxes generated by the transaction.

The government introduced a change to this tax provision through Decree 1242 of May 19, 2003. Foreign investors must now file the income tax return within one month following the date of the sale, merger o similar transaction through which the investment is alienated.

This term used to be fifteen days counted as from the transaction. But one month is still a short time, given that in the case of alienation of international investments, the following documents must be obtained:

1.- Copy of the agreement through which the transaction is carried out (sales, merger, etc.)

2.- Power of attorney duly granted by the assignor of the investment

3.- Certificate by the auditor of the receiving corporation, stating original value of the investment and purchase date (acquisition cost and date), par value of the shares and number of shares held by the investor in the corporation receiving the investment.

4.- Detailed explanation about the FISCAL cost of the investment, which supports profits derived from the sale, if any.

5.- Duly certified financial statement corresponding to the closing nearest to the transaction date, and financial statements for the years during which the corporation would have obtained profits distributable among partners or shareholders.

6.- Still another reason why one month is not sufficient is that most of the documents evidencing the operation are in a language other than Spanish (Colombia?s official language), so a translation of the same must be obtained -and legalized- such that the tax authorities can understand them.

If the foreign investor carries out several alienation transactions during one fiscal year, he must file one income tax return for each transaction (Decree 1242 expressly stipulates that they will not be taken as corrections to income tax returns previously filed during the same fiscal year).

The income tax return is a requirement to cancel the registration of foreign investments at the Central Bank (Banco de la República), and to register the new investor, if this new investor is also a foreigner.

The Central Bank, as exchange authority, grants three months, counted as from perfection of the operation, to register foreign investments. It does not register or cancel foreign investments if a copy of the income tax return as filed with the tax authorities is not submitted, so it is necessary to file it before the three-month term applied by the Central Bank.

Hence, the legislator could have taken into account this term, and uniform the terms granted for tax and exchange purposes, such that the investor would have been given sufficient time to prepare the documents as required.

Given that investors failing to comply with these obligations may not remit investment values abroad, are subject to fines for belated registration of transactions, and to tax sanctions for belated filing of income tax returns, they have to make accurate calculations as to the good timing to carry out an operation involving foreign investments.

The new legislation clarifies that foreign investors must file income tax return for alienation of foreign investments whether or not profits would have been derived from the operation. Therefore, it is formal obligation independent from the economic result of the transaction carried out.