Colombia issues final regulations on VAT obligations of foreign service providers

On October 19th 2018, the Colombian Tax Authority issued Resolution No. 51 which provides VAT rules applicable to foreign service providers (FSPs) rendering services to Colombian customers. This regulation does not apply in cases that the Colombian recipient is required to collect the VAT via the “reverse charge mechanism” (generally, Colombian companies collect VAT via the “reverse charge mechanism” on payments to nonresidents). Resolution No. 51 follows the draft Resolution issued on this matter for comments on June of 2018, and Decree 1415 of 2018, which provided the rules regarding the registration with the Colombian tax registry for FSPs (see Tax Alert of August 17th).

Resolution No. 51 establishes the following:

  • As VAT responsible, FSPs must register and request a Colombian Tax ID and a digital signature mechanism. The FSPs may register through the “requests/PQSR” section on the Tax Authority’s Web page, or through any other electronic mechanism that could be implemented by the Tax Authorities.

 

  • The VAT return should be filed every two months on the dates set by the Colombian Government. In case that a FSP does not have any transaction with Colombian recipients within the relevant period, there is no obligation to file the VAT return.

 

  • Colombian Tax Authorities should issue a special VAT return form to be used by the FSPs. This format will be available both in Spanish and English. However, the form has not been released yet.

 

  • For reporting purposes on the VAT return, when the transactions are carried out in a currency other than the Colombian peso (COP), the FSPs should add the income and VAT for the two-month period in USD and converted into COP at the official exchange rate at the date of the VAT return filing.

 

  • The payment of the VAT return could be made in a foreign bank account, that should be made available by the Colombian Government for these purposes.

 

  • FSPs are allowed to use their current invoices and documents in the transactions concluded with Colombian customers. This provision will apply until the National Government issues the regulations regarding the Colombian invoice or equivalent document to be issued by FSPs.

 

  • The FSPs must inform the amount of Colombian VAT levied on the services rendered to Colombian recipients at the time services are offered or at the time the purchase or payment order is confirmed.

 

  • FSPs obliged to file a VAT return must keep the supporting documentation of the transactions until the status of limitation of the relevant VAT return has elapsed.
  • In addition, FSPs must keep a record / ledger of sales and purchases in relation to the services rendered to Colombian recipients.

 

  • When the recipient of the service is responsible of the general VAT regime and; therefore, it is required to collect the VAT via the “reverse charge mechanism”, the FSPs should receive a copy of the Colombian tax registration in which this situation is reported, to not charge VAT to such Colombian recipient.

 

  • To determine whether the service should be deemed as rendered in Colombia or not, FSPs must consider whether the payment comes from a debit/credit card issued in Colombia, or from a Colombian bank account.

 

  • Further, FSPs must require that the payments must be done via a credit or debit cards issued in Colombian, or from Colombian bank accounts, in case that: i) the IP address of the device used by client refer to a location in Colombia; or ii) the Mobile Country Code (MMC) of the mobile service used by the client refers to a location in Colombia. It is established a 6-month period for the FSPs to request their clients to use these “Colombian payment methods”.

 

  • FSPs may elect to be subject to the VAT “withholding tax system” / “reverse charge mechanism”. However, until such withholding tax system is established for this type of operations, and the VAT withholding agents start to collect the VAT, the FSPs will be obliged to collect VAT and file VAT returns from the period in which they started to provide services subject to VAT to Colombian recipients.

Cordialmente,

Luis Orlando Sánchez, International Tax Partner- Luis.sanchez.n@co.ey.com

Andrés Millán, Internationa Tax Manager – Andres.Millan.Pineda@co.ey.com

Zulay Arevalo, gerente de Impuestos Internacionales- Zulay.Arevalo@co.ey.com

Juan Sebastián Torres, senior manager/Latin America Business Center- Juan.TorresRichoux@ey.com