Dividend taxation in Colombia
What are dividends?
According to the doctrine of the Colombian Tax Authority (DIAN) and pursuant to Article 30 of the Colombian Tax Code, dividends or profit participations are defined as any distribution of earnings, whether in cash or in kind, charged against equity and made to shareholders, partners, members, associates, subscribers, or similar parties. This excludes capital reductions and share issuance premiums.
Additionally, the profits transfer corresponding to Colombian-source income or capital gains obtained through permanent establishments or branches in Colombia of nonresident individuals or foreign companies, in favor of related entities abroad, may also be considered as dividend distributions in certain contexts.
However, in the specific case of the Double Taxation Treaty (DTT) signed between Colombia and Spain, the applicable definition of dividends is expressly established in Article 10 of the treaty. Consequently, this definition takes precedence over the one provided in Article 30(2) of the Colombian Tax Code in paragraph 2 of Article 30 Therefore, a profit transfer to the parent company will not be treated as a dividend under the DTT unless it meets the treaty’s definition (DIAN Ruling 1380-05221 of 2023).
Determination of taxable vs. Non-taxable dividends
The classification of dividends as taxable or non-taxable depends on the source of the earnings distributed by the corporation. Under Articles 48 and 49 of Colombia's Tax Code, dividends paid from profits that were already subject to corporate income tax at the entity level are not considered taxable income or capital gains for shareholders.
To determine proper classification, corporations must identify and certify the portion of distributed earnings coming from previously taxed and untaxed profits, as follows:
Dividends attributable to profits taxed at the corporate level qualify as non-taxable to shareholders. Dividends attributable to untaxed profits (those not previously subject to income tax) are taxable upon receipt by the beneficiary and subject to taxation under the applicable tax regime
This determination must be properly documented in Form 1099-equivalent withholding certificates and used by taxpayers to apply the appropriate income tax rates on their federal tax return.
Withholding Tax on Dividends and Profit Distributions for 2017 and Subsequent Years
Pursuant to the provisions of Law 2277 of 2022, the tax regime for dividends originating prior to 2016 remains unchanged. Below we present a summary of the withholding tax requirements applicable to dividends corresponding to 2017 and subsequent years.
1. Domestic corporations distributing or profit shares
a. Beneficiaries: Resident individuals or resident estate trusts
- Non – Taxable dividends:
- Tax base: Payment or credit to account
- Withholding rates:
0% for dividends from >0 to 1,090 UVT*
15% on amounts exceeding 1,090 UVT (per Article 242 of the Tax Code)
*UVT = Tax Value Unit (Unidad de Valor Tributario), Colombia's inflation-adjusted tax measurement unit.
- Taxable dividends:
- Tax base: Payment or credit to account
- Withholding rates:
35% on gross amount
Additional marginal 15% on the residual amount after 35% withholding
b. Beneficiaries: foreign corporations without colombian tax residency, non-resident individuals, or non-resident estate trusts
- Non – Taxable dividends:
- Tax base: Payment or account credit
- Withholding rate: 20% flat rate
- Taxable dividends:
- Tax base: Payment or account credit
- Withholding rate:
35% on gross dividend amount
+ 20% on resulting net dividend
*Effective Rate Calculation:
2. Corporations distributing dividends/profit shares to permanent establishments in Colombia
Beneficiaries: Permanent establishments of foreign corporations
- Non – Taxable dividends:
- Tax base: Payment or account credit
- Withholding rate: 20% flat rate
- Taxable dividends:
- Tax base: Payment or account credit
- Withholding rate:
35% on gross dividend amount
+ 20% on remaining net amount
3. Corporations distributing dividends to other domestic corporations
- Non – Taxable dividends:
- Tax base: Payment or account credit
- Withholding rate: 10% flat rate
- Taxable dividends:
- Tax base: Payment or account credit
- Withholding rate:
35% on gross dividend amount
+ 10% on remaining net amount
4. Corporations under CHC regime or registered business groups
- Non – Taxable dividends:
- Tax base: Payment or account credit
- Withholding rate: 0% (full exemption)
- Taxable dividends:
- Tax base: Payment or account credit
- Withholding rate:
Standard rules apply
35% on gross amount plus applicable additional percentage
- Non – Taxable dividends:
- Tax base: Payment or account credit
- Withholding rate: 0% (full exemption)
- Taxable dividends:
- Tax base: Payment or account credit
- Withholding rate:
27% flat rate
Dividend recognition timing
The dividend realization date is critical for determining:
(1) The tax year when income is recognized for withholding purposes, and
(2) The applicable income tax return filing period.
For Shareholders, Partners, or Similar Beneficiaries (Art. 27 Tax Code):
Dividends are considered realized when credited to accounts as payable, meaning they become immediately collectible if either:
The shareholders' meeting or governing body approved distribution without deferral conditions, or
Any established deferral period/condition has expired or been satisfied, making payment due.
At this moment:
Beneficiaries must recognize dividends as taxable/non-taxable income (based on profit origin), and
Corporations must apply the corresponding withholding tax.
Realization of income for permanent establishments (Articles 27, 28, and 30 of the Tax Code)
For purposes of Articles 27, 28, and 30 of the Tax Code, income from domestic-source earnings and capital gains obtained through permanent establishments or branches in Colombia of non-resident individuals or foreign entities is considered realized at the moment profits are effectively transferred to the parent company or related party abroad.
Even when there is no local corporate body (such as a shareholders' meeting) to formally declare the distribution, the taxable event occurs upon the accounting and financial transfer of such profits overseas.
Importance of Proper Recognition:
Correctly identifying this realization date is essential for:
Withholding tax purposes (determining the applicable fiscal period)
Income tax reporting (avoiding double taxation across different taxable years)
Compliance (ensuring taxpayers meet formal and substantive obligations under current regulations).
Withholding tax on dividends under double taxation treaties (DTTs)
The withholding tax on dividends or profit shares paid to beneficiaries in countries with a Double Taxation Treaty (DTT) must apply the rates established in the DTT, not those under Colombian domestic tax law.
In case of conflict between the DTT and local tax law, the DTT prevails (under the principles of lex specialis and pacta sunt servanda), as confirmed by DIAN Rulings:
Opinion 906196 (October 20, 2020)
Opinion 100202208-096 (March 19, 2021)
As a general rule, domestic withholding tax rates are automatically limited to those agreed in the applicable DTT.
Withholding Tax on Dividends Under Double Taxation Treaties (DTTs)
According to Article 10 of the OECD Model Convention, as a general rule both the residence country and the source country share taxation rights. For purposes of the applicable withholding tax, the taxation right shall be limited to a maximum applicable tax rate on the dividend, provided that the dividend beneficiary is a resident of the other treaty country.
From a tax compliance perspective, it is essential to note that the correct application of each DTT's specific provisions has direct effects on Withholding tax returns, Income and complementary tax filings
Each valid treaty establishes specific conditions that must be individually analyzed and properly documented, including: Minimum ownership percentages, Tax residency of the beneficiary, Holding period requirements, Beneficial owner status requirements
