Wednesday, 13 April 2016

Colombia: Guidance issued on tax treatment of transportation services provided by nonresidents

The Colombian tax administration recently released a ruling that clarifies the tax treatment of transportation services provided by a foreign entity through a mobile “app,” where the
customer pays for the services electronically using a credit or debit card.

Under Colombia’s tax rules, foreign companies are taxed only on Colombia-source income
received directly or through a permanent establishment in Colombia, or where income is
deemed to be Colombian-source income as a result of the provision of services in Colombia.

The tax authorities ruled that driver services provided in Colombia by a foreign company are
transportation services provided within Colombia – the fact that the services are provided via a
mobile app is irrelevant. As a result, the payments for the services are considered Colombiasource
income taxable in Colombia, subject to a 25% income tax, the 9% income tax for
equality (CREE) and the 6% CREE surcharge for taxable year 2016.

Nonresidents are required to file an income tax return in Colombia only if the total payments
received have not been subject to final income tax withholding, so the tax authorities analyzed
whether the payments made to the transportation company via credit or debit card should be
subject to withholding tax. The authorities concluded that a 1.5% withholding tax will apply
(unless domestic law provides for a lower rate on specific transactions), which must be
withheld by the financial entity issuing the credit/debit. However, the withholding tax is not a
final tax, so the foreign transportation service provider still must file an income tax return in

Source: Deloitte