As per the express rule, income from dividends arises in the year in which they are paid to the partner as due (accounts payable). Therefore, dividend will be taxed for the partner in whom the indicated payment is made, for which several corporate procedures must be followed (such as summons for meeting, approval of financial statements and profit distribution project, accounting records, etc.). .
Thus, if dividends are paid correctly in 2022, the rules applicable to date will apply, and if they are paid through 2023, the new rates introduced by the 2022 tax reform (“Reform”) in 2019 will apply. Will be applicable from 2023. The partners are therefore advised to declare a dividend this year, from the accumulated profits of previous years, and profits from an intermediate cutoff (say January to November) for 2022; In this regard, although it is not common, if statutorily permitted, the assembly may approve financial statements (ergo distributable profits) with deductions other than annual ones.
The current effective tax rate (2022) for income and dividends taxes in Colombia is 41.5%. For every $100 of profit, the company must pay $35 to the state, being able to distribute $65, on which approximately $6.5 is taxed (some minimum exemption applies), leaving $58.5 available in the end; From 2023 the reform further increased the said taxation.
Thus, companies which are one of the most suitable vehicles for business, as they allow the risk to be limited to the amount invested, and facilitate business between different contributors or partners, among other qualities, are seriously discouraged. It reduces investment by penalizing its main vehicle, generates economic distortions (for the same performance, a company is paid more if it is used), reducing employment and output.
Following are the main changes of the reform in terms of dividend:
A) Dividends are withheld from profits previously taxed by the company till 2022 (advance installment of last tax), as follows: (i) Individuals 10% (after 300 UVT), (ii) Foreign companies 10% % and non-resident individuals, and (iii) 7.5% when the partner is a national company (recoverable by the last partner). The said withholdings are enhanced with the reform, as follows: (i) 15% for resident individuals (after 1090 UVT), (ii) 20% for non-residents, which would contract foreign investment and market dollars, and ( iii) 10% when the partner is a national company. For non-residents, this 20% will be your final tax.
b) Until 2022, personal dividends in excess of 300 UVT were taxed at 10%; However, beginning in 2023, the dividends will be added to the normal basket, taxed at normal rates. Taxation on total ordinary income for the year including dividends would be between 0% (for total income less than $46 million in 2023 values) and 39%. Withholding of dividend shall be deductible or recoverable from the final tax due.
c) Payment of dividend in shares or quota is not taxed till 2022, but from 2023 it is. Internationally, including in the US, dividends paid with shares, in proportion to each shareholder’s participating percentage, are not taxed because they do not enrich financially, for example, if an SA has $100 in dividends. is, and pays it by issuing $5 shares to whoever is a 5% shareholder, all this while the shareholder will retain his or her same percentage participation in the company, but without receiving a single peso.
Thus, it is convenient to evaluate the convenience of paying out all potential dividends in 2022 and continuing to use the companies to invest in the future.