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Colombian Businesses the Most Taxed in Latin America

By: Julián Villabona Galarza - Jul 19, 2016, 4:56 pm
In Colombia, companies must pay approximately 40% as income tax (YouTube)
In Colombia, businesses must pay approximately 40 percent in income tax. (YouTube)

EspañolColombia has passed a new tax reform, scheduled for the second semester of this year.

Minister of the Treasury Mauricio Cardenas backed the reform, which could bring much higher income taxes on certain companies.

Baker & Mackenzie, a law firm specializing in taxes, did a comparative study of seven countries in Latin America, finding that Colombia has the highest taxes — beating out Argentina, Brazil, Chile, Mexico, Peru and Venezuela.

The study reached this conclusion after determining that adding traditional income tax plus two additional taxes would add up to 40 percent of a company’s taxable income. These two taxes make up the special Contribution for Equity (Cree), a tax collected specifically for an alleged reduction to inequality.

This 40 percent is made up of the following: 25 percent for traditional income tax, nine percent for Cree, and six percent for Cree implemented in a 2014 tax reform.

According to the previous tax reform, it’s expected that the 2017 income tax will come to 42 percent in Colombia, reaching 43 percent by 2018.

If Colombia heeds the recommendations made by an expert commission, those taxes should drop. The experts that helped draw up the tax reform said high income taxes are contrary to world trends. It would also affect the competitiveness of Colombian companies.

According to Baker and McKenzie, the country after Colombia is Argentina, with a 35-percent income tax. Right after comes Venezuela with 34 percent, Mexico with 30 percent, Peru with 28 percent, Chile with 24 percent and finally, Brazil with 15 percent.

In Chile, taxes became more complicated after the last tax reform. There is a one-first rate known as the First Category General Rate, that will rise every year. There is a second one, known as the Second Category General Rate that has a progressive rate. There is another global complementary tax.

In Argentina, where income tax comes to 35 percent, there’s a similar retention rate for dividends. Brazil also has a social contribution to net profit which falls on corporate rent.

Source: El Tiempo

Julián Villabona Galarza Julián Villabona Galarza

Julián is a reporter with the PanAm Post with studies in Politics and International Relations from the University Sergio Arboleda in Colombia. Follow him: @julianvillabona.