Withholding tax on dividends dividends in corporate groups

As provided in the third paragraph of article 242-1 of the Tax Statute, added by article 50 of Law 1943 of 2018 (Financing Law), business groups that have duly registered such situation before the respective Chamber of Commerce would not be subject to withholding tax on dividends regulated in the same provision.

It should be recalled that the rule in question established a rate of seven point five percent (7.5%) as withholding at the source on income applicable to dividends that, in accordance with the provisions of Article 49 of the Tax Statute, were not taxed.

Article 242-1. Special rate for dividends or participations received by national corporations. Dividends and participations paid or credited on account to national companies, from distribution of profits that have been considered as income not constituting income or occasional gain, pursuant to the provisions of numeral 3 of Article 49 of this Statute, shall be subject to the rate of seven and a half percent (7.5%) as withholding at source on income, which shall be transferable and imputable to the individual resident or investor residing abroad.

Dividends and participations paid or credited on account to national companies, coming from distributions of taxed profits according to the provisions of paragraph 2 of article 49, shall be subject to the rate indicated in article 240 of the Tax Statute, according to the taxable period in which they are paid or credited on account, in which case the withholding at the source indicated in the previous paragraph shall be applied once this tax has been reduced. Dividends and participations received from foreign companies and entities shall be taxed at the same rate.

PARAGRAPH 1. The withholding at the source shall be calculated on the gross value of the payments or credits on account for dividends or participations.

The withholding at the source referred to in this article is only practiced in the national company that receives the dividends for the first time, and the credit will be transferable to the final beneficiary, a resident individual or investor residing abroad.

PARAGRAPH 2. Companies under the CHC income tax regime, including decentralized public entities, are not subject to withholding tax on dividends distributed by companies in Colombia.

PARAGRAPH 3. Dividends distributed within business groups duly registered before the Chamber of Commerce shall not be subject to the withholding tax regulated in this article. The aforementioned, provided that it is not an intermediate entity willing to defer the tax on dividends. (Emphasis ours).

A few months after the entry into force of the aforementioned rule, it has been subject to modification by Article 67 of the National Development Plan, in the sense of extending such benefit to companies that have registered their control situation before the Chamber of Commerce.

Thus, this benefit granted by the National Government would allow that the dividends distributed within the business groups and by the companies that have their control situation duly registered before the Chamber of Commerce, are not subject to withholding tax on dividends.

The effects of such rule must be analyzed in each specific case, considering the quality of the controlling and/or shareholders.