Colombia’s DIAN Unveils New Tax Ruling on Significant Economic Presence

At a glance:

• The main takeaway: Multinational businesses that are non-domiciled in Colombia but earn income through digital services from Colombian customers might be impacted by a new tax ruling on significant economic presence.
• Impact on your business: Digital services businesses are considered to have a significant economic presence in Colombia if they engage with 300,000 or more Colombian users/customers per year, and they allow customers to make payments for digital services in Colombian pesos. This could significantly impact U.S. companies engaged in selling goods or providing digital services to Colombian customers. The new ruling poses challenges for U.S.-based multinationals and could potentially increase their Colombian income tax liability. These taxes may not be creditable in the U.S. due to differences in income sourcing principles between the two countries; this discrepancy could lead to double taxation issues for U.S. companies.
• Next steps: Aprio’s Latin America Practice team members can help you assess the impact of the ruling on your U.S. business.

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The full story:

In January 2024, Colombia’s National Directorate of Taxes and Customs (DIAN) introduced a new rule governing taxation for significant economic presence (PES). This rule impacts non-residents and non-domiciled entities (i.e., individuals and businesses that are not based in Colombia) but earn significant income from Colombian customers through digital services like Netflix.

That means if your multinational business is not based in Colombia but regularly interacts with Colombian customers, you might be affected. We have rounded up answers to some important FAQs below:

What types of taxpayers need to pay the Colombian PES tax?

If your business made over 31,300 UVT (which translates into roughly 1.47 billion Colombian pesos) in the past year or the current year from sales or services to Colombian users, then you have a significant economic presence under the DIAN’s ruling and therefore must pay the PES tax.

What does the DIAN count as a “regular interaction”?

Non-domiciled multinational businesses that serve Colombian customers are considered to have a significant economic presence if:

• They engage with 300,000 or more Colombian users or customers per year.
• Their services or products are priced in Colombian pesos, or they allow customers to make payments in Colombian pesos.

When assessing your PES taxability, it is also important to distinguish between customers and users. Customers are individuals or companies that purchase goods or services from you; conversely, users are people who access your digital platforms (i.e., your website or app) with set login credentials.

Which digital services are covered under this new tax ruling?

The Colombian PES tax applies to several types of digital services, including:

• Online advertising
• Digital content (such as downloadable media)
• Free streaming services
• Monetization of information
• Online search engine services
• Digital marketplace services

There are certain digital services that are not covered by the Colombian PES tax. These services include IT technical support, consulting, and education (even online education platforms).

Important steps to fulfill PES tax obligations

If you are a digital services business and have a significant economic presence in Colombia based on the criteria above, there are some important decisions you need to make to avoid potential fines and non-compliance:

• Declare and pay income tax: You can choose whether to declare the tax yourself or have it withheld at the source. All multinational businesses with PES taxability must register with the DIAN and follow the applicable tax filing and compliance rules. 
• Withholding at the source: If you decide to withhold tax payments at the source, then your business is exempt from filing an income tax return with the DIAN.

Taxation through income tax	Taxation through withholding at source
If the taxpayer chooses to declare the income tax, they must notify the DIAN of the situation and proceed to register in the Single Tax Registry (RUT), in which they must choose whether to apply the withholding at the source (Section 8 of Article 408 of the Tax Statute). Declare and pay the tax in the form prescribed by the DIAN and the deadlines set by the National Government.	If the taxpayer chooses to pay the tax through withholding at source (Section 8 of Article 408 of the Tax Statute), they must register in the RUT and indicate this condition. In this case, if all payments or account credits were subject to withholding at source, the obligated PES will be exempt from submitting the income tax declaration in accordance with Article 592 of the Tax Statute.

The National Directorate of Taxes and Customs (DIAN), 2024

Furthermore, if you decide to withhold tax payments at the source, the PES tax-filing responsibility falls on:

• The direct buyer of your goods or services
• The financial institution handling the payment
• Payment gateways
• The card’s issuing franchise
• Cash collectors or prepaid card sellers

How is PES tax calculated?

Columbian PES Tax Rates
Income Tax Declaration	3% of total gross income from sales or services provided to Colombian users
Withholding at Source	10% of total gross income from sales or services provided to Colombian users

Colombia’s PES tax aligns with global standards set by the Organization for Economic Co-operation and Development (OECD) to address how digital companies are taxed across different countries. This new rule aims to ensure fair taxation for businesses earning substantial income from Colombian customers.

Is your multinational business subject to Colombian PES tax? Do you need help understanding how this tax could affect your U.S. business? Schedule a consultation with Aprio’s Latin America Practice team members today.

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