The so-called simplified tax system is a mechanism for the payment of taxes which reduces tax compliance costs and formal and substantive obligations for business owners. It fosters a more competitive environment that enables business owners to apply their resources essentially to making their businesses grow.
It is designed as a benefit for formal companies and, except for a few exceptions, for individuals that create startups and other ventures. For the benefit to apply, total gross revenues (both regular and special) of the prior tax year must be less than 80,000 tax value units (UVTs in Spanish) (COP 2,848,560,000 approximately).
How to register in the system?
- If you do not have a valid unified tax registration number (RUT, for the Spanish initials), enter here where you can register under the simplified-tax-system unified tax registration mechanism.
The benefits of the simplified-tax-system include the following:
- Low tax rates that range from 1.8% to 14.5%. This includes municipal taxes (the consolidated industry and commerce tax). Eligibility depends upon the amount of gross revenue and the type of business activity being carried out.
- The taxpayer is not subject to withholding tax collections and is not required to act as a withholding tax collection agent –except for withholding taxes on labor payments and VAT collections.
- Reduction of personnel hiring costs, to the extent that credits/deductions are provided for pension contributions made by the business owner for his employees; they can also be exempt from social security health contributions and payroll taxes earmarked for ICBF (the national family welfare agency) and SENA (the national apprenticeship agency).
- 0.5% of any payments received by the business owner through electronic means may be claimed as a tax credit.
- One single annual tax return replaces a number of tax returns that taxpayers are required to file as a general rule.
- Access to electronic invoicing gratuitously.