Taxpayers under the simple taxation system

The simple tax regime, initially incorporated into the tax system by Law 1943 of 2018 (declared unconstitutional), and subsequently by the last tax reform, Law 2010 of 2019, is an optional taxation model that seeks to promote business formalization under the assumption of simplifying and facilitating compliance with tax obligations. This is, to date, without regulation after the legal decay of Decree 1468 of August 13, 2019.

This tax, which is declared on an annual basis and is anticipated bimonthly, replaces the income tax and integrates:

The national consumption tax -INC-, through the addition of the 8% rate to the corresponding consolidated SIMPLE rate, contained in numeral 4 of Article 908 of the Tax Statute -ET-.

The consolidated industry and commerce tax -ICA- (including the complementary of notices and boards and the firefighter surtax), integrated within the rates determined for each group, in accordance with article 908 of the ET. That is to say that:

a. During the taxable year 2020, the taxpayers who have opted for the simple regime and who are taxpayers of the industry and commerce tax, may deduct in the electronic receipt (form 2593) such tax paid to the municipalities and districts that have not included in their tax statutes the consolidated rate. It is worth mentioning that municipalities and districts have until December 31, 2020, to adjust the agreements to the new regime.

b. Likewise, this article would give rise to predicate the right for taxpayers under the SIMPLE that do not carry out activities taxed with the industry and commerce tax (as is the case of income derived from services rendered by liberal professions in municipalities such as Medellín where this activity is not taxed) to subtract from the regime's rate the consolidated rate determined by each municipality. The truth is that, for this type of taxpayers, if the consolidated rate of the municipalities is not known, this represents an additional cost, since they would assume a tax to which they are not obliged, thus generating inequality with respect to other taxpayers of the SIMPLE regime.

And what will happen with the taxpayers of the simple regime who are not responsible for the firefighter surcharge, will they have to assume it or deduct it from the SIMPLE rate, and how to do it? It is expected that the municipal agreements and the regulatory decree will include the treatment of these situations.

Regarding which taxpayers may be subject to SIMPLE, articles 904 and 905 of the ET provide that they are:

(c) Individuals who "develop a business" (a definition that should be addressed by the regulatory decree) or legal entities whose partners are national or foreign individuals, with tax residence, and.

d) That obtain income of less than 80,000 UVT ($2,741,600,000 for 2019) or that in the current year do not exceed such amount in the case of new partnerships or companies.

In order to review the income ceiling of a natural person who intends to apply this regime, and who is a partner or shareholder of one or several companies registered in the same, the income must be added on a consolidated basis according to the participation in each company; and in the case of companies that are not under the SIMPLE, only those in which they have a participation of more than 10% will be considered. The above, based on the Dian Office 018284 of July 16, 2019, which interprets paragraphs 3, 4 and 5 of Article 905 of the ET, which are not sufficiently clear regarding the restrictions contained therein.

Additionally, the income of the companies in which one is a manager or administrator must be included; in this case, the rule does not indicate the criterion of income consolidation, which could be interpreted as meaning that the total income must be computed.

Finally, the SIMPLE cannot be applied to, among others:

1) Natural persons that configure the elements of a labor reality contract, for which the tax administration will not require a pronouncement of another judicial or administrative authority, an attribution that exceeds the scope of this entity.

2) Companies whose partners or administrators have in essence an employment relationship with the contracting party. In this regard, the Dian stated, in Official Letter 008756 of April 11, 2019, that the expression "with the contracting party" refers to a third party with whom the company under the simple regime has a contractual relationship.

3) Companies that are shareholders, trustors or beneficiaries of other companies or legal entities in Colombia or abroad.

4) Taxpayers that generate passive income for more than 20% of their income.

5) Companies that derive from the segregation of a business within the five (5) years prior to the application for registration.

In this order of ideas, the registration in SIMPLE should be reviewed with special attention to avoid eventual auditing processes in which the DIAN pretends to re-characterize the operation, due to tax abuse.