VAT Taxable Base in Construction Contracts
It should be noted that construction contracts are not expressly defined in Colombian legislation; they are included within lease agreements.
ARTICLE 1973. DEFINITION OF LEASE. A lease is a contract in which both parties mutually agree: one to grant the use of a thing, or to execute a work or provide a service, and the other to pay a determined price for such use, work, or service.
From this legal provision, it can be inferred that a construction contract is a legal act by which a person undertakes to perform a specific material work for another, in exchange for compensation, without subordination or representation.
Regarding construction contracts, Article 2060, first paragraph of the same code, defines:
ARTICLE 2060. CONSTRUCTION OF BUILDINGS FOR A SINGLE PRICE. Contracts for the construction of buildings, entered into with a contractor who is responsible for the entire work for a predetermined single price, are also subject to the following rules:
It follows that a construction contract involves the execution of material work related to building construction for a fixed single price, with two features: the work is complete, and the price is unique.
Difference Between a Construction Contract and a Work Contract
The DIAN, in Ruling No. 073113 of August 29, 2006, stated:
Construction and urbanization contracts, and in general the execution of material work on real property, are those in which the contractor directly or indirectly builds, manufactures, erects, or raises structures... Construction contracts do not include works or goods that can be easily removed without damage to the property, such as internal divisions in completed buildings.
This definition distinguishes works inherent to construction (electricity, plumbing, masonry, etc.) from those that can be removed without affecting the property.
In Concept No. 44743 of July 02, 2013, the DIAN added:
It is clear that constructing a work is different from performing repairs, patching, painting, and other tasks aimed at preserving an already-built structure...
Not every renovation, paint job, tiling, or patching constitutes construction, unless it includes the execution of a new work (e.g. building a wall).
VAT Tax Treatment
According to DIAN Ruling No. 44743 of 2013:
If the object of the contract is the construction of real property, the taxable base for VAT is set in Article 3 of Decree 1372 of 1992: “In construction contracts of real property, VAT is levied on the portion of the income corresponding to the contractor’s fees...”
This article applies only to construction contracts for real property and works inherent to construction, not to repairs, painting, or removable goods.
Conclusion
The special taxable base of Article 3 of Decree 1372 of 1992 applies exclusively to construction contracts for real property and/or works inherent to construction.
Written by: Diego Sanabria
