Article 24 of the Tax Statute defines the income that, for income tax purposes, must be understood as Colombian-sourced income. The classification given in this article makes it possible to establish in which cases the income received by an individual or legal entity—whether resident in Colombia or not—must be taxed, regardless of whether the income is received within or outside the national territory.

The rule contains the following criteria, which determine whether income should be considered domestic (national source) or foreign-sourced:

“Income from the exploitation of tangible and intangible property within the country, and from the provision of services within its territory—whether on a permanent or temporary basis, with or without a place of business—shall be considered Colombian-sourced income.

Income from the transfer, under any title, of tangible or intangible property located within the country at the time of its transfer shall also be considered Colombian-sourced income.

Colombian-sourced income includes, among others, the following:

7. Profits or royalties of any nature arising from the exploitation of any type of industrial property, know-how, or the provision of technical assistance services, whether supplied from abroad or within the country.

Likewise, profits or royalties arising from literary, artistic, and scientific property exploited in the country.

8. The provision of technical services, whether supplied from abroad or within the country.”

As shown in the cited rule, for a service to be considered Colombian-sourced, it must be carried out within Colombian territory, either permanently or temporarily, with or without a place of business. Additionally, the rule establishes that services supplied from abroad will be considered Colombian-sourced when they qualify as technical services or technical assistance.

Regarding withholding tax, the second paragraph of Article 408 of the Tax Statute establishes another rule for services such as consulting supplied from abroad:

“Payments or credits for consulting, technical services, and technical assistance provided by non-residents or non-domiciled persons in Colombia are subject to a single 20% withholding tax rate, whether the services are provided in the country or from abroad.”

Based on the above, we can state that fees charged to a Colombian entity by a provider located in a CAN member country (Bolivia, Ecuador, Peru) are not subject to withholding tax, as long as the service is performed entirely abroad (foreign-sourced income) and does not qualify as technical services, technical assistance, or consulting.

Positions of the Tax Administration

In line with the above, the tax authority has stated:

a) Ruling No. 073171 (Sep 16, 1998) — “Services rendered abroad by non-residents of Colombia are not subject to income tax… when such services are performed entirely abroad by non-residents or non-domiciled entities, and therefore all income is foreign-sourced, they are not subject to taxation in Colombia…”

The ruling clarifies that although services performed entirely abroad are not taxable, when the service requires studies, work, or complementary activities carried out in Colombia, or when they are performed according to the specific requirements of the Colombian recipient (applications, adjustments, etc.), they must be treated as services supplied from abroad with practical implications.

b) Ruling No. 066733 (Jul 23, 1999) — “Services provided from abroad differ from services performed in the country in that the former are considered services rendered in Colombia but directed from abroad, whereas services performed abroad correspond to services fully carried out outside the country…”

Andean Community Rules (Decision 578/2004)

Decision 578 of 2004 of the Andean Community contains rules to avoid double taxation on income and net worth. Article 3 states:

“Regardless of the nationality or domicile of individuals, income of any nature shall be taxable only in the Member Country where such income has its source, except as otherwise provided in this Decision. Therefore, the other Member Countries that, under their domestic laws, claim the authority to tax such income must consider it exempt…”

Accordingly, fees typically have their source in the CAN member country where the work is performed: the service is rendered there, and that country generally has the taxing authority.

Additionally, Article 14 establishes that income from professional, technical, technical assistance, and consulting services shall be taxable only in the Member Country where the benefit of those services arises. Unless proven otherwise, it is presumed that the benefit arises where the related expense is recorded.

This presumption has raised questions about whether the taxing authority lies in the country where the expense is recorded (e.g., Colombia) or in the country where the benefit is produced (the CAN member country where the service was rendered).

Interpretation by the DIAN

To clarify this issue, the DIAN issued Ruling No. 095874 (Dec 2005), stating that the exception to the source-of-income rule in Article 14 of Decision 578 refers to business profits derived from professional, technical, technical assistance, and consulting services: such business profits are taxable only in the CAN member country where they are obtained.

The ruling explains that “business profits” refer to the income obtained by the companies that provide these services, and that the benefit is received by the one who renders the service (who receives the income), not the one who pays for it.

The interpretation of Ruling No. 090657 (Dec 7, 2005) is consistent with Ruling No. 029944 (May 19, 2005), both of which state that the beneficiary of the service is the provider who receives the income, not the entity that pays for it.