One of the fastest growing economies in the world is Colombia. Chile and Colombia are two of the most highly sought after Latin countries in which to do business. The culture is affluent and ambitious. If your business is interested in expanding into Colombia, here is critical information you will need before you hire.
Ease of Doing Business in Colombia: An Overview
Though Colombia is not a member of the G20 nations, they are currently ranked 67 out of 190 economies around the world, as stated by The World Bank. In North and South America, they rank above all other South American countries (with the exception of Chile). As such, it is one of the most closely watched South American economies for businesses looking to grow internationally.
Bogota, Colombia remains one of the leading business cities on the continent. The government has kept the country stable, more so than many of its neighbors. The average Colombia resident is well-educated, and many possess a desire for entrepreneurship.
Recent Developments in Colombia’s Payroll Laws
Colombia revised their tax code in 2018 on some of the finer points in order to improve the economy and better define taxes on corporations, capital gains, and dividends. For example, corporate income taxes are set to decrease from 33% to 30% by the end of 2022.
Basic Facts about Payroll in Colombia
If the value of the COP (Colombian Peso) weren’t so low, it might be incredibly expensive to hire employees in Colombia. But since the USD is equal to over 3,000 COP, it is actually quite cheap. However, employers are required to pay many different kinds of taxes associated with payroll and withholdings. Experts strongly advise foreign employers to work with experienced tax professionals to help your business remain compliant with Colombian payroll laws.
In Colombia, taxable income is expressed in units of COP 29,753, or 1 UVT (“unidad de valor tributario”). Those that make UVT 1,090 or less are except from income taxes. Employees contribute to Colombia social security. The social security program includes a pension fund, healthcare benefits, and a general labor risks system (employee screening process).
Rates and Thresholds
As noted above, Colombia taxes are applied in 1 UVT or COP 29,753. The beginning tax rate is 19% on incomes greater than UVT 1,090 and maxes out at 33% on UVT 1,401 and above.
How Withholding Works
Most employees are paid on a monthly basis, and at that time, taxes are withheld. Employers must pay a 9% payroll tax which funds a handful of social programs in Colombia. Employers withhold taxes from an employee’s pay check on a monthly basis.
Returns and Tax Credits
Any citizen or resident (individual that lived in Colombia for more than 183 consecutive days, even if it occurred over more than one calendar year) is required to file their taxes by their tax identification number (NIT). Usually, taxes are filed somewhere in the time frame of late summer to mid-fall of the following calendar year.
Employee Stock/Share Plans
While Colombian employers are not required to offer their employees stock or share options, many do. Global companies doing business in Colombia frequently provide profit sharing for their employees.
There are penalties for filing one’s taxes late. If a Colombian employee filed late but didn’t owe any taxes, then they must pay a fine of COP 282,790. On taxes owed on a late filing, the interest and penalties vary. Interest rates can go as high as 30%, and the penalty can be anywhere from 5-200% of taxes owed.
Tax Rate Chart
|USD Comparison||COP Comparison||UVT Range||Tax Rate|
|$0 – 9,578.25||COP 0 – 32,430,770||UVT 0 – 1,090||0%|
|$9,578.26 – 14,938.55||COP 32,430,771 – 50,580,100||UVT 1,091 – 1,700||19%|
|$14,938.56 – 36,028.28||COP 50,580,101 – 121,987,300||UVT 1,701 – 4,100||28%|
|$36,028.29+||COP 121,987,301+||UVT 4,101+||33%|
*The chart above does not include social security contributions.
Compensation and Benefits
While most employees are paid monthly, “casual” employees are sometimes paid weekly. Employee/employers’ contributions to social security provide employees a pension and health benefits.
Minimum wage for Colombian employees is COP 689,455/month. This converts to UVT 23.17/month or UVT 278.07 annually.
All employees are restricted to 2 hours of overtime daily or 12 hours weekly. Day employees are given pay and a quarter (1.25 times their hourly rate) for their overtime, unless they are temporarily working nights, and as such, their overtime rate increases to one and three quarters (1.75) their standard rate. However, if an employee that normally works nights works over time, then their hourly rate increases to 1.35 times their regular pay.
Hours of Work
All employees are entitled to paid Sundays off work. A regular work week is 48 hours/week. Employers are allowed to let employees to work a 5-day week if they wish to have Saturdays off, as well.
Holiday & Sick Leave
When it comes to sick leave, employees must secure an official “sick pass” from a social security authorized healthcare professional. The employee may remain off work for as long as they need to recover. Employers pay the employee for 3 days, after which time, the government reimburses the employer for any paid sick leave.
Maternity leave is set at a minimum of 18 weeks, beginning one week prior to the due date. Mothers may also take this leave if they adopt a child. Paternal leave is granted to husbands or significant others (as long as he is the father) in the amount of 8 days. All employees are entitled to at least 15 days (not counting Sundays) of paid vacation each year.
How Employees File Taxes at the End of the Year
Every employee has a tax identification number (NIT). During tax season (late summer to mid-fall), employees are assigned a tax filing due date. If they owe any taxes at the time of filing, they must pay those taxes by the due date or be charged an interest rate and late fees.
Typically, foreign workers are easily granted work permits and visas, so long as they agree to pay taxes like any other Colombian employee. As such, employees on a work visa may also benefit from social security and other government benefits to employees.
That being said, Colombia does want to keep a healthy mix of native and foreign employees. If ratios begin to favor foreign workers, it may become difficult to get a work visa. All foreign hires must secure formal acceptance from the Colombian Consulate, Ministry of Social Protection, and the Administrative Department of Security (DAS). All foreign workers are given a work permit, Colombian ID, and NIT.
For more information about how our Global Payroll Technology integrates with local payroll providers in Colombia, contact us today