Tax benefits of CHC regime
The Financing Law of 2018 created the new tax regime of CHC in order to allow and encourage transnational corporate structures to have their operations center in national territory, as is the case in legislations such as Spain and Luxembourg. National companies whose main activity is the holding of securities, investments, holding of shares or participations in Colombian or foreign companies or entities and/or the administration of said investments may apply the CHC regime if they meet the following requirements:
a) direct or indirect participation in at least 10% of the capital of two or more Colombian and/or foreign companies or entities for at least 12 months;
b) have at least three employees;
c) own address in Colombia; and
d) demonstrate that the strategic decision-making regarding investments and assets of the CHC is made in Colombia.
The tax benefits applicable to the CHC are the following:
a) dividends received by CHC from foreign entities controlled by CHC will be exempt from income tax and declared as income exempt from capital;
b) dividends distributed by CHC to a non-resident individual or legal entity will be understood as income from a foreign source;
c) the income from the alienation of shares in foreign entities controlled by CHC will be exempt from income tax;
d) the income from the sale of shares in CHC by resident partners are exempt except for the part corresponding to the profits retained by CHC for activities carried out in Colombia; and
e) income from the sale of shares in CHC by non-resident partners in the proportion corresponding to the profits retained by CHC for activities carried out in Colombia are from a foreign source.
The above benefits do not apply if the CHC member is located in a tax haven. Dividends received by companies belonging to the CHC regime or distributed to their foreign partners are not subject to tax or withholding of 7.5%. The following table describes the principal differences between the ordinary regime and the CHC regime regarding tax on dividends.