Contributed By Baker McKenzie S.A.S.
In Colombia, only those companies duly authorised by the Colombian financial authority (Superintendencia Financiera de Colombia) may offer local trust services and act as trustees. Such entities are subject to supervision and special regulations.
Colombian tax law treats local trusts as flow-through entities for tax purposes. Thus, a trust must determine its profits annually and the beneficiaries have to include such profits in their own income tax returns for that same year and pay the relevant taxes.
Title to the assets that an individual contributes to the trust fund must pass to the trust (exceptions apply) or such assets would have to be declared by the individual as part of her or his equity and thus be subject to net worth taxes.
Additionally, if the individual receives fiduciary rights over the trust fund because of said contribution, she or he is required to report such rights for Colombian income tax purposes.
If a beneficiary or the donor of a trust, foundation or similar entity also serves as a fiduciary in Colombia, the following rules must be observed.
Place of effective management
Entities incorporated in accordance with Colombian Law, or having their main domicile in Colombia, or entities whose 'place of effective management' (PEM) is located in Colombia are considered Colombian residents for tax purposes.
If the beneficiary or donor of a trust, foundation or similar entity serves as a fiduciary and is located in Colombian territory, a PEM would be triggered as the entity would be effectively administered in Colombia.
Controlled Foreign Corporation
If the trustee is located in Colombia and has control over the capital or economic rights over the trust, foundation or similar entity then the individual would have to report in its income tax any passive income of the CFC, as if it were directly received by them.
Ave Calle 82
No 10- 62 piso 7
Bogotá, D.C. 110221
+57 1 634 1500
+57 1 376 2211www.bakermckenzie.com