Contributed By Baker McKenzie S.A.S.
In Colombia there are no civil or commercial regulations regarding the establishment of irrevocable foreign trusts and private foundations. However, foreign entities have been recognised by Colombian tax authorities and may be used as structures to administer private wealth and circumvent forced heirship rules in Colombia.
Over the last decade, Colombia has implemented various anti-abuse rules forcing settlors and beneficiaries to report any irrevocable structures due to the exchange of tax information with more than 65 jurisdictions, ultimate beneficiary reporting rules, place of effective management rules, controlled foreign companies' rules and the recognition of low taxation jurisdiction.
Furthermore, regarding the use of irrevocable and discretionary trusts, the most recent tax reform (Law 1943 of 2018) provided that (i) the beneficiaries must report the trusts or the foundations, if they are not subject to conditions; and (ii) if the beneficiaries are subject to conditions then the settlor or founder must report the trust or the foundation for all tax purposes.
When implementing irrevocable trusts, foundations or similar entities, anti-abuse rules should be observed. This means that both the irrevocability and discretional character of the structure should be real and can be easily proven to the Colombian Tax Office.
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