Colombia’s withholding tax applies to almost every payment a Colombian entity sends to a foreign recipient when the underlying income has a Colombian source. The Colombian payer deducts the tax before the money leaves the country and remits it to the Dirección de Impuestos y Aduanas Nacionales (DIAN). Statutory rates run from 1% to 35% depending on the type of income, and for non-residents the withholding is usually a final tax with no return to file. Double taxation treaties can cut those rates substantially, but only for recipients in partner countries, and the United States is not one of them.
Who Withholds and What Counts as Colombian Income
The Colombian entity or individual making the payment is the withholding agent. That agent is legally responsible for deducting the correct amount and remitting it to DIAN. The foreign recipient bears the economic cost, but the Colombian payer handles the mechanics and takes the hit if the calculation is wrong.
Income is Colombian-source whenever the service, asset, or economic benefit is connected to Colombia. That reach is broader than many foreign companies expect. Services delivered entirely from abroad can still trigger withholding if the client receiving the benefit sits in Colombia. A consulting engagement performed from New York for a Bogotá client is Colombian-source income.
For non-residents, the withholding is almost always a final tax. There is no Colombian return to file unless the recipient crosses specific thresholds, such as maintaining a permanent establishment or meeting the digital-economy criteria described below. For Colombian residents, the same withholding functions as a prepayment credited against annual tax.
The obligation triggers at payment or accrual, whichever comes first. Classifying the payment correctly is the first job: rates differ sharply by income type, and misclassification either exposes the agent to penalties for under-withholding or forces the foreign recipient into a slow refund process for over-withholding.
Rates by Type of Payment
The rates below are the domestic statutory defaults. They apply whenever no treaty provides a lower ceiling.
Dividends
Dividends paid from profits already taxed at the 35% corporate rate face a 20% withholding on the distribution to a non-resident shareholder. When the underlying profits were not taxed at the corporate level, the untaxed portion is first hit with the 35% corporate rate, and the 20% dividend withholding then applies to what remains. The combined effective rate on untaxed profits reaches roughly 48%.
Interest and Leasing
Interest paid to non-residents on standard commercial loans carries a 20% rate. That drops to 15% when the loan term is one year or longer, and to 5% for loans or bond-like instruments of eight years or more where the proceeds fund qualifying infrastructure projects.
Cross-border leasing follows a similar pattern: 20% by default, 15% when the lease term is at least one year. Aircraft, ships, and similar assets (or parts of them) sit at a much lower 1% rate.
Interest paid to related parties in jurisdictions Colombia classifies as tax havens gets no break. Those payments are withheld at the full 35% corporate income tax rate.
Royalties and Software
Royalties for the use of copyrights, patents, trademarks, and similar property are withheld at 20% on the gross payment. No deductions for the recipient’s development or maintenance costs are allowed. Software license fees are generally treated as royalties under Colombian law and carry the same 20%. The trigger is exploitation of the intellectual property within Colombia, regardless of where the owner sits or where the license was signed.
Technical Services Versus Management Services
Fees for technical services, technical assistance, and consulting are withheld at 20%, whether performed inside Colombia or entirely from abroad, as long as the client is a Colombian resident.
Management fees and administrative expenses paid to non-residents face 33%. This is one of the trickier judgment calls in the system, and it catches groups off guard. A foreign parent charging its Colombian subsidiary for centralized management or administrative overhead is withheld at 33%, not the 20% that would apply to technical or consulting work. Getting the classification right matters.
Digital Services and Significant Economic Presence
Colombia has adopted a Significant Economic Presence (SEP) framework for foreign digital economy participants without physical presence in the country. A non-resident triggers SEP status through deliberate and systematic interactions with Colombian customers and revenue of at least 31,300 UVT from those transactions (roughly COP 1.64 billion for 2026, based on the 2026 UVT value of COP 52,374). A separate threshold of 300,000 or more Colombian users also applies.
Non-residents meeting the SEP criteria have two options: accept a 10% withholding on the gross amount of each payment applied by the Colombian payer, or register with DIAN, file an income tax return, and pay a 3% tax on gross income from sales of goods or digital services. Colombian payers are expected to determine whether the provider meets the SEP criteria before processing payments.1EY Tax News. Colombian Tax Authority Issues New Ruling on Significant Economic Presence
Capital Gains and Indirect Transfers
Non-residents selling Colombian assets held more than two years pay 15% capital gains tax on the net gain. Assets held two years or less generate ordinary income taxed at the 35% corporate rate.
Colombia also taxes indirect transfers. When shares in a foreign holding company are sold and that company’s value derives from underlying Colombian assets, Colombia treats the transaction as if the Colombian assets were sold directly. The regime covers any form of ownership transfer, including contributions to foreign entities, liquidations, and capital reductions with reimbursement of contributions. Structuring a deal through an offshore holding company does not, on its own, avoid Colombian capital gains tax.
General Services
Payments for general services rendered from abroad that do not fall into the technical, consulting, or management categories carry a 15% rate, but only when the foreign recipient is required to file a Colombian income tax return. In practice, most general service payments to non-residents without a Colombian filing obligation default to the rates for the specific service type or the general 20%.
Treaty Rates and the US Gap
Colombia’s double taxation treaties override the domestic rates when they set a lower ceiling. Active treaties currently cover Bolivia, Canada, Chile, the Czech Republic, Ecuador, France, India, Italy, Japan, Mexico, Peru, Portugal, South Korea, Spain, Switzerland, and the United Kingdom. Treaty rates on passive income typically sit well below the statutory defaults. The UK treaty, for example, caps withholding at 5% on direct-investment dividends, 15% on portfolio dividends, 10% on interest, and 10% on royalties.2GOV.UK. Double Taxation Relief Manual – DT5052 – Colombia
Treaties often go beyond rate cuts on services income. Many of Colombia’s agreements exempt service fees from withholding entirely when the foreign provider does not maintain a permanent establishment in Colombia, which can eliminate the 20% withholding on technical and consulting fees for qualifying residents.
The United States and Colombia have never signed a comprehensive income tax treaty. The two countries maintain a Tax Information Exchange Agreement, but it covers only information-sharing for enforcement. It does not prevent double taxation, allocate taxing rights, or reduce withholding. US companies and investors receiving Colombian-source income pay the full statutory rates. Their only relief is a foreign tax credit on the US return for the Colombian tax withheld.
How to Claim Treaty Benefits
A foreign recipient seeking a reduced treaty rate must prove tax residency in the treaty partner country by presenting a Certificate of Residency issued by the home country’s tax authority. The Colombian withholding agent keeps that documentation on file to justify the lower rate if DIAN audits the transaction.
Residency alone is not enough. The recipient must also qualify as the beneficial owner of the income, meaning the actual economic beneficiary rather than a conduit. DIAN examines both legal form and economic substance. Most of Colombia’s treaties also include anti-abuse provisions, either a Limitation on Benefits clause or a Principal Purpose Test, that deny treaty rates when the structure exists mainly to access a treaty it would not otherwise qualify for. Failing either test means the full domestic rate applies.
VAT Sits on Top of the Income Tax Withholding
Income tax withholding is not the only deduction to plan for on cross-border services. Colombia imposes a 19% value-added tax on services provided by non-residents when the service is used or consumed in the country. When the vendor is a non-resident, the Colombian purchaser withholds 100% of the VAT due through a reverse-charge mechanism. Foreign companies cannot recover Colombian VAT, so the 19% becomes an additional cost stacked on the income tax withholding. A foreign consulting firm billing a Colombian client can face 20% income withholding plus 19% VAT on the same engagement.
What the Colombian Payer Has to Do
The Colombian withholding agent carries the compliance burden. Tax must be deducted at the moment of payment or accrual, whichever comes first.
All withholding is reported and remitted through Form 350, the monthly withholding tax return filed with DIAN.3Dirección de Impuestos y Aduanas Nacionales. Formulario 350 – Declaración de Retenciones en la Fuente The form consolidates every type of withholding the agent applied during the month, and filing falls within the first two weeks of the following month, with the exact date driven by the last digits of the agent’s tax identification number (NIT).
For payments in foreign currency, the agent converts to Colombian pesos using the official exchange rate certified by the Financial Superintendence of Colombia on the date the obligation arises. The agent must also issue a withholding certificate to the foreign recipient documenting the amounts deducted. That certificate is what the foreign entity uses to claim a foreign tax credit at home, so accuracy matters on both sides.
Penalties When Withholding Goes Wrong
Filing Form 350 late triggers a penalty of 5% of the total tax due for each month or fraction of a month of delay, capped at 100% of the amount owed, plus default interest on the unpaid balance. Failing to withhold at all is worse: DIAN can impose fines of 100% to 200% of the amount that should have been withheld.
The consequences reach past money. Under Article 402 of the Colombian Criminal Code, a withholding agent who collects the tax but fails to remit it to DIAN faces criminal prosecution. The prison term runs from 48 to 108 months, with fines up to double the unreported amount. Criminal liability falls personally on the company’s legal representative, because Colombian law does not impose criminal responsibility on legal entities for tax offenses. Paying the outstanding amounts, penalties, and interest can extinguish the criminal action, but that is not a plan to rely on.