There is no US-Colombia tax treaty currently in force. The two governments signed a Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, but the US Senate has not given its advice and consent, and Colombia does not appear on the IRS list of countries with active US income tax treaties.1Internal Revenue Service. United States Income Tax Treaties – A to Z Until ratification happens, every dollar of cross-border income between the two countries is taxed under each side’s domestic law, with no treaty-based rate reductions available.
Where the Signed Convention Stands
The convention has been signed by both governments but remains stuck at the ratification stage. Senate advice and consent is a constitutional prerequisite before any US tax treaty can take effect, and no timeline for a Senate vote has been announced. Signed treaties can sit pending for years, sometimes decades.
If ratified, the provisions would not apply immediately. Withholding taxes on payments like dividends and interest would generally start on January 1 of the calendar year after ratification. Other income tax rules would apply for tax years beginning on or after January 1 of the following year. Everything below about proposed treaty rates is contingent on that ratification happening.
What Actually Applies to Your Income Today
Because no treaty is in force, both countries apply full domestic rates to cross-border payments.
US Tax on Payments to Colombian Residents
The United States imposes a flat 30% withholding tax on most fixed or determinable income paid to nonresident aliens and foreign corporations when no treaty applies. That covers dividends, interest, royalties, and rents.2Internal Revenue Service. Taxation of Nonresident Aliens No deductions are allowed against this income. A Colombian investor receiving dividends from a US corporation faces the full 30% with no treaty relief.
Colombian Tax on Payments to US Residents
Colombia’s non-resident rates are also steep. Dividends paid to non-residents from fully taxed profits are subject to a 20% withholding tax. Interest on foreign loans and royalty payments to non-resident recipients are each subject to a 20% rate. Colombian-source income earned by non-resident individuals or corporations is generally taxed at a flat 35%. Capital gains from assets held more than two years are taxed at 15% for non-residents.
There is no treaty mechanism to reduce any of these rates. Both governments can tax the same income in full, and the only relief is the foreign tax credit each country offers under its own domestic law.
The Foreign Tax Credit Is Your Main Relief
US citizens and residents can claim a credit against their US tax liability for income taxes paid to Colombia on the same income. Individuals file IRS Form 1116; corporations file Form 1118.3Internal Revenue Service. Foreign Tax Credit The credit is capped at your total US tax liability multiplied by the ratio of your foreign-source taxable income to your total taxable income from all sources.4Internal Revenue Service. Foreign Tax Credit – How to Figure the Credit
The practical result is that your combined tax burden on Colombian-source income ends up roughly equal to whichever country’s rate is higher. If Colombia taxes your income at 35% and the US would tax the same income at 24%, the credit eliminates the US tax on that income, and excess credits may carry forward. If the US rate is higher, you pay the difference to the IRS after applying the credit. The foreign tax credit sits in the Internal Revenue Code and does not depend on a treaty being in force.
Colombia allows its residents a corresponding credit for foreign taxes paid, so a Colombian resident paying US tax can reduce their Colombian bill on the same income.
What Would Change If the Treaty Enters Into Force
None of the rates in this section apply today. They describe what the signed convention would do after ratification.
Dividends
Withholding on dividends would be capped at 5% when the beneficial owner is a company that directly holds at least 10% of the voting stock of the paying company. All other dividends, including those to individual and portfolio investors, would face a 15% maximum. Compare that to the current 30% US rate and 20% Colombian rate.
Interest
A maximum 10% withholding rate would apply to interest payments. Certain interest would be fully exempt at source, including interest paid to the other country’s government or a government-controlled institution, and interest arising from credit sales of merchandise or equipment.
Royalties
Payments for the use of copyrights, patents, trademarks, and similar intellectual property would face a maximum 10% rate, along with payments for the use of industrial or scientific equipment. Colombia currently withholds 20% on royalties to non-residents.
Capital Gains
Gains from the sale of shares and other investments would generally be taxable only in the seller’s country of residence. The main exception is gains from selling shares that derive more than 50% of their value from real property located in the other country, which the source country could still tax.
Business Profits
A company’s business profits would only be taxable in its home country unless it operates through a permanent establishment in the other country. A permanent establishment is a fixed place of business such as an office, branch, factory, or workshop. A construction project would create one if it lasts more than twelve months. If a permanent establishment exists, only the profits attributable to that location could be taxed by the host country.
Employment and Independent Services
Salaries and wages would generally be taxable only in the employee’s country of residence. The source country could tax employment income performed there unless three conditions are all met: the employee is present for fewer than 183 days in any twelve-month period, the employer is not a resident of the source country, and the employer does not have a permanent establishment in the source country that bears the cost of the compensation.
Income from freelance or professional services would be taxable only in the individual’s country of residence unless they maintain a fixed base in the other country for performing the work, or are present there more than 183 days in any twelve-month period.
Scope Limits Even After Ratification
On the US side, the treaty would cover federal income taxes including the 3.8% net investment income tax under Internal Revenue Code Section 1411.5Office of the Law Revision Counsel. 26 US Code 1411 – Imposition of Tax It would not cover state or local income taxes, or federal estate and gift taxes. A standard saving clause would preserve the US right to tax its citizens and residents on worldwide income as if the treaty did not exist, with the foreign tax credit carved out so credit relief still applies.
Social Security Sits Outside All of This
The US and Colombia do not have a social security totalization agreement. A totalization agreement prevents workers from paying social security taxes to both countries on the same earnings and lets workers combine credits from both systems to qualify for benefits. Without one, a US citizen working in Colombia can owe social security taxes to both governments on the same wages, with no offset. The proposed income tax treaty does not address social security taxes and would not fix this if ratified.
Foreign Pension Distributions
Foreign pension payments received by US taxpayers are generally taxable on US returns, even when no Form 1099 is issued. The taxable amount is the gross distribution minus the taxpayer’s cost basis (their own after-tax contributions to the plan). A foreign tax credit may be available for any Colombian tax withheld on the pension payment.6Internal Revenue Service. The Taxation of Foreign Pension and Annuity Distributions
Reporting Requirements That Apply Right Now
The absence of a treaty does not mean the IRS is unaware of your Colombian accounts. The US and Colombia signed a FATCA intergovernmental agreement in 2015 requiring reciprocal automatic exchange of financial account information. Colombian financial institutions report accounts held by US persons to Colombia’s tax authority (DIAN), which passes the data to the IRS.7Department of the Treasury. Agreement Between the Government of the United States of America and the Government of the Republic of Colombia to Improve International Tax Compliance and to Implement FATCA Two personal reporting forms follow from that visibility.
FBAR (FinCEN Form 114)
Any US person with a financial interest in or signature authority over foreign financial accounts must file an FBAR if the combined value exceeds $10,000 at any point during the calendar year. That includes bank and brokerage accounts and certain insurance policies at Colombian institutions. The FBAR is filed electronically with FinCEN, not the IRS, and is due April 15 with an automatic extension to October 15.8Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
A non-willful violation can draw a penalty of up to $10,000 per account per year (adjusted for inflation). A willful violation carries a penalty of up to 50% of the account balance or $100,000 per violation, whichever is greater. These penalties apply per account, per year, and compound quickly across multiple years of non-compliance.
Form 8938
Certain US taxpayers must also report foreign financial assets on Form 8938, filed with their income tax return. The thresholds depend on filing status and where you live:9Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets
- Single filers living in the US: total foreign asset value over $50,000 on December 31 or $75,000 at any point during the year.
- Married filing jointly in the US: over $100,000 on December 31 or $150,000 at any point during the year.
- Single filers living abroad: over $200,000 on December 31 or $300,000 at any point during the year.
- Married filing jointly abroad: over $400,000 on December 31 or $600,000 at any point during the year.
Form 8938 covers a broader range of assets than the FBAR, including foreign stocks and securities held outside a financial account, interests in foreign entities, and certain foreign financial instruments. The penalty for failing to file is $10,000, with an additional $10,000 for each 30-day period of continued non-compliance after IRS notice, up to $50,000.