The Ministry of Finance issued Decree 598 of April 26, 2020, regulating the Colombian Holding Companies ("CHC") regime.
The Decree develops the requirements to access the regime, as follows:
- Participation requirements: Registered CHCs may have direct or indirect participation. The indirect participation of at least 10% held by the CHCs in their related companies is calculated by multiplying the percentage of direct participation of the CHC in the first level entity in which it has a direct participation, by the percentage of participation of the latter in the second level entity in which it has the indirect participation. If there are several levels, the participation results of multiplying the previous result by the participation in the next level entity or vehicle and so on.
- Requirements related to human and material resources: The CHC must have at least 3 employees directly related to the main activity of the company, this is the possession of securities, the investment or holding of shares or participations in Colombian and/or foreign companies, and/or the management of such investments.
- Requirements related to decision making: The CHC, whose main address must be the one assigned in the tax ID (RUT), must make the strategic decisions of the company in Colombia.
The request to join the CHC regime is a two-step process. First, the company must request the Tax Office to update its tax ID (RUT in Spanish), to change the status to "CHC Non-qualified". Second, the company must present a communication, in the first taxable year from which it intends to join the regime, to the Tax Office's Unit of International Inspection. The communication must contain the information as determined in the Decree.
The Decree also establishes the terms to which the tax authority and the taxpayers will be subject as part of the qualification process.
If the CHC does not comply with the requirements to be part of the regime in the year of application or ceases to comply with those requirements in the taxable years following the qualification, the tax authority will reject the application for the respective taxable year. However, the company may submit the request for the following years.
The company that is part of the CHC regime may, at any time, withdraw from the regime, for which it must update the RUT with the status "CHC Cancelled". If it intends to apply for the regime in the future, it must comply again with the corresponding requirements and procedures.
On the other hand, the Decree clarifies that foreign companies that have their place of effective management ("POEM") in Colombia, can be eligible to the CHC regime as they are domestic companies from a tax perspective.
Moreover, the Decree states that the DIAN has the authority to request the supports of the exempt capital gains received by the CHC according to section 896 of the Tax Code. The determination of exempt capital gains shall be subject to the rules set forth in section 300 of the Tax Code.
Finally, in the case of income derived from the sale or transfer of shares or participations in a CHC, the partner or shareholder must prove, through a certificate issued by a public accountant or tax inspector, the proportion corresponding to the company's profits generated by activities carried out in Colombia, proportion that will be understood as taxed capital gain.