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Details of the first-time income and capital tax treaty and protocol between Spain and Colombia, signed on 31 March 2005, have become available. The treaty was concluded in the Spanish language and generally follows the OECD Model Convention. — Orbitax Tax News & Alerts

The maximum rates of withholding tax are:

5% on dividends in general and 0% if the beneficial owner is a company that holds directly at least 20% of the capital of the company paying the dividends. The protocol clarifies how the reduced rates apply depending on whether or not the profits have been subject to Colombian tax at the corporate level or the profits have been distributed from exempt profits and certain conditions are met (e.g. reinvested in Colombia for a minimum of a 3-year period);
-   10% on interest. There are exemptions for interest paid (i) to the other state or one of its political subdivision or a local authority, (ii) in connection with the sale on credit of merchandise or equipment to an enterprise of a state or (iii) on any loan granted by a bank or other credit institution resident in a state; and
-   10% on royalties. The definition of royalties includes payments for the use of, or the right to use, industrial, commercial or scientific equipment, technical assistance, and technical and consultancy services. A definition of technical assistance is provided in the protocol.

Deviations from the OECD Model include that:

income from the alienation of shares or comparable interests, the value of which derives, direct or indirectly, for more than 50% from immovable property in the other state, may be taxed in that state.

Under the protocol, a most-favoured nation clause applies to Spain in respect of interest and royalties. Accordingly, if after the date of signature of this treaty, Colombia concludes a treaty with a third state in which Colombia agrees to an exemption in respect of interest or to a tax rate for interest or royalties lower than that contained in this treaty, then that exemption or the lower tax rate will apply automatically under the same conditions as if it had been agreed in this treaty.

Both states provide for the credit method to avoid double taxation. If the income derived or capital owned by a resident of one state is, under the treaty, exempt from tax in that state, that state may nevertheless take into account the exempt income or capital in calculating the amount of tax on the resident's other income or capital (exemption with progression).