MANUAL FOR APPLYING THE VAT EXEMPTION IN THE EXPORT … · MANUAL FOR APPLYING THE VAT EXEMPTION IN...

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MANUAL FOR APPLYING THE VAT EXEMPTIONIN THE EXPORTOF SERVICES.

MODE 1

CONTENTS

• IDENTIFYTHEMODEUNDERWHICHYOUPROVIDE YOUR SERVICE

• WHATSERVICESARECONSIDEREDEXEMPT FROM SALESTAXWITHTHERIGHTTOREFUND?

• WHATISTHESCOPEOFTHETERM“COMPANIES WITHOUT BUSINESSES OR ACTIVITIES IN COLOMBIA”?

• WHATKINDSOFOPERATIONS ARE SPECIFICALLY PROHIBITED?

• HOWISTHEEXPORTOFSERVICESACCREDITED?

• WHATHAPPENED TO THE EXPORT OF SERVICE BETWEEN DECEMBER26,2012ANDOCTOBER11,2013?

• WHATARETHEPENALTIES FOR NON-COMPLIANCE?

• WHATARETHEREQUIREMENTSFORTHE APPLICATION OF CREDIT BALANCES INTHEDECLARATIONOFSALESTAX?

HOWDOESONEEXPORTSERVICES FROM COLOMBIA?

1. IDENTIFYTHEMODEOFPROVIDING YOUR SERVICE

The first thing you should do is understand the essential elements of the international services business.

According to the classification of the World Trade Organization (WTO), the way of exporting a service is characterized by the “element” that moves to another country, whether it is the provider (i.e. exporter) of the service (Modes 3 and 4), the consumer of the service (Mode 2) or the service itself (Mode 1).

WORLDTRADEORGANIZATION

ECONOMYMEMBER A

ECONOMYMEMBER A

ECONOMYMEMBER B

Service provisioneconomy

ECONOMYMEMBER B

PROVISION MODES

MODE 1 CROSS-BORDERPROVISION

MODE 3 COMMERCIALPRESENCE

MODE 4 PRESENCE OFINDIVIDUALS

PROVISIONOF SERVICES

MODE 2 CONSUMPTIONABROAD




(It is the servicethat moves)

Establish a commercialpresence in Member A.

Contracted directly by anestablished foreign company.

Worker sent bycompany B.

Worker sent bycompany B.

Self-employed workerto Member A.

Service provisioneconomy

CONSUMER IN A

CONSUMER IN A

CONSUMER IN A CONSUMER IN A

ENTITY ORINDIVIDUAL

COMMERCIALPRESENCE

INDIVIDUAL

CONSUMER IN A

ENTITY

ENTITY

INDIVIDUAL

INDIVIDUAL

CONSUMER OROWNERSHIP IN A

ENTITY ORINDIVIDUAL

�e consumer is abroad or foreign-owned, but crosses the border to

access the service.

Source: Statistical Services Handbook, 2010. ST/EAS/STAT/SER..M/86/Rev1. UN Publication.

Service crosses the border from the country of the exporter to the country of the importer, without either of them moving from their territory.

Examples:

- Consulting performed by email.

- Call centers, where the service crosses Colombian borders, but both the provider and the consumer stay in their place of residence.

- International transportation: when a Colombian shipping company is contracted by a Peruvian company for transporting merchandise between the two countries.

MODE 1 CROSS-BORDERPROVISION

The importer leaves to consume the service in the territory of the exporting country.

Examples:

- Medical tourism: When a non-resident goes to Colombia to undergo a surgical procedure.

- Tourism: when a non-resident comes to Colombia for vacation.

- Educational services: when an Argentine student comes to Colombia to pursue his/her university studies.

MODE 2 CONSUMPTION ABROAD

The exporter of services makes an investment by establishing a commercial presence in the territory of the importing country.

Examples:

- A Colombian bank opens a branch in Panama.

- Opening a Colombian restaurant in a foreign territory.

MODE 3 COMMERCIAL PRESENCE

Individuals residing in the exporting country travel temporarily to the importing country to provide their services.

Examples:

- Consultancy: a Colombian consultant goes to another country to provide his/her services.

- Repairs: a Colombian technician travels to another country to repair an aircraft.

MODE 4 PRESENCE OF INDIVIDUALS

2.WHATSERVICESARECONSIDEREDEXEMPT FROM SALES TAX WITHTHERIGHTTOREFUND?

- The services provided in Colombia of cross-border2 mode (i.e. Mode 1).

- Used or consumed exclusively abroad.

- Services directly related to the production of film and television, once exported, are broadcast overseas by the beneficiary in the international market, and they can be accessed from Colombia by any technological means.

- Services directly related to the development of software protected by copyright and that, once exported, are disseminated externally by the beneficiary in the international market and they can be accessed from Colombia by any technological means.

3.WHATISTHESCOPEOFTHEEXPRESSION“COMPANIES WITHOUT BUSINESS OR ACTIVITIES IN COLOMBIA”?

• The company that is the direct beneficiary of the service may have business or activities in Colombia.

• The company that is the direct beneficiary of the service may have economic ties3 in Colombia.

For more information on the scope of the expression “companies without businesses or activities in Colombia”, please refer to Concept No. 82625 of December 2013 of the Legal Management Department of the DIAN.

3.1ITMEANSTHAT:

• That the direct beneficiary of the service could be in Colombia.

3.2WHATDOESITNOTMEAN?

1 exports services to 2.2 transfers the purchased services to 3, who is

economically tied to 2.

Factual assumptions:

4.WHATKINDSOFOPERATION ARE SPECIFICALLY PROHIBITED?1 Exporter of the service in Colombia .2 Acquirer of the service abroad.3 Direct beneficiary of the service in Colombia

and economically tied to 2.

ABROAD

COLOMBIA

1

2

3Factual assumptions:

1 exports services to 2.2 transfers the services purchased to 3.

1 Exporter of the service in Colombia .2 Acquirer of the service abroad.3 Direct beneficiary of the service in Colombia.

ABROAD

COLOMBIA

1

2

3

5.HOWISTHEEXPORTOFSERVICESACCREDITED?

The provider of the service or its legal representative, if it is a entity, shall meet the following requirements5:

- Be registered as an exporter of services in the Single Tax Register -RUT.

- Keep the following documents:

• Invoices or equivalent documents issued in accordance with the provisions of the Tax Law.

• At least one of the following three (3) documents which attest to the export of services shown below:

i. Commercial offer of services or quotation and its corresponding acceptance.

ii. Contract concluded between the parties.

iii. Purchase/service order or letter of intent and acknowledgment of service.

6.WHAT HAPPENED TO THE EXPORT OF SERVICE BETWEEN DECEMBER26,2012ANDOCTOBER11,2013?

• Certification of the provider of the service or its legal representative, if it is an entity, stating that the service was provided to be used or consumed exclusively abroad and that the importer of the service was advised of this circumstance, except in the case of services associated with film and television production and software development.

Services export operations that have been provided between December 26, 2012 and October 11, 2013 will not require the contract to be registered beforehand. Therefore registration shall not be requirement for accessing exemption or requesting a refund.

Important: documents that accredit the exportation of the service may be stored in physical or electronic version and must contain the following information: (i) value of the service or method for determining it, (ii) country that the service is exported to, (iii) description of the service provided in accordance with the international classification and (iv) name or business name of the purchaser of the service and its domicile or residence abroad.

• FOR NOT KEEPING THE DOCUMENTS CERTIFYING

THE EXPORTATION OF THE SERVICE:

If the exporter of the service does not physically or

electronically keep the documents that accredit the

export of the services, then it will be responsible for

any sales tax that is not invoiced.

7.WHATARETHEPENALTIES FOR NON-COMPLIANCE?

• COMPLAINT FOR FICTITIOUS EXPORTATION:

If the tax administration establishes that the services provided6 that are the basis for the request for refund and/or compensation were provided to be used by a company or person in Colombia, a complaint shall be filed by the Commission for the crime of fictitious exportation, pursuant to the provisions of the Criminal Code and actions shall be taken to ensure that sales tax shall be applied to such transactions in accordance with the provisions of the Tax Law and other relevant regulations.

The procedure for managing refunds and compensation

with the DIAN is regulated by Decree 2277 of 2012,

amended by Decree 2877 of 2013, which, among other

things, established special requirements for requests

for refund or compensation of VAT.

8.WHATARETHEREQUIREMENTSFORTHE APPLICATION OF CREDIT BALANCESINTHEDECLARATIONOFSALESTAX?

• Refunds and/or compensation of credit balances originating in VAT declarations may be applied for by managers of companies belonging to the common regime of goods and services listed in article 481 of the T.C., producers of the exempt goods set out in article 477 and managers who have been subject to retention of VAT, up until the moment of the credit balance resulting from retentions made and included in the statements for the relevant period.

• Parties responsible for the goods and services covered by articles 468-1 and 468-3 of the T.C., by the overpayment of deductible tax when the production of such goods or the provision of such services involves inputs and/or raw materials that are taxed at the rate of 16% and result in a credit balance for the difference between this rate and the rate of the sales tax generated in respect of the goods sold or the services provided.

8.1PARTIESWHOMAYAPPLYFORAREFUND OR COMPENSATIONOFCREDITBALANCESORIGINATINGINVAT:

8.2GENERALREQUIREMENTSFORTHE APPLICATION FOR A REFUNDORCOMPENSATION:

• The application for a refund or compensation must be presented personally by the taxpayer, the manager, their legal representative or their proxy, accrediting the corresponding capacity in each case.

• The application must be accompanied by the following physical or virtual documents:

- In the case of entities, a certificate must be attached attesting to the existence and legal representation, issued by the competent authority, no more than one (1) month beforehand.

- When the parties who operate in the capacity of legal representative or tax advisor at the time that the request for refund or compensation arises are not those who signed the declarations subject to refund or compensation, they should also attach the historical certificate listing the names of the people who are competent to sign such declarations.

- Copy of the power of attorney duly granted when acting through a proxy.

- Guarantee in favor of the Nation - Special Administrative Unit of DIAN, granted by banks or insurance companies, when the applicant chooses the option referred to in article 860 of the T.C. (i.e. application for refund with presentation of guarantee).

- Copy of the receipt for payment of the premium for the policy issued by banks or insurance companies.

- The holder of the credit balance at the time of submitting the request for refund and/or compensation should have its National Tax Registry (RUT in Spanish for its acronym) formalized and updated with the DIAN and must not have been subject to suspension or cancellation, since the time of duly filing the application until the corresponding administrative act that defines the application is presented. This same condition is required of legal representatives and proxies.

• Certification of the fiscal reviewer or public accountant, as the case may be, which states that the “sales tax payable” has been adjusted to zero (0). In the accounting, a payment must be made beforehand in the accounts in the aforementioned account, for an amount equal to the debit balance shown on the last day of the 6-month term or period of the request, and charge the same amount to accounts receivable.

• Those responsible for VAT that have been subject to retention, must attach a list signed by the fiscal reviewer or accountant, as the case may be, stating the base value of the retention, the retentions included in the declaration that is the subject of the application for refund, the name or business name, NIT [Tax ID] and address of each retaining agent, the value retained by each of these, as well as the certification of the adjustment to zero (0) in the “withheld sales tax” account and that these were declared and recorded.

• List of the discountable taxes that brought about the credit balance, certified by the tax auditor or certified public accountant, as the case may be, containing information about the period applied for and the figures carried forward, indicating: name or company name, NIT and address of the provider, number and date of issue and posting of the invoice, tax base and VAT rate to which the operation was subject, the item connected with the cost or expenditure and the value of the discountable tax.

8.3SPECIALVATREQUIREMENTS:

• Commercial offer of services or quotation and their corresponding acceptance.

• Contract concluded between the parties.

• Purchase/services order or letter of intent and acknowledgment of service.

• List certified by the tax auditor or public accountant, as the case may be, of the invoices or equivalent documents issued according to the regulations of the Tax Law, containing the following information: name or company name, identification number and address of the party to whom was the service was provided, number, date and value of the invoice.

• Certification of the provider of the service or their legal representative, if it is an entity, stating that the service was provided to be used or consumed exclusively abroad and that the importer of the service was advised of this circumstance, except in the case of the services indicated in the paragraph of section 481 of the Tax Code, which are not subject to this requirement.

• In the case of tourist services covered by subsection d) of section 481 of the Tax Code, provided to residents abroad and used in Colombian territory, a list must be attached, certified by the tax auditor or public accountant, as the case may be, indicating: identification, names and surnames of the user of the service, type of document proving immigration status, value of the tourist package and description of the service provided.

1Article 1 of Decree 2223 of 2013.“Exempt services with right to refund”. In accordance with the provisions of clause c) of section 481 of the Tax Law, services provided abroad from Colombia to be used or consumed exclusively abroad by companies or individuals that have no business or activities in the country are considered exempt from sales tax with a right to refund

Likewise, services directly associated with film and television production and software development, which are protected by copyright and which once exported are released abroad by the beneficiary onto the international market and can be accessed from Colombia by any technological means by users other than the purchaser of the service abroad, are considered exempt from the sales tax with a right to refund.

In this context, services directly related to software development shall mean the conception, development, collection of requirements, analysis, design, implementation, maintenance, management, adjustments, tests, documentation, support, training, consultancy and integration, with regard to computer programs, applications, digital content, licenses and rights to use.

For the purposes of the provisions of the first paragraph of this article, companies or individuals without business or activities in Colombia shall be understood to mean those that being resident abroad and despite having some kind of economic ties to the country, are direct beneficiaries of the services provided in the national territory, to be used or consumed exclusively abroad.

LEGALConsequently, the treatment referred to in subparagraph one of this article shall in no event apply when the beneficiary of the service is wholly or partly an affiliate, subsidiary, branch, permanent establishment, representative office, parent company or any other type of economic link in the country, of the person or company resident or domiciled abroad that contracts services provided from Colombia”.

2Sub-paragraph a) of Numeral 2, Part I, Article I: scope and definition of the General Agreement on the Services Trade, (...) “a) from the territory of one Member into the territory of any other Member (... or)”.

3The criteria for economic ties are laid down in articles 260-1 and 450 of the T.C. and its respective regulations.

4With the exception of the cases provided for in sub-section one of article 1 of Decree 2223 of 2013 (i.e. services related to the film and television production and software development, which are protected by copyright and that, once exported, are disseminated externally by the beneficiary in the international market and can be accessed from Colombia, by any technological means, by users other than the purchaser of the service abroad.

5The above requirements do not apply to tourist services provided to residents abroad.

6Services other than film and television production and software development.

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MANUAL FOR APPLYING THE VAT EXEMPTION IN THE EXPORT … · MANUAL FOR APPLYING THE VAT EXEMPTION IN...

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