Withholding tax 2023: What is it and how is it calculated?
Although popular knowledge associates withholding at source with the payment of a tax, more precisely it is an anticipated tax deduction. This deduction applies to those who receive income for fees, provision of goods or services.
The Colombian State adopts the mechanism of withholding tax at source to collect a certain amount in a generalized manner whenever there is a transaction between two parties for the acquisition of a good or service. This withholding is made at the time the payment is generated.
It is a gradual collection of certain taxes, such as sales tax, income tax and national stamp tax. However, it is important to note that withholding tax is not limited only to these three taxes, as there are multiple ways in which it is applied.
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Monthly withholding tax return
According to the DIAN, the monthly withholding tax return must be made on a mandatory basis by individuals or legal entities classified as “withholding agents”. This group includes, among others, employers, traders, public law entities, pension funds and investment funds.
This mechanism allows the State to initiate tax collection prior to the pre-established deadlines in the country. In addition, companies can advance their contributions gradually prior to the stipulated date. In other words, it is a measure designed to facilitate the collection process for both taxpayers and the Colombian State.
Therefore, it is essential that taxpayers keep a record of the advances made during the year for withholding at source, in order to verify that the corresponding discounts are made when defining the balance payable of income tax, stamp tax or sales tax, among the main ones.
Article 383 of the Tax Statute provides clarity regarding the details of the measure. It defines that, for labor income, the withholding at source shall be applied from a taxable base equal to or greater than 95 Tax Value Units (UVT).
Thus, the amount to be considered for 2023 is $4’029,140 COP ($959,43 USD), given that for the current year the UVT was set at $42,412 COP ($10,10 USD). This taxable base must be calculated in accordance with the paragraphs of the article, as applicable to the specific case.
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Dates to keep in mind
Please note that in order to declare withholding tax during 2023, deadlines have been stipulated based on article 1.6.1.1.13.2.33 of Decree 1625 of 2016, with recent modification in Article 1 of Decree 2487 of December 16, 2022.
If you are a withholding agent, you will be able to know the deadline determined to file your return using the last digit of the NIT registered in the RUT. To do so, do not include the verification digit and go to the Dian portal with the corresponding calendar.
You may consult the 2023 tax calendar here.
In order to be in compliance with said tax obligation, the dates established for the second semester of 2023 are:
- June: July 7 to 21
- July: August 9 to 23
- August: September 7 to 20
- September: October 10 to 24
- October: November 8 to 22
- November: December 11 to 22
- December: January 10 to January 23, 2024
Special deadlines are established for withholding agents with more than 100 branches, or for agencies to which withholding tax is applied. In case you consider that any of these is your case, please consult the current year’s tax calendar and the resources provided by the Dian.
Do not forget that the correct exercise of withholding at the source will allow you to be up to date with your contributions and avoid future penalties.
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