Is the tax burden in Colombia a reason to renounce the Colombian nationality?

In the world there are different reasons why a foreigner decides to become naturalized in a country:

  • The life conditions.
  • The level of development and services
  • The weather.
  • Renounce the passport of a country governed by a dictatorship.
  • The infrastructure.
  • The level of taxation.

To understand this phenomenon a bit more, we must expand the concept of Naturalization a little more.

The Naturalization or Nationalization is the process by which a citizen of a country acquires the nationality of another country with which he/she has acquired some links product of the stay that he/she maintained legally in that country or other reasons, such as marriage. For those people who meet the requirements for coming of age, by adopting a nationality by naturalization, they also acquire the quality of citizens of that country.

The desire to naturalize is born of each person: many emigrate to other countries, fall in love with them and want to naturalize; others because they have never lived in their countries of origin and have grown up in another culture; others because simply everything they are owes to the country where they have been overcome.

In recent years there has been a very particular phenomenon around the world. Many billionaires and businessmen look for tax havens (also known as “Non-Cooperating Jurisdictions”) with the aim of reducing the level of taxes they have to pay. Others may look for a country when they reach retirement age and want to enjoy their last years in that country.

Recently in our country it has been pointed out that many Colombians are renouncing their nationality. According to the Ministry of Foreign Affairs of Colombia, between the years 2000 and 2016, 10,362 people renounced the Colombian passport. Although the trend in this phenomenon was on the rise between 2007 and 2013, the year in which the record high was registered with 1,463 citizens who left the nationality, from that year the line began to fall, and last year 532 Colombians did the process.

It would be thought that this trend is linked to the modifications to the tax statute and the recent increase in taxes. Some experts in taxation in Colombia assure that there is no reason why renouncing the Colombian nationality represents a relief in taxes. Taxes on natural persons in Colombia are within the international average, even lower than those of developed countries. In addition, it does not make any sense to renounce nationality, because one does not pay taxes in Colombia for nationality, pays for specific rules of residence: if he/she stayed in the country for 183 days (in a period of 365 days) or if he/she has more than half of the heritage in Colombia.

According to information provided by the Ministry of Foreign Affairs of Colombia, the implications of giving up the Colombian nationality are several:

  • The person would begin to be considered as a foreigner, so he/she automatically loses the rights and obligations as a Colombian national, which implies some restrictions established by the Constitution, for example, not to vote in national elections.
  • On the other hand, they must submit to the regulations corresponding to their new immigration status. Thus, in case of staying in Colombian territory, they must request a Colombian visa and advance the process of issuing a ID Foreigner Card (Cédula de Extranjería) in the offices of Migration Colombia in the country.
  • People would have to update the cadastral status of their personal property, real estate, bank accounts and affiliations, with the documents that identify them as foreigners.

Therefore, it is not the volume of taxes paid by a natural person in Colombia that is decisive to continue in the country since there are currently a large number of pending applications to access Colombian nationality. According to the Ministry of Foreign Affairs, last year the number of nationalizations of foreigners in the country was registered, with 544. In total, during this century, 2,469 foreigners have received Colombian nationality.

What is the problem that some taxpayers who are renouncing their nationality are facing due to tax reasons?

What has happened is related to a reform to Article 10 of the Tax Statute, included in Law 1607 of 2012. In that modification the rules of the game that affect some people who have double passport were changed. Article 10 of the Tax Statute refers to the rules to apply to the tax residence; that is, the rules that define who should pay taxes in the country.

Before the reform, those who paid taxes in Colombia on their global incomes were those who had spent more than six (6) months in the country; it was a fairly simple standard. But the 2012 reform made the rule quite sophisticated, to such an extent that for Colombians who already had another nationality or who had another fiscal residence, the most effective tax thing was the renouncing of the Colombian citizenship. If they had not done so, they had to show a lot of things and would have to pay taxes in Colombia on global income.

Thus, for example, there are Colombians who live or have a fiscal residence in Panama or the United States, but do not live there; they had a hard time proving that they paid taxes in those jurisdictions. With the norm it was established that, if these people do not certify that they are tax residents in other countries, they are taxed in Colombia.

This forced many Colombians to give up their nationality and to stay with Panamanian, American or European nationality so as not to pay taxes in Colombia; the norm demanded that in order not to be taxed in Colombia they had to show that they were paying taxes in another jurisdiction and that many Colombians can not do it.

The effect of this is that many Colombians have the risk of paying taxes on their incomes and assets in other countries, which implies double taxation. It is possible to attribute to this fact that in 2013 the greatest number of renunciations of nationality in history had been registered; In that period, a total of 1,463 citizens gave up their Colombian passport.

If you are Colombian and can not prove that you are paying taxes in another country that is not a tax haven, the Colombian government considers you a tax resident here and you have to pay taxes on everything you have. That is why the renunciation of nationality is carried out, to get out of that second group: when we renounce our nationality, we are left with the criterion of 183 days. The 2012 norm is justified as part of a package of measures that sought to normalize the assets that many Colombians had abroad and over which they did not pay taxes.

Even so, the effect does not seem to be generalized, since since the appearance of the rule, those who have renounced the Colombian passport have been just over 3,300 people, and in the last two (2) vigencias the number of requests returned to the levels normal before 2012.

So the renunciation of Colombian nationality is related to a specific measure that affected a group of taxpayers with dual citizenship and who could not certify their tax residence in another country, so they ended up paying taxes on all their assets.

Although there are many who complain about the level of taxes in Colombia, it is clear that the tax burden in the country is still below the international average and that there is no risk, for now, that many leave the ship because of the high loads.

If you have concerns or require our assistance to make your request for a Colombian visa, Colombian nationality or any other type of immigration service, do not hesitate to contact Visa Asistencia through our Contact Form and/or Whatsapp. It will be a pleasure to advise you.

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