The Wealth Tax in Colombia: Tax Base, Rates, and the Critical Distinction from Presumptive Income

The Colombian tax landscape has undergone a profound structural transformation in recent years, redefining how the state taxes accumulated wealth and the presumed profitability of assets. With the enactment of Law 2277 of 2022, the country sought to establish a paradigm shift by designing the Wealth Tax with a permanent vocation. However, Colombia's high tax volatility and recent fiscal reform announcements, which contemplate the possible elimination of this levy starting in 2027 or the downward modification of its thresholds, raise serious questions about the long-term stability of this measure for high-net-worth individuals and their legal advisors.

The coexistence of historical concepts such as presumptive income and the wealth tax often generates conceptual confusion in tax analysis. It is essential to clarify that while presumptive income is a mechanism for determining income tax that is currently neutralized with a 0% rate, the Wealth Tax is an autonomous, direct, and permanent-vocation tax on net wealth. This article breaks down the current rules, progressive rates, tax bases, and the legal differences between both mechanisms.

Historical Evolution and the Dual-Track Fiscal Control

Historically, Colombia has used wealth as an essential metric for fiscal control and revenue collection through two independent paths. The first of these is presumptive income, regulated under Article 188 of the Tax Statute. This mechanism forced income taxpayers to pay taxes on a presumed minimum return on their net or gross wealth from the previous year. The underlying premise was economic and legal: it was assumed that all wealth, by the mere fact of its existence, should generate a minimum return for its owner.

The second path has been the Wealth Tax, which, unlike presumptive income, does not seek to estimate income but rather directly taxes the ownership or possession of accumulated wealth. This tax has had an intermittent and extraordinary character in the country's recent history, having been created and modified by successive tax reforms in 2002, 2003, 2006, 2009, 2014, and 2018. Each of these incarnations was presented as a temporary measure to address urgent fiscal needs.

Law 2277 of 2022 sought to break with this intermittency by establishing the Wealth Tax as a permanent levy starting in tax year 2023. In this way, the Colombian legislature chose to integrate wealth taxation into the ordinary tax statute, joining the trend of several countries in the region and the OECD that seek to strengthen the progressivity of the tax system through direct taxes on high net worth, although the permanence of this measure remains subject to the stability of future legislative reforms.

Presumptive Income: Concept, Jurisprudential Definition, and the 0% Rate

To understand the independence of the Wealth Tax, it is essential to analyze the legal nature of presumptive income. The Council of State, in its historical jurisprudence, has clearly defined the boundaries of this mechanism. In particular, the judicial body has pointed out the purpose and foundation of this legal presumption:

"La renta presuntiva se define como el monto mínimo estimado de rentabilidad de un contribuyente, sobre la cual la ley espera cuantificar y recaudar el impuesto sobre la renta."

This jurisprudential definition confirms that presumptive income does not constitute an autonomous tax, but rather a special method for determining the tax base within the income and complementary tax. Its application operates by mandate of law, regardless of whether the taxpayer received actual income during the fiscal year.

Under this scheme, if the taxpayer's ordinary income was lower than the calculated presumptive income, they had to liquidate their income tax based on the latter. For decades, presumptive income rates fluctuated, reaching 5% of net wealth or 1.5% of gross wealth in previous periods.

However, Law 2010 of 2019 introduced a progressive reduction of the presumptive income rate, setting it at 0.5% for tax year 2020 and finally reducing it to zero percent (0%) starting in tax year 2021. This reduction to 0% neutralized the practical impact of presumptive income in determining income tax. Although the legal mechanism still formally exists in the Tax Statute, its current mathematical application does not generate an additional tax base for taxpayers, relieving the tax burden on unproductive assets or those in pre-operational stages.

The Wealth Tax of Law 2277 of 2022

Unlike presumptive income, the current Wealth Tax is a direct and independent tax. Its permanent creation was established in the Tax Statute, added by Law 2277 of 2022. Starting in tax year 2023, the wealth tax was established on a permanent basis for individuals and undivided estates.

This tax is not calculated on a presumption of income, but on the actual value of the net wealth owned by the taxpayer on a specific date. This tax is generated by the possession of wealth as of January 1 of each year, provided its value is equal to or greater than 72,000 UVT.

For the year 2024, the threshold of 72,000 Tax Value Units (UVT) determines who acquires the status of passive subjects of this tax. However, it is imperative to warn that this 72,000 UVT limit is under analysis and could be reduced in future legislative reforms currently under discussion, which would expand the base of obligated taxpayers. Taxpayers who possess a net wealth (understood as gross wealth minus outstanding debts on the same date) below this limit are not subject to the tax for that fiscal year.

Progressive Rates and Marginal Structure

The Wealth Tax is liquidated through the application of a table of progressive marginal rates. This means that the tax is not applied flatly on the entirety of the wealth, but by brackets or ranges of UVT. The current rates for the years 2023 to 2026 range from 0.5% to 1.5%.

Notably, the maximum rate of 1.5% is temporary. According to the provisions of Law 2277 of 2022, this 1.5% rate will apply only for tax years 2023, 2024, 2025, and 2026. Starting in tax year 2027, the maximum marginal rate will permanently decrease to 1.0%, stabilizing the tax structure in the long term.

Table of Differences: Presumptive Income vs. Wealth Tax

To avoid common interpretation errors in tax planning and compliance, it is necessary to contrast both mechanisms in detail. The following table summarizes the fundamental differences:

This differentiation helps clarify one of the most important warnings for tax advisors: the rules for excluding assets from presumptive income are not applicable by analogy to depurate the tax base of the Wealth Tax.

For instance, the historical ruling of the Council of State that allowed subtracting the value of assets linked to companies in unproductive periods from the presumptive income base cannot be invoked to exclude such assets from the tax base of the current permanent Wealth Tax. The Wealth Tax is strictly governed by its own depuration rules, which are of restrictive interpretation. In this regard, a fundamental legal milestone was Ruling C-321 of 2023 by the Constitutional Court, which declared unconstitutional the rule under Law 2277 of 2022 that forced the valuation of shares in non-listed national companies at their intrinsic value, restoring the historical fiscal cost as the general valuation rule for these assets, thereby significantly relieving the tax base for shareholders of Colombian companies.

Depuration Rules of the Tax Base in the Wealth Tax

The determination of the tax base for the Wealth Tax starts from the net wealth possessed as of January 1 of each year. However, the law allows for certain specific depurations to alleviate the tax burden on assets of special protection or social significance.

The most relevant exclusion for individuals corresponds to their primary residence. Taxpayers can subtract the net equity value of their primary residence from their tax base, up to a maximum limit of 12,000 UVT. Any excess over this value will form part of the taxable base subject to the progressive rates.

To illustrate the practical application of these rules, consider the case of an individual taxpayer who is a tax resident in Colombia and possesses a net wealth of 80,000 UVT as of January 1, 2024. By exceeding the threshold of 72,000 UVT, this taxpayer becomes a passive subject of the Wealth Tax. In their liquidation, they will be able to subtract the value of their primary residence up to the first 12,000 UVT, resulting in a depurated tax base of 68,000 UVT. Since this depurated base is below the first exempt bracket of 72,000 UVT established in the progressive marginal rates table (Art. 296-3 T.S.), the liquidated tax to be paid by this taxpayer will be zero pesos. However, it is important to note that, having triggered the taxable event by possessing a net wealth exceeding 72,000 UVT as of January 1, the taxpayer still has the formal obligation to file the Wealth Tax return to avoid late-filing penalties from the DIAN. In parallel, in their income tax return, their presumptive income will be liquidated at the 0% rate, so it will not generate any additional income tax under this concept.

Implications for International Structures and Offshore Assets

From an international structuring perspective, tax residents in Colombia must keep in mind that the Wealth Tax taxes their global wealth. This includes both assets held within the national territory and those located abroad, such as bank accounts, financial investments, real estate, and shares in foreign companies.

It is important to note that, while the Controlled Foreign Corporation (CFC) regime (known in Colombia as the ECE regime) applies to the transparency of passive income for income tax purposes, holding assets through foreign fiduciary structures (such as trusts or fideicomisos) or private interest foundations obligates the taxpayer to declare the underlying assets within their net wealth in Colombia, in accordance with Article 271-1 and Article 260-11 of the Tax Statute. Conversely, foreign companies (even those classified as CFCs) are declared through the value of their shares or participations at their fiscal cost, rather than through the direct declaration of their underlying assets.

Additionally, the valuation of offshore assets for tax purposes in Colombia is carried out at the historical Representative Market Exchange Rate (TRM), meaning the rate in force at the time of their initial recognition (Art. 269 T.S.). This means that the equity value of these assets is not updated annually for exchange rate fluctuations, protecting the taxpayer from unexpected increases in the tax base due to the mere depreciation of the Colombian peso against the US dollar or other foreign currencies.

Outlook and Conclusions

The consolidation of the Wealth Tax in Colombia, initially designed with a permanent vocation, redefines the financial and tax planning framework for high-net-worth individuals. The combination of a tax on wealth with rates of up to 1.5% and a neutralized presumptive income at 0% shifts the focus of tax attention from a presumed minimum return to the legal optimization and depuration of accumulated net wealth.

Faced with this scenario, taxpayers must carry out rigorous monitoring of the tax value of their assets as of January 1 of each year, considering the impact of inflation, real estate valuations, and exchange rate fluctuations for foreign assets. Furthermore, it is foreseeable that legal debates and unconstitutionality lawsuits will persist regarding this tax and its potential confiscatory effect in scenarios of low real returns, aspects that will continue to shape the Colombian tax environment in the coming years.