In 2021, enterprise capital funding will attain a file US$15.7 billion in Latin America, greater than the quantity attracted by startups within the area over the previous ten years, based on the Latin American Non-public Fairness Funding Affiliation (LAVCA).
Within the native surroundings, Colombia at the moment has 1,100 startups and its entrepreneurial ecosystem is among the 4 best within the area, along with Brazil, Mexico, and Argentina.
In accordance with KPMG’s Colombia Tech Report 2021, the nation’s startups raised greater than US$800 million final 12 months. Sadly, the promising future for these corporations is about to alter eternally.
On August 8, 2022, a invoice was filed earlier than the Congress of the Republic to undertake a brand new tax reform in Colombia, which goals to lift 25.9 billion yearly.
The tax reform invoice introduced accommodates guidelines that instantly affect each tech-based ventures whose improvement relies on progress and exit technique (extremely scalable startups backed by enterprise capital) and people whose nature or goal will not be the medium-term sale of the corporate however quite revenue by way of dividends (extra “conventional” ventures).
The startup enterprise works very otherwise from conventional corporations, so these valuations usually don’t replicate the corporate’s precise worth. For instance, an organization valued at US$500 million doesn’t have that form of cash in fairness. Enterprise capitalists take into account “intangible property” and never the corporate’s cash.
How will this have an effect on the business?
Though the fairness tax already existed (for many who owned as of January 1 of every 12 months, a internet price equal to or better than 5 billion Colombian pesos), with the brand new reform, each the taxable base and the way the shares owned in an organization are valued are modified. Beforehand the nominal worth (acquisition worth) was taken – and now the intrinsic worth (internet price divided by the variety of shares excellent) is proposed.
This new type of valuation seeks to replicate the fairness actuality of the shareholders of these consolidated corporations, i.e., the supply of revenue and appreciable income that take into consideration the contributive capability, an goal that was not achieved with the earlier rule.
The tax reform goals to extend the occasional revenue tax, which is at the moment at a price of 10% to fifteen%. Does the federal government wish to discourage cash, a product of a number of years of arduous work in entrepreneurship, introduced again to Colombia to proceed producing improvement by investing in new startups or donating it to social causes?
Elimination of the 50% low cost on the Business and Commerce Tax – ICA.
Article 115 of the ETN contemplates the likelihood, on the entrepreneur’s selection, of: i) taking 50% of the business and commerce tax (ICA) as a tax low cost or ii) a 100% deduction of the ICA within the revenue tax.
The reform invoice eliminates this profit and leaves solely the opportunity of taking it as a 100% revenue tax deduction. The distinction is that the low cost is utilized on to the tax already paid, whereas the deduction is a part of the subtracted objects to find out the tax.
The affect will rely on every case, however as a common rule, a 50% low cost is extra helpful than a 100% deduction of the ICA tax.
This modification would indicate the next tax burden for ventures which can be within the business, industrial, or service companies, that means that e-commerce entrepreneurs will now need to pay extra revenue tax due to this transformation.
Elimination of the orange financial system profit
Earlier than this reform, entrepreneurs from inventive industries who received the orange financial system profit have been allowed to pay 0% revenue tax for five years. However now, this could not be doable.
In accordance with the precept of non-retroactivity of taxation supplied in article 363 of the Colombian Structure, these ventures that benefited from the exempt revenue applications of the orange financial system program supplied in article 235-2 of the ETN proceed to keep up 100% of the exempt revenue for the years granted. Nevertheless, sadly, the profit could be misplaced for entrepreneurs who wish to entry it sooner or later.
35% revenue tax price for giant and small companies alike.
Though the reform wouldn’t modify the revenue tax price for authorized entities and maintains it at 35%, it doesn’t present particular therapy or charges for startups.
Whereas it’s true that through the early years, startups don’t yield income, exactly as a result of all their revenue and capital are destined for the expansion of the corporate, it may possibly occur, and taxing a startup with an revenue tax at a price of 35% is to go away the entrepreneur with none incentive.
The reform goals to extend the fee price for dividend distributions, that are at the moment subject to 10% and will attain as much as 39%. For non-residents (people and firms), a withholding tax of 20% might be utilized.
What do corporations give it some thought?
Confronted with this “reform,” Endeavor entrepreneurs launched a counter proposal earlier than the tax reform challenge in Colombia. They suggest an exception in order that the worth of the shares revolves across the fiscal price, not the intrinsic worth.
Daniel Botero Acevedo, co-founder, and CEO of Lizit, mentioned that the tax reform would just about wipe out the ecosystem of startups or fast-growing digital ventures in Colombia.
In conclusion, the Nationwide Authorities should perceive the entrepreneurial ecosystem and set up differentiated and progressive tax guidelines and mixed tariffs that enable them to be aggressive with their friends in different international locations.
Michelle Bernier is an lawyer specializing in worldwide regulation and business regulation. She is at the moment learning Grasp of Legal guidelines and Worldwide Enterprise with a double diploma from the Universidad Internacional Iberoamericana in Mexico and the Universidad Europea del Atlántico. She can be part of College students for Liberty’s inaugural cohort of Fellowship for Freedom in India.