📢 Clarification from DIAN on WHT & VAT on Cross-Border Payments

The Colombian tax authority (DIAN) has recently responded to a significant inquiry regarding the application of withholding tax on income and VAT for payments made via debit and credit cards for the acquisition of goods and digital services from international merchants (Consultation No. 100208192-1277). 

Below is a summary of the key conclusions:

1️⃣ Withholding Tax on Income:

The DIAN evaluated whether it is appropriate to apply withholding tax on payments made by acquiring or paying entities through intermediary agents (collection agents) when purchasing goods and digital services from international merchants that do not have significant economic presence in Colombia.

• Conclusion: The DIAN determined that these payments do not constitute domestic-source income for international merchants, and therefore, withholding tax on income is not applicable. This conclusion is based on the fact that payments made through debit or credit cards do not constitute income for intermediaries, but rather, funds collected on behalf of third parties (international merchants).

2️⃣ Withholding Tax on VAT:

The DIAN also discussed the applicability of VAT withholding in these cases, considering the specifics of the online payment systems and the roles of intermediaries.

• Conclusion: The DIAN concluded that VAT withholding is not applicable either. This is because the amounts collected by intermediaries do not represent their own income, and the sale of goods located abroad or the provision of digital services by providers without a significant economic presence in Colombia does not trigger a taxable event for VAT in Colombia.

Implications for Acquiring and Paying Entities:

This clarification provides greater certainty for companies in Colombia making international payments, helping them understand when to apply or not apply withholding on income and VAT in transactions with foreign merchants.