What is the Tax Normalization Tax?

The Tax Normalization Tax is a mechanism that allows taxpayers who, as of January 1, 2022, have omitted assets or included non-existent liabilities in their tax returns, to correct their tax situation.

• OMITTED ASSETS are those that were not included in the tax returns despite the legal obligation to do so.
• NON-EXISTENT LIABILITIES are those included in tax returns solely for the purpose of reducing the taxpayer's tax burden.

What is the taxable base?

FOR OMITTED ASSETS, the taxable base will be the historical tax cost determined according to the rules of Title II of Book I of the Tax Statute or the commercial self-assessment established by the taxpayer with technical support, which must correspond, at a minimum, to the tax cost of the omitted assets.

The taxable base of the normalized assets will be considered as the acquisition price of said assets for the purpose of determining their tax cost. Structures created with the purpose of transferring omitted assets, in any form, to entities with tax costs substantially lower than the tax cost of the underlying assets will not be recognized, and the taxable base will be calculated based on the tax cost of the underlying assets.

FOR NON-EXISTENT LIABILITIES, the taxable base will be the tax value of said liabilities as provided in the rules of Title I of Book I of the Tax Statute or the value reported in the latest income tax return.

What is the rate?

• The rate is 17%.

What is the deadline to file and pay the return?

• The taxpayer has until February 28, 2022, to file and pay their return.

What steps should I consider when filing and paying the normalization return?

• STEP 1. Access the filing service and select form 445 and the year 2022.
• STEP 2. After completing the return, save the draft and review the information entered to ensure it is correct. NOTE THAT THIS RETURN DOES NOT ALLOW FOR CORRECTIONS!
• STEP 3. Once you are sure of the information declared, proceed to sign and submit the return.
• STEP 4. When making the payment, the total tax due on the return will appear on the screen. From this total, you must subtract the amount of tax paid as an advance payment. The sum of the two payment receipts should equal the total tax due as reported on the return. 
• With regard to interest charges, you should consider the following scenarios:
  • If you did not make the first advance payment, the system will automatically calculate the interest.
  • If the first advance payment was less than 50% of the total tax due, you must manually include the calculation of the corresponding interest.

What happens if you file the normalization return after the due date?

It is not possible to file the return after February 28, as the filing service will not be available after this date.

Note that according to Article 6 of Law 2155 of September 14, 2021, this return does not allow for correction or late filing by taxpayers.

What exchange rate (TRM) should be used to normalize assets in foreign currency?

When filing the return and paying the tax, you must use the representative market rate (TRM) in effect on January 1, 2022, as established by paragraph 6 of Article 2 of Law 2155 of September 14, 2021.

Can the amount of the advance payment made in November be deducted from the amount due on the tax normalization return?

Yes, the advance payment can be deducted from the amount due on the Tax Normalization return filed in 2022.

Any credit balance or overpayment resulting from the advance payment must be recognized by the taxpayer under the terms specified in the Tax Statute.

What happens if I did not pay the 50% advance payment in November 2021 and want to normalize my assets?

You must file the return calculating the tax on the full value and make the payment of interest on the 50%. The system will automatically calculate the interest.

How does the reduction in the taxable base for repatriation of omitted assets work?

When taxpayers repatriate omitted assets that are invested with the intention of remaining in the country (they remain in Colombia for a period of no less than two (2) years counted from the expiration of the deadline to make investments with the intention of remaining) before December 31, 2022.

The taxable base of the Tax Normalization Tax may be reduced by fifty percent (50%) of the value of omitted assets that are repatriated. When, having declared a taxable base reduced to 50%, the omitted assets are not repatriated and/or are not invested with a view to permanence, the taxpayer must pay the value of the tax that was previously reduced, together with the default interest, in the form 445 prescribed for such purpose.

For these purposes, the taxpayer must make a request to the Sectional Directorate to which he/she belongs, in order for it to enable the Tax Normalization Tax declaration form to present a second initial declaration.

Who is required to include normalized omitted assets in their national tax return?

Those who have the potential or actual economic use of said assets for their own benefit.

Likewise, anyone who does not appear as the owner or usufructuary of an asset has the obligation to include the asset in their national tax returns when they use it economically in any way, regardless of the vehicles and/or businesses used to own it.

Taxpayers who opt for tax normalisation must include these assets in their tax returns from the date of normalisation.

What is asset clean-up?

The assets subject to the cleanup provided for in article 5 of Law 2155 of 2021 are those that are part of the taxpayer's gross assets and are declared as of December thirty-one (31), 2021 in the income and complementary tax for a value lower than the market value, and that meet the following conditions at the time of the cleanup:

1. They are not alienated within the ordinary course of business.
2. They are not available for sale.
3. They have been owned for more than two (2) years.

What are the benefits of normalizing?

Normalized assets will not give rise to the determination of taxable income by the asset comparison system, nor will they generate taxable net income in the year in which they are declared or in previous years, with respect to income tax and complementary tax returns and wealth tax.

This inclusion will not generate any penalty in the income tax, complementary tax or wealth tax.

Once the omitted assets and/or non-existent liabilities have been normalized, these must be taken into account in the income and asset declarations from the year of their normalization.

What happens if I do not accept normalization?

Failure to normalize may result in a penalty of 200% of the highest value of the tax determined, in addition to being exposed to a criminal penalty of 20% of the value of the omitted asset, the value of the inaccurately declared asset or the value of the non-existent liability and a possible prison sentence of 48 to 108 months, which will be increased in accordance with the provisions of the Colombian Penal Code.

The DIAN has more information to locate undeclared assets or information not included in tax returns, both in Colombia and abroad, within the framework of agreements signed with public and private entities, national and international, as well as the exchange of information reported by third parties.

This normalization is only tax-related, meaning that declaring these omitted assets does not imply their legalization if their origin is illicit or they are directly or indirectly related to money laundering or the financing of terrorism.

Source: DIAN

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