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How VAT in Colombia Works


Generally, end consumers know that VAT exists thanks to the fact that every time we make the purchase of consumer goods or purchase of services, an additional cost is assumed in obtaining these, this additional cost is what we normally know as the Tax on Value Added (VAT). This Tax is a national tax of an indirect nature, which is generated from the realization of production costs in sales established by companies or merchants.

The main function of VAT is to tax the different goods or services that end consumers acquire due to the need we have to buy them or because the market in its economic flow makes them available to us, to carry out the acquisition of these.

How many VAT rates do we know?

In Colombia, the prevailing rate as a general rule is 19%, which can be parameterized for the purchase of goods and services; However, in some cases this rate may vary from 19%, to rates of 5% for the purchase of goods or services depending on the case, and we can even find the rate of 0%, to which we give the name of products or services exempt from Value Added Tax.

On the other hand, we can also find the purchase of excluded goods or services, which by legal provision are not calculated VAT and are duly cataloged in the Colombian standard.

And finally, we find those merchants who, because they are not classified as a regime required to invoice sales tax, products or services not subject to Value Added Tax VAT, and for this to happen we will depend on how our seller is classified or merchant at the time of purchase.


What is the purpose of having different VAT rates?

What is sought with the different VAT rates is to have a natural equity at the time of paying the VAT, for this, those who have greater economic capacity will pay a higher tax on their goods or services purchased. These will have a variation at the time of purchase, depending on the tax rate that is applied, for example: If we buy products from the family basket, we will find that consumer goods such as Rice, Bread, Potato, Blackberries and Among others Tubers and Fruits are exempt from VAT, that is, they will be taxed at a rate of 0%. However, if we buy Cereals, Cold Meats and Sausages, these products will be taxed at a rate of 5%, and if our decision is to purchase luxury items such as a vehicle, jewelry or clothing, these will be taxed at the rate of 19% per general rule.

What is the final destination of the Value Added Tax?

Once the VAT collection is effective, this money is administered by the Colombian State and is destined to satisfy the essential needs of the population, a large part of this collection is directed to food, health, housing and education of the country.

For this reason, our fundamental recommendation is to always demand the sales invoice from the commercial establishment with which a product or service was purchased, this is the way in which we can all contribute to having a better country and developing a more efficient tax culture.

At LARM we have a team specialized in Colombian tax matters, which is ready to answer your questions. If you are interested in acquiring our tax advice, you can contact us here.


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