Estate planning in Colombia

  • Author : Luz Clemencia Alfonso
  • Date : August/September
ABOUT THE AUTHOR: Luz Clemencia Alfonso is a Partner at Lewin & Wills Attorneys at Law, Colombia

When thinking about estate planning for individuals and families, legal and regulatory aspects must be considered in order to determine the best planning structures.

A country investment environment for wealth-planning purposes includes the flexibility for both establishing family partnerships and managing those partnerships, the country’s political, economic and legal stability, and the existence of non-discrimination rules. The country’s tax-treaty network and how often laws are amended are also vital considerations.

Estate planning for Latin American families is affected by changes in the legal, tax and regulatory environment. The examples below show how frequently legal developments in Colombia influence estate planning.

Simplified stock companies

Corporate law is affected by the simplified joint stock companies regime (Sociedades por Acciones Simplificada, or SAS).

In general, SAS companies are established and operate with fewer formal requirements than Colombian stock companies, as their shareholders can determine the rules that will govern the company’s operation with fewer restrictions than when implementing other types of companies. This has proved to be relevant when implementing estate-planning structures in Colombia.

The advantages offered by this new type of company include:

1the ability to incorporate the entity through a private document rather than a public deed2the possibility for the company’s stock capital to be held by a single person; and3the ability to establish, in a flexible fashion, the conditions, proportions and terms for the company’s capital stock to be subscribed and paid in.

When facing estate planning, parents are often interested in transferring assets to their future heirs before the end of their life, to minimise the economic impact of future estate taxation. However, they are also interested in keeping control of the company assets and in receiving the income generated by the assets until the end of their life. SAS companies provide this type of flexibility in so far as parents can transfer shares to their heirs while keeping control of the company. Therefore, SAS companies have proved to be a useful vehicle for Colombian estate planning.

Tax developments

The core of Colombian tax regulations was enacted in 1961 and 1974. However, almost every two years a tax reform is approved. Colombia has begun to negotiate tax treaties following the OECD model. Five years ago the only instrument to avoid double taxation was Decision 578, issued by the Andean Community of Nations (Peru, Ecuador and Bolivia). Today, Colombia has tax treaties with Spain, Chile and Switzerland. Further, Colombia has signed agreements with Mexico and Canada that are currently being ratified, and has already negotiated agreements with Korea, Belgium, France, the Czech Republic and India. The agenda for negotiating future tax treaties includes Venezuela, the UK, the US, the Netherlands, Japan, Italy, Germany, China, Sweden, Denmark and Austria.

Tax treaties directly affect estate-planning structures. For instance, the capital gains and the immovable property provisions should always be considered when transferring stock or immovable property, given the different outcomes that can be encountered.

Finally, the government is preparing a new tax reform that could affect estate planning. The text of the tax reform is still confidential, but some non-official drafts have announced a reduction of the rate of capital gains on estates.

Foreign exchange

Colombia has an international exchange regime according to which certain operations must be channelled through the exchange market and reported to the Central Bank.

Until 1991, Colombian authorities intervened in all operations involving currency transactions and centralised their management in the Central Bank. According to these restrictive regulations, only expressly authorised operations could be entered into. Further, the negotiation and free possession of foreign currency was not permitted. Since 1991 the exchange regime has become more flexible, but meeting certain requirements is still necessary and these requirements should always be considered when implementing estate-planning structures.

In conclusion, Colombia has adopted new corporate, tax and exchange regulations that enable the structuring of tailor-made estate-planning schemes that are more consistent with international trends.


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