Small Business Tax in Colombia

What is the Regimen Simple de Tributacion and who qualifies?

The Regimen Simple de Tributacion (RST), sometimes called SIMPLE, is an optional unified tax regime introduced by Law 1943 of 2018 and consolidated through Law 2010 of 2019. It consolidates the national income tax, national consumption tax, and the municipal industry-and-commerce tax (ICA) into a single declaration and bimonthly advance payment. Persons and entities whose annual gross income in the prior year did not exceed 100,000 UVT may elect the RST. For tax year 2026, with the UVT fixed at COP 52,374 by DIAN Resolution 000238 of 15 December 2025, the threshold equals approximately COP 5,237,400,000. Professional service providers face a stricter ceiling of 12,000 UVT (approximately COP 628,500,000 for 2026). Legal entities are eligible only if all partners are Colombian-resident natural persons. Excluded categories include foreign entities, financial institutions, fuel importers, and taxpayers with passive income exceeding 20% of total income.[^1]

What are the RST rates by activity group?

RST rates are progressive, applied to annual gross income expressed in UVT, and vary by economic activity under Estatuto Tributario Article 908 as reformed by Law 2277 of 2022. The five principal groups, with rates confirmed for 2026, are shown in the table below.[^2] Group 1 covers small retail outlets, minimarkets, and hairdressing salons. Group 2 covers wholesale and retail commerce, technical and mechanical services, construction trades, and other industrial activities. Group 3 covers food-and-beverage service and passenger transport. Group 4 covers professional, consulting, and intellectual-service activities. Group 5 applies a flat rate to recycling and waste-management activities classified under CIIU codes 4665, 3830, and 3811.

Bimonthly advance payments are mandatory for taxpayers whose prior-year gross income exceeded 3,500 UVT (approximately COP 183,309,000 in 2026). The annual declaration reconciles advances against the full-year liability.[^2]

How does corporate income tax work in the ordinary regime?

Businesses that do not elect, or do not qualify for, the RST fall under the ordinary (ordinario) tax regime and pay Impuesto sobre la Renta at the general corporate rate of 35% on net taxable income.[^3] This rate was set by Law 2277 of 2022 and applies equally to Sociedades por Acciones Simplificadas (SAS), Sociedades Anonimas (SA), and Limitadas (Ltda.). A supplementary surcharge of 5 percentage points applies to financial institutions with taxable income at or above 120,000 UVT through 2027, bringing their effective rate to 40%. A minimum effective tax rate (METR) of 15% on accounting profit applies to resident corporations from fiscal year 2023 onward, limiting the benefit of certain deductions and exempt-income items. The Zona Economica y Social Especial (ZESE) preferential rate of 27% is available to qualifying businesses in specific economically lagging regions. Corporate filers with gross income above 92,000 UVT file IVA returns every four months rather than bimonthly.[^3]

How does personas naturales business income work in the cedula general?

A natural person (persona natural) operating a business independently and not electing RST is taxed under the cedular personal income-tax system. Business income that does not arise from a formal employment relationship falls into the cedula general (general basket) under Estatuto Tributario Article 335. The cedula general consolidates non-employment income including business profits, fees, capital income, and rental income. Progressive marginal rates under Article 241 apply to net taxable income expressed in UVT: 0% on the first 1,090 UVT; 19% on 1,090 to 1,700 UVT; 28% on 1,700 to 4,100 UVT; 33% on 4,100 to 8,670 UVT; 35% on 8,670 to 18,970 UVT; 37% on 18,970 to 31,000 UVT; and 39% on income above 31,000 UVT.[^4] Because RST replaces the income-tax component for eligible individuals, many sole traders and small-firm owners choose RST specifically to avoid the upper marginal rates on gross-revenue levels that generate thinner net margins.

How does IVA (VAT) interact with the RST and ordinary regimes?

Impuesto al Valor Agregado (IVA) at 19% operates independently of the income-tax regime. RST does not consolidate or eliminate IVA obligations: an RST taxpayer whose annual gross taxable income exceeds 3,500 UVT (approximately COP 183,309,000 in 2026) becomes a responsable del IVA and is required to charge 19% IVA on taxable supplies, issue electronic invoices (facturas electronicas via DIAN), and file periodic IVA returns. Taxpayers below the 3,500 UVT threshold are classified as no responsables del IVA and do not charge or collect IVA, though they also cannot deduct input IVA. Reduced rates of 5% apply to specific categories such as certain agricultural inputs and some prepaid health plans; a zero rate applies to qualifying exports. The standard filing frequency is bimonthly for larger responsables and every four months for entities below 92,000 UVT in gross income.[^3]

How does ICA (municipal industry-and-commerce tax) work?

Impuesto de Industria y Comercio (ICA) is a municipal tax levied on gross revenue from industrial, commercial, and service activities carried out in a municipality, regardless of whether a physical premises exists there. Rates are set by each of Colombia's approximately 1,100 municipalities within nationally established bands: industrial activities face 2 to 7 per thousand (0.2%-0.7%) and commercial or service activities face 2 to 10 per thousand (0.2%-1.0%) of gross income, with professional and consulting services in Bogota assessed at up to 10 per thousand (1.0%). Bogota, Medellin, Cali, and Barranquilla publish their specific tariff schedules via their Secretarias Distritales or Municipales de Hacienda.[^5] ICA paid in the ordinary regime is 100% deductible as a business expense for corporate income tax purposes. Taxpayers enrolled in the RST do not file ICA separately: DIAN collects ICA as part of the unified RST payment and remits the municipal portion to each relevant municipality. An additional Avisos y Tableros surcharge of 15% of the ICA amount applies in most municipalities to businesses displaying commercial signage.

For a broader view of Colombia's jurisdictional landscape, including treaty networks and residency rules, see the Colombia country overview.

How does a small business choose between RST and the ordinary regime?

The primary financial consideration is whether the RST rate on gross revenue produces a lower tax bill than the 35% corporate rate on net profit (or the cedula general progressive rates on individual net income). RST is typically advantageous for businesses with thin profit margins, limited deductible expenses, or turnover concentrated in Groups 1 through 3, because the 1.2%-4.5% rate on gross revenue is often less than 35% of the net margin. Ordinary-regime treatment favors businesses with high operating costs, large deductible capital expenditure, significant ICA deductions, or investment losses they wish to carry forward, because those businesses can substantially reduce net taxable income before applying the 35% rate. Administrative simplicity also weighs toward RST: one bimonthly advance payment replaces separate income-tax installments, ICA municipal filings, and consumption-tax returns. RST enrollment closes on the last business day of February for existing registered taxpayers (RUT holders); new businesses may enroll at any time. Departure back to the ordinary regime requires a RUT update by 31 January of the following year.[^2]

Because the interaction of gross-revenue level, cost structure, activity group, municipality, IVA responsibility, and payroll-tax exemptions makes the regime comparison fact-specific, engagement with a qualified tax professional is strongly recommended before electing or changing regimes.