The Colombian legislation follows the OECD definition of PE and means a fixed place of business through which an entity carries out its activity, whether partially or totally.

A PE will also be incorporated when a person (other than an independent agent) has the capacity to execute contracts on behalf of the foreign entity, except for preparatory and auxiliary activities.

Colombian law upholds the triggering of a PE upon the presence of a fixed place of business that is located in a given place and features a certain degree of permanence (no cut-off timeline is provided) where a non-resident entity conducts part or the whole of its business.

The regulations reiterate that a PE is subject to income tax on worldwide income attributable to its course of business as well as on any income directly earned.

Also, a PE will be subject to domestic withholding tax (WHT) rates whenever engaged with resident parties.

Creating a PE will require the entity to make annual CIT filings. Entities with PE are given the capacity to withhold and remit taxes as well as to charge and collect value-added tax (VAT) to the extent of taxable transactions.

Registration of a PE require good standing documentation or proof of existence as well as an active account at a local bank or financial institution.

An entity will need to prepare contemporaneous documentation (in addition to transfer pricing compliance requirements) with a functional and technical analysis of the assets, liabilities, capital, risks income, costs, and expenses attributable to its business in Colombia. In addition, an entity must, for tax purposes, prepare separate accounts for purposes of the attribution of income and capital gains.

Branches and PEs are subject to income tax on worldwide source income that is attributable.