Key Provisions of the US Colombia Tax Treaty
This guide explains how the U.S.-Colombia tax treaty allocates taxing rights, defines residency, and reduces tax burdens for cross-border businesses and individuals.
A comprehensive income tax treaty between the United States and Colombia is not currently in force. Despite common inquiries and the existence of many other tax treaties, individuals and businesses operating in both countries must navigate a tax landscape defined solely by each nation’s domestic laws. This absence of a treaty has significant implications for cross-border taxation, investment, and business operations.
History of Negotiations
Over the years, the United States and Colombia have engaged in multiple rounds of negotiations to establish a bilateral tax treaty. Discussions were held in various years, including 2008, 2014, and 2016, with the goal of creating a framework to prevent double taxation and facilitate economic cooperation. However, these negotiations have not yet led to a finalized agreement that has been signed and ratified by both governments. As of 2025, the treaty process remains unconcluded, leaving no special tax provisions in effect between the two countries.
Consequences of No Tax Treaty
The lack of a tax treaty means that the taxation of income for individuals and businesses with connections to both the US and Colombia is determined exclusively by their respective domestic tax laws. This creates several challenges and removes protections that are standard in most international tax agreements. The primary consequence is the potential for double taxation, where the same income is taxed by both countries without a clear, treaty-based mechanism for relief.
Absence of Standard Treaty Protections
Without a treaty, taxpayers cannot access several provisions designed to clarify tax obligations and prevent excessive taxation. These missing protections include:
- Residency Tie-Breaker Rules: For individuals who might be considered a resident of both countries under their domestic laws, a treaty provides a set of tie-breaker rules to assign residency to a single country for tax purposes. Without these rules, an individual could be subject to worldwide taxation in both the US and Colombia.
- Permanent Establishment (PE) Definitions: Tax treaties provide a clear definition of what constitutes a “permanent establishment,” which is the threshold for when a foreign company’s business profits can be taxed in another country. In the absence of a treaty, businesses must rely on the potentially broader and differing PE definitions found in each country’s domestic law, creating uncertainty.
- Reduced Withholding Rates: Treaties almost always include provisions for reduced withholding tax rates on payments of dividends, interest, and royalties. Without a treaty, these payments are subject to the full statutory withholding tax rates in the source country, which are often significantly higher.
- Specific Rules for Income Types: Treaties provide clear rules for the taxation of different income types, such as capital gains, pensions, and income from employment. Without these, taxpayers must analyze complex domestic laws in both countries to determine their obligations.
The FATCA Information Sharing Agreement
It is important not to confuse the lack of an income tax treaty with other international agreements. The US and Colombia do have an agreement in place for the exchange of tax information related to the Foreign Account Tax Compliance Act (FATCA). This agreement is designed to combat tax evasion by allowing the two countries to share information about financial accounts held by each other’s residents. However, this is purely an information-sharing mechanism and does not provide any of the tax relief or benefits found in a comprehensive income tax treaty.
Conclusion: Navigating the Current Tax Landscape
Because there is no US-Colombia tax treaty, individuals and businesses must carefully navigate the domestic tax laws of both nations. Taxpayers cannot file for treaty-based benefits or use forms like the IRS Form 8833 to claim a special position. All tax planning and compliance must be based on the internal revenue codes of the United States and Colombia, and professional advice is often needed to manage the risk of double taxation.