The Colombian tax administration (DIAN) on December 27 implemented a regulation on the registration of the ultimate beneficial owner-report for tax purposes through Resolution No. 000164, which entered into force on January 15.
The new resolution establishes who is required to provide and submit information before the tax authority, the criteria to determine a legal entity as ultimate beneficial owner, and the content of the corresponding registration, and how the information provided should be updated. It also sets out the terms and conditions for the effective implementation of the Sistema de Identificación de Estructuras Sin Personería Jurídica (SIESPJ) identification system of structures without legal entity status. Lastly, the resolution specifies due diligence and data conservation obligations, administrative sanctions, and data confidentiality for these matters.
The definition of “beneficial owner” was clarified in Colombian tax reform introduced last year in law 2155 of 2021. Prior to the reform, there were difficulties in interpreting the term, which was used in different contexts in relation to double taxation agreements, the exchange of information, the payment of dividends, indirect disposals, and other areas. The reform adopted a definition similar to the one provided for money laundering by the Financial Action Task Force (FATF).
The obligation to provide information on ultimate beneficial owners applies to legal entities with or without profit motive, permanent establishments, as well as various entities without legal status, including entities created or administrated in the Republic of Colombia, governed by Colombian law, or whose trustee (or equivalent) is a Colombian legal person or a natural person with a Colombian tax residency status.
An exemption from reporting is provided for entities, establishments or political organizations, decentralized entities, and national legal persons with 100% state shareholding participation, as well as for embassies, diplomatic missions, consular offices, and international organizations recognized by the Colombian national government.
The regulation states that the criteria to determine a legal entity’s ultimate beneficial owner are the ones contained in article 631-5 of the CTS, which defines the ultimate beneficial owner as the natural person(s) who ultimately, directly or indirectly, possess or control a client or the natural person in whose name a transaction is made.
This definition extends to the natural persons that, directly or indirectly, ultimately and/or effectively control a legal entity without legal status. For taxation effects, the term ultimate beneficial owner extends to the terms “effective or real beneficial owner”.
A legal entity’s ultimate beneficial owner is considered to be a natural person that, directly or indirectly, owns 5% or more of the share capital or voting rights and/or benefits 5% or more from the legal person’s assets, revenue, or profits, as well as a natural person which controls the legal entity by any different means. When the ultimate beneficial owner is not identified by the criteria mentioned, the legal entity’s legal representative must be identified. If there is a natural person with higher hierarchy than the legal representative regarding the administration and direction of the legal person, that person must be identified.
The ultimate beneficial owners of an entity without legal status are the trustors or similar, the trustees or similar, fiduciary or financial committees, the beneficiaries or conditional beneficiaries, and any other natural person that effectively or ultimately controls or that has the right to benefit or decide over assets, results or profit.
If a legal person meets a criterion mentioned above, the ultimate beneficial owner of a legal person without a legal statute will be considered as the ultimate beneficial owner of the legal person that meets any of the criteria.
The DIAN regulates the ultimate beneficial owner registration, which is submitted through the Registro Único Tributario (RUT). Information required to be submitted includes the relevant names, tax identifications, nationality, and location. In addition, information is required on the criteria to determine the ultimate beneficial owner, shareholding percentages, and dates on which ultimate beneficial owner status is acquired or lost.
In case of any modification of this information, updates must be made virtually on the first day of January, April, July, and October of each year. If no modifications occur, there is no need to update the information provided to the registry.
The new resolution establishes the terms and conditions for the effective application of a tax identification system for entities without a legal status or similar entities exempt from signing up to the RUT. As a result, exempt entities without a legal status created before January 15, 2022, shall register with the identification system before September 30, 2022. An entity without a legal status created after January 15, 2022, shall register to the SIESPJ within one month after its creation.
For this system, the legal entity obliged to effectuate the registration must provide information on the type of legal entity or structure, the name and internally assigned alphanumeric code for its identification, the date of incorporation of the legal entity without a legal status, and the date of the dissolution of the legal entity without a legal status (if applicable). Information must also be included on the identification number assigned by the DIAN, administration starting date of the legal entity, the date of culmination of the administration of the legal entity, and any change of administrator of the legal entity
The resolution establishes that legal persons with and without legal status should identify, obtain, preserve, submit and update the registration information. To fulfill the obligations mentioned, natural and legal persons with or without legal status shall submit all required information by the subjects obligated to comply with the information required. The due diligence duty refers to all matters for the necessary acts to identify ultimate beneficial owners and the chain of control over a legal person with or without legal status.
In addition, persons obliged to submit information shall preserve the information submitted and its due diligence for five years starting from January 1 of the year following the one in which the information is submitted, maintained, updated, or erased from the registry.
When the person obligated to submit information to the registry does not successfully comply with the obligation, submits incorrect or incomplete information, and/or does not update the information within the given time, penalties apply. When the DIAN directly requests the information and it is not provided within the given time, the person will be subject to a penalty between USD 9,500 and 141,000.
If false information is provided, civil and/or criminal actions may proceed.
The information submitted will be treated as reserved information under the CTS norms. Nevertheless, under legal or constitutional mandate, authorized entities may use the information exclusively for inspection, surveillance, and control, financial and disciplinary investigations.