ECOVIS Hellas is represented by ECOVIS Hellas L.T.D. (Business and Tax Advisors).
We are comfortable dealing with the needs of inbound Multinational Groups and Listed Companies as well as fast growing, entrepreneurial businesses.
Dividend Withholding Tax in Colombia for Non-Residents
In Colombia the withholding tax rate for dividends or participations paid to non-residents is at 10% of the value of the payment. For many of those affected, this caused astonishment and unrest, as taxes on dividends were previously not paid in Colombia.
With the introduction of Law 1819 in 2016, which was modified in Article 51 of Law 2010 of 2019, the receipt of dividends by shareholders or participants of Colombian companies was, for the first time, considered a taxable event. Colombia chose a system of withholding at source on payments or credits on account made to the non-resident partner or participant.
Businesses not resident in Colombia must pay withholding tax on dividends. Giovanny Tellez, Legal Advisor, ECOVIS Colombia SAS, Bogotá, Colombia
Who Must Pay Withholding Tax on Dividends
The 10% rate is applicable when there is no Double Taxation Avoidance Agreement (DTAA) in place. Where there is a DTAA, the applicable rate would be the one established in the agreement and the withholding may even be reduced to 0%, depending on the residence and nature of the beneficiary.
In Colombia, resources distributed by branches or permanent establishments to the main company are treated in the same way as dividends. Therefore, when distributing profits, a Colombian branch of a non-resident company must withhold 10% at source if there is no DTAA.
It is also relevant to verify if the company or entity distributing the dividends has paid taxes on its profits. If not, it is possible that the withholding is increased up to the amount of the tax not paid by the company distributing the profits, explain the Ecovis experts.
This usually occurs with income that is exempt for the partnership, but which cannot be distributed as “income not constitutive of income or occasional gain” in favour of the partners. In this case, the 10% withholding would be applied once the deduction of the unpaid tax is made on behalf of the partnership, as established in Articles 48 and 49 of the Colombian Tax Statute.
Mergers and Acquisitions (“M&A”) are considered one of the fastest ways to help investors expand into new markets, create synergies, and grow revenue. To minimize potential legal and commercial risks, a thorough assessment of the target company must be conducted. Legal due diligence (“LDD”) is one of the most important types of due diligence.
1. When does legal due diligence start?
Normally, after the parties have already signed:
(i) a letter of intent or Memorandum of Understanding (MOU) between the investor and the seller;
(ii) a non-disclosure agreement;
(iii) and, in certain circumstances, after an initial deposit is made to confirm that the deal is serious enough for the company to prepare the initial documents.
2. Legal issues covered in due diligence
2.1. Legal status of target company
Enterprise Registration Certificate, Investment Registration Certificate, Business License and other granted certificates
2.2. Financial status of target company
Capital, bank account and financial obligations
Shareholders, contributed capital and contribution status of shareholders
Corporate governance, company charter, recent meeting minutes and decisions issued
Process and feasibility of capital transfer
Labor contracts and human resources policies of the company
Documents related to the ownership or long-term rental of assets: real estate, machines, equipment, etc.
Financial reports, audit reports
Any pending or signed agreements currently in place
Any outstanding loans, debts, or obligations
2.3. Intellectual property
Documents related to the possession of trademarks, trade names, design, etc.
Infringement of intellectual property rights of organizations or individuals
2.4. Disputes and litigation
Disputes in which the target company was/is a party to the dispute
Civil, commercial, administrative lawsuits in which the target company was/is the plaintiff or defendant
3. Advice from our team
Legal due diligence should be conducted by a law firm or registered lawyer in Vietnam.
When selecting a lawyer, it may be helpful to find someone who is conversant in both Vietnamese and the native tongue of the investor.
The investor typically determines the scope of the legal due diligence and may identify key issues to research and review. This will help ensure that the proposal and recommendations generated during this engagement meet the client’s expectations.
Holding Law: Poland to Introduce a New Revolutionary Holding Regulation
Legislation related to corporate groups in Poland is picking up speed. A draft law has now been submitted which reorganises the powers of parent companies over subsidiaries. This includes, for example, that parent companies can issue legally binding instructions or request inspection of the subsidiary’s books.
As reported several months ago (see box), legislative work related to groups of companies (holdings) has accelerated in Poland in 2021. The government recently sent an official draft to parliament. The draft indicates a “vacatio legis” of six months, which means that depending on the pace of the legislative process, it can be expected that a holding regulation will come into force in the first half of 2022.
We can advise you on which measures you can consider if you are affected by the changes in the new holding law. Piotr Pruś, Attorney-at-law, Partner, ECOVIS Legal Poland, Warszawa, Poland
The Cornerstones of the New Holding Law
The new law provides for some new solutions, such as the parent company’s power to issue legally binding instructions to subsidiaries that have elected to participate in a group of companies.
In addition, the supervisory and management bodies of the parent company will have the right to inspect the books and documents of the subsidiary, which is not currently the case. However, this solution will merely confirm the already existing practice in many companies.
What the New Holding Law Means for Shareholders
A shareholder representing no more than 10% of the share capital of a subsidiary will have the right to request that the parent company purchase its shares (a sell out right). On the other hand, the parent company will have the right to squeeze out minority shareholders of the subsidiary holding no more than 10% of the share capital of the subsidiary.
Balancing out the newly introduced right to issue legally binding instructions to subsidiaries, the parent company will bear material liability towards creditors of the subsidiary. This means that the creditors of the subsidiary will have the right, under certain conditions, to claim compensation from the parent company for any damage to creditors caused by such binding instructions being issued, say the Ecovis advisers.
The holding law will affect the operations of all capital groups with subsidiaries in Poland. In the coming months, shareholders and managers of such groups will have to consider and prepare the appropriate actions. This is important, as a decision on whether to participate in a group of companies will have a material influence on the operations of not only the subsidiary, but also the parent company, explain the Ecovis experts. The draft also contains numerous other new provisions, especially concerning the organisation and conduct of the supervisory board.
Do you want to know more about the holding regulations in Poland?
Poland is reforming its company law and wants to introduce more robust rules for holding companies. The proposed changes will be essentially important for all companies in a group of companies registered in Poland. More: