There is no income tax treaty in force between the United States and Colombia. The two governments signed a Convention for the Avoidance of Double Taxation years ago, but the US Senate has never given its advice and consent, so the agreement has no legal effect. Colombia does not appear on the IRS list of countries with an active US income tax treaty.1Internal Revenue Service. United States Income Tax Treaties – A to Z Every dollar of cross-border income is taxed under each country’s domestic law, at full statutory rates, with the foreign tax credit as the main tool for softening the overlap.
Why “Signed” Does Not Mean “In Force”
The proposed agreement is formally titled the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. Under the US Constitution, a tax treaty takes effect only after Senate ratification and the formal exchange of instruments between the two governments. Neither step has happened. No timeline for Senate action has been announced, and signed tax treaties can remain pending for years or decades.
If and when the convention is ratified, its withholding rules would generally start on January 1 of the calendar year after ratification, and its other income tax rules would apply to tax years beginning on or after January 1 of the following year. Until that happens, assume no treaty-based rate reduction is available on any payment moving between the two countries.
What You Actually Pay Today
US Tax on Payments to Colombian Residents
The United States imposes a flat 30% withholding tax on most types of fixed or determinable income paid to nonresident aliens and foreign corporations when no treaty applies. That covers dividends, interest, royalties, rents, and similar passive income.2Internal Revenue Service. Taxation of Nonresident Aliens No deductions are allowed against this income. A Colombian investor receiving dividends from a US corporation pays the full 30% at the source, with no treaty rate to fall back on.
Colombian Tax on Payments to US Residents
Colombia’s domestic rates on outbound payments are also high. Dividends paid to non-residents from fully taxed profits face a 20% withholding tax. Interest on foreign loans and royalty payments to non-resident recipients are each subject to 20% withholding. Colombian-source income earned by non-resident individuals or corporations is generally taxed at a flat 35%. Capital gains from selling assets held more than two years are taxed at 15% for non-residents.
These rates apply in full. There is no treaty mechanism to reduce them, and the combined bite from both countries taxing the same income can be heavy before credit relief.
The Foreign Tax Credit Is Your Main Relief
Even without a treaty, US taxpayers are not fully exposed to double taxation. US citizens and residents can claim a credit against their US tax for income taxes paid to Colombia on the same income. Individuals file Form 1116; corporations file Form 1118.3Internal Revenue Service. Foreign Tax Credit
The credit is capped. The limit equals your total US tax liability multiplied by the ratio of your foreign-source taxable income to your total taxable income from all sources.4Internal Revenue Service. Foreign Tax Credit – How to Figure the Credit In practice, your combined burden on Colombian-source income lands at roughly the higher of the two countries’ rates. If Colombia taxes the income at 35% and your US rate on that income would be 24%, the credit zeroes out the US tax on it, and excess credits may carry forward. If the US rate is higher, you pay the gap to the IRS.
Colombia operates a parallel system: Colombian residents can credit foreign taxes paid against their Colombian liability, so a Colombian taxpayer with US income can reduce their Colombian bill on the same earnings. The foreign tax credit exists under each country’s domestic law and does not depend on a treaty.
Foreign pension distributions received by US taxpayers are generally taxable on US returns, even when no Form 1099 is issued. The taxable amount is the gross distribution minus the taxpayer’s cost basis (their own after-tax contributions). A foreign tax credit may apply to any Colombian tax withheld on the payment.5Internal Revenue Service. The Taxation of Foreign Pension and Annuity Distributions
Social Security Falls Outside Any Agreement
The US and Colombia do not have a social security totalization agreement. These agreements prevent workers from paying social security taxes to both countries on the same earnings and let them combine work credits toward benefits in either system. Without one, a US citizen working in Colombia can owe social security contributions to both governments on the same wages with no offset. The proposed income tax treaty would not address this gap.
Reporting Rules That Apply Right Now
The absence of a tax treaty does not mean the two countries are not sharing information. Several US reporting duties apply to anyone with Colombian accounts or assets, and the penalties for missing them can dwarf the underlying tax.
FBAR (FinCEN Form 114)
Any US person with a financial interest in or signature authority over foreign financial accounts must file an FBAR if the combined value of those accounts exceeded $10,000 at any point during the calendar year. That reach covers bank accounts, brokerage accounts, and certain insurance policies at Colombian institutions. The FBAR is filed electronically with FinCEN, not the IRS, and is due April 15 with an automatic extension to October 15 that requires no request.6Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
Penalties are stiff. A non-willful violation can draw up to $10,000 per account per year (adjusted for inflation). A willful violation can run to the greater of 50% of the account balance or $100,000 per violation. These amounts apply per account and per year, so unreported history compounds fast.
Form 8938
Separately from the FBAR, certain US taxpayers must report specified foreign financial assets on Form 8938, filed with the income tax return. Thresholds vary by filing status and whether you live in the US or abroad:7Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets
- Single filers in the US: more than $50,000 on December 31 or $75,000 at any point in the year.
- Married filing jointly in the US: more than $100,000 on December 31 or $150,000 at any point in the year.
- Single filers abroad: more than $200,000 on December 31 or $300,000 at any point in the year.
- Married filing jointly abroad: more than $400,000 on December 31 or $600,000 at any point in the year.
Form 8938 reaches further than the FBAR, picking up foreign stocks and securities held outside an account, interests in foreign entities, and various foreign financial instruments. The penalty for failing to file starts at $10,000, with another $10,000 for each 30-day period of continued non-compliance after IRS notice, up to $50,000.
FATCA Information Exchange
The US and Colombia signed a FATCA intergovernmental agreement in 2015 that requires reciprocal automatic exchange of financial account information. Colombian banks report accounts held by US persons to DIAN, which forwards the data to the IRS. US banks do the same in reverse for Colombian residents.8Department of the Treasury. Agreement Between the Government of the United States of America and the Government of the Republic of Colombia to Improve International Tax Compliance and to Implement FATCA The IRS already sees accounts US persons hold at Colombian banks, treaty or no treaty. Non-reporting is far more exposed than it looks.
What Would Change If the Treaty Is Ratified
If the convention eventually enters into force, the biggest practical shift would be lower withholding ceilings on cross-border passive income. Dividends would be capped at 5% when the recipient is a company directly holding at least 10% of the paying company’s voting stock, and 15% in all other cases, including portfolio and individual investors. Interest would be capped at 10%, with full source-country exemption for interest paid to the other country’s government or a government-controlled institution and for interest arising from credit sales of merchandise or equipment. Royalties for the use of copyrights, patents, trademarks, similar intellectual property, and industrial or scientific equipment would be capped at 10%.
On the business side, a US company’s active profits would be taxable in Colombia only to the extent earned through a “permanent establishment” there (a fixed place of business such as an office, branch, factory, or workshop, or a construction project lasting more than twelve months), and the reverse would apply to Colombian companies in the US. Employment income would generally be taxed only in the employee’s country of residence, with a short-stay exception that keeps the source country out when the employee is present fewer than 183 days in any twelve-month period, the employer is not a resident of the source country, and no permanent establishment there bears the cost of the pay. Independent personal services would follow a similar pattern, keyed to whether the individual maintains a fixed base in the source country or exceeds 183 days of presence.
Capital gains from selling shares and other investments would generally be taxable only in the seller’s country of residence, except for gains on shares that derive more than half their value from real property in the other country, which the source country could still tax.
The treaty would also open a Mutual Agreement Procedure, letting taxpayers ask the IRS and DIAN to consult directly when the two tax authorities tax the same income in a way the treaty was not meant to allow. That channel does not exist today; disputes have to be worked through each country’s domestic appeals process separately. And it would include a standard saving clause preserving the US right to tax its own citizens and residents on worldwide income as if the treaty did not exist, with the foreign tax credit carved out as an exception. A US taxpayer who later claims a treaty benefit on a return would also need to file Form 8833 to disclose the position, with a $1,000 penalty for an individual (or $10,000 for a C corporation) per missed position.9Internal Revenue Service. Form 8833 – Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) None of this is relevant for a return filed today.
For now, plan around full domestic rates in both countries, lean on the foreign tax credit for relief, and keep the FBAR, Form 8938, and FATCA obligations current. The treaty may change the math eventually. It has not yet.