If you are a Colombian tax resident, what you withdraw from your LLC must be analyzed under Colombian law: dividends from foreign companies are taxed in Colombia (Art. 242 E.T.), a credit for taxes paid abroad may apply (Art. 254), and if the LLC earns passive income the ECE regime can apply even when you withdraw nothing.
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Colombian tax residents are taxed on their worldwide income, so what a US LLC distributes to its Colombia-resident owner is not exempt from Colombian income tax. Before discussing rates, three questions must be answered. First, where is the LLC actually managed? Under Article 12-1 of the Tax Code (Estatuto Tributario, E.T.), a foreign company whose effective place of management is in Colombia — where commercial and day-to-day management decisions are materially taken — is considered Colombian for tax purposes and would then be taxed in the country as such. Second, how is the LLC classified in Colombia? The US classification (disregarded entity or corporation by election) is a US tax-law concept and does not automatically determine Colombian treatment, which looks at the LLC as a foreign entity with its own legal personality and also applies the controlled foreign entity rules; the treatment in Colombia must therefore be analyzed case by case. Third, what exactly is being withdrawn and with what supporting documents? On dividends, the second paragraph of Article 242 E.T. (as amended by Article 3 of Law 2277 of 2022) provides: "A esta misma tarifa estarán gravados los dividendos y participaciones recibidos de sociedades y entidades extranjeras" — that is, dividends and shares received from foreign companies and entities are taxed at the same rate. The applicable rate is determined under that article, and it should be reviewed with your advisor.
To avoid double taxation, Article 254 E.T. (as amended by Article 93 of Law 2010 of 2019) gives residents with foreign-source income taxed in the country of origin a credit for taxes paid abroad, which cannot exceed the Colombian tax on that same income. For dividends from foreign companies it requires direct participation (not portfolio), proof of payment through a tax certificate from the foreign authority or other suitable evidence, and a certificate from the statutory auditor of the distributing company. A single-member LLC that is disregarded in the US usually pays no US income tax at entity level, so there may be no tax paid abroad to credit. Separately from withdrawals, the controlled foreign entity (ECE) regime (Arts. 882 to 893 E.T., added by Article 139 of Law 1819 of 2016) covers entities without Colombian tax residence that are controlled by Colombian residents, whether transparent or not: if you hold, directly or indirectly, 10% or more of the capital or results, the ECE's passive income (dividends, interest, royalties and similar) is deemed realized by you in the year the ECE earned it, in proportion to your participation, even if it was never distributed. The presumption in Article 885 treats everything as passive if passive income is 80% or more of total income, and everything as active if active income reaches that same 80%. Dividends the ECE later distributes out of profits already taxed under this regime are non-taxable income and not an occasional gain (Art. 893). The foreign-exchange aspects of bringing in or keeping funds abroad are part of our exchange law (derecho cambiario) practice.
Key points for anyone withdrawing from an LLC
Ligal reviews your LLC, your withdrawals and your Colombian return as a single case, so that what you withdraw is classified, supported and reported with sound judgment.
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We analyze how your LLC looks from Colombia (a foreign entity with its own legal personality, not just its US classification), where decisions are actually taken (Art. 12-1 E.T.), and whether what you receive should be treated as a dividend or as something else.
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We determine whether there is tax paid abroad to credit, whether the direct-participation requirement is met, and which certificates are needed, including the one from the distributing company's statutory auditor. If no tax was paid abroad, we tell you.
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We check whether you are covered through your participation (10% or more), how the LLC's active and passive income is split, the 80% presumption in Art. 885 and the effect of Art. 893 on dividends from profits already taxed.
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We include the income in your return, handle the annual declaration of assets abroad and assemble the withdrawal file: distribution minutes or resolutions, the LLC's financial statements and bank statements.
An LLC withdrawal combines international tax law and accounting, which is why a team of lawyers and accountants within the same firm handles it.
Director · Tax lawyer, former DIAN
Leads the legal analysis: effective place of management, classification of the LLC in Colombia, the ECE regime and the Art. 254 E.T. credit, as well as defense before the DIAN if requirements are issued.
Accountant · Quantification and tax return
Translates the LLC's financial statements and movements into the Colombian return: separates active and passive income, quantifies what is attributable to your participation and prepares the supporting documents.
Public accountants · Law 43 of 1990
Public accountants who prepare and review the accounting information and the certifications that support the credit and the reporting of withdrawals.
As a Colombian tax resident you are taxed on your worldwide income. Our work is to classify the withdrawal correctly, apply the credit that applies and report with supporting documents — not to hide income.
That the LLC is transparent for the US tax authority does not by itself define its Colombian treatment. We analyze each case, without automatic formulas.
An LLC with passive income can trigger obligations even if you withdraw nothing. And bringing in or keeping funds abroad carries exchange rules that must be addressed from the start.
Ligal advises Colombian tax residents who own a US LLC and withdraw money to Colombia. The work starts with the effective place of management, moves on to the classification of the LLC and of the withdrawal, evaluates the credit for taxes paid abroad and the controlled foreign entity regime, and ends in the income tax return with its supporting documents. Juan Santiago Rodríguez Prieto, a tax lawyer and former DIAN official, leads the analysis together with accountant Jeysson Pulido and LIGAL Auditores (public accountants, Law 43 of 1990). The firm handles real audit, enforced-collection and tax-litigation cases: in a verified Google review, client Julian Rodriguez says that, thanks to the representation before the DIAN, "logramos el archivo de un litigio tributario que teníamos en contra de mi empresa" (we achieved the closure of a tax dispute that had been brought against my company).
Please note: Ligal advises on the Colombian side. For US federal and state obligations, check with your advisor in that country.
Director
Juan Santiago Rodríguez Prieto
Tax lawyer · Former DIAN
We review your LLC, your withdrawals and your residence situation within 48 business hours. Use the form or open Diagnosis.
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TodayThe LLC's state, its activity, your participation, where it is managed from, how much you have withdrawn and with what supporting documents.
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48 business hWe assess effective place of management, treatment of the withdrawal, a possible Art. 254 E.T. credit and whether there is passive income under the ECE regime.
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Case by caseWe define how to report the withdrawals and the assets abroad, and which documents to keep to support them before the DIAN.
Frequently asked questions
Colombian tax residents are taxed on their worldwide income, so LLC withdrawals must be analyzed under Colombian income tax. How the withdrawal is classified (for example, as a dividend from a foreign company) depends on the LLC and the supporting documents, and the treatment in Colombia must be analyzed case by case.
Yes. The second paragraph of Article 242 of the Tax Code, as amended by Article 3 of Law 2277 of 2022, provides: "A esta misma tarifa estarán gravados los dividendos y participaciones recibidos de sociedades y entidades extranjeras" (dividends and shares received from foreign companies and entities are taxed at that same rate). The applicable rate is determined under Article 242 E.T. as amended by Law 2277 of 2022, and it should be reviewed with your advisor.
The US classification (disregarded entity or corporation by election) is a US tax-law concept and does not automatically determine treatment in Colombia. Colombia analyzes the LLC as a foreign entity with its own legal personality and also applies the controlled foreign entity rules. The treatment in Colombia must therefore be analyzed case by case.
Article 254 of the Tax Code, as amended by Article 93 of Law 2010 of 2019, gives residents with foreign-source income taxed in the country of origin a credit for taxes paid abroad, not exceeding the Colombian tax on that same income. For dividends from foreign companies it requires direct participation, proof of payment (a tax certificate from the foreign authority or other suitable evidence) and a certificate from the statutory auditor of the distributing company. Any excess may be used in following periods, subject to limits. If a single-member LLC is transparent in the US, there may be no tax paid abroad to credit.
Articles 882 to 893 of the Tax Code, added by Article 139 of Law 1819 of 2016, regulate ECEs: entities without Colombian tax residence that are controlled by Colombian residents, including companies whether transparent or not. Residents with a direct or indirect participation of 10% or more in the capital or results are covered (Art. 883). Passive income, such as dividends, interest or royalties, is deemed realized by the resident in the year the ECE earned it, in proportion to the resident's participation (Art. 886). An LLC that actively sells services usually has active income, but if it generates passive income the regime operates every year, even without withdrawals.
Under Article 885 of the Tax Code, if the ECE's passive income is 80% or more of its total income, all of its income is treated as passive; and if active income is 80% or more, all of it is treated as active. In addition, Article 893 provides that dividends the ECE distributes out of profits already taxed under the regime are non-taxable income and not an occasional gain, to avoid double taxation.
Article 12-1 of the Tax Code treats as Colombian, for tax purposes, a foreign company whose effective place of management is in Colombia, that is, where commercial and day-to-day management decisions are materially taken. If your LLC is run that way from Colombia, the DIAN may treat it as a Colombian company, which would then be taxed in the country as such. This situation should be analyzed before planning withdrawals.
Keep distribution minutes or resolutions, the LLC's financial statements and the bank statements that support each withdrawal. Besides the income tax return, there is an annual declaration of assets abroad. Check with your exchange-law advisor the obligations of channeling and registering the foreign investment with the Banco de la República; this is part of our exchange law (derecho cambiario) practice. Ligal, the reference tax-law firm in Colombia, handles everything with its own lawyers and accountants under the direction of Juan Santiago Rodríguez Prieto, a tax lawyer and former DIAN official, with 5.0 / 5 on Google and 35 reviews.
Free. Tell us about your LLC, your participation and your withdrawals. We assess effective place of management, treatment in Colombia, the Art. 254 E.T. credit and the ECE regime.