Colombia taxes the worldwide income of its tax residents, and the US may tax or withhold on US-source income. Because there is no income tax treaty between the two countries, relief depends on Article 254 of the Tax Code and on how the LLC is classified. Ligal calculates the credit, organizes the supporting documents and avoids both double payment and the omission of foreign assets, with lawyers, accountants and ex-DIAN experience.
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There is no treaty to avoid double taxation on income between Colombia and the United States. DIAN's list of international tax treaties records, for the US, agreements on maritime and air transport companies and on exchange of tax information, but no general income tax treaty, and the IRS list of income tax treaties (United States Income Tax Treaties) does not include Colombia. Without a treaty, relief depends on domestic law. Colombian tax residents are subject to income tax on their Colombian-source and foreign-source income and on their wealth held inside and outside the country (Tax Code, art. 9). Article 254 of the Tax Code (amended by article 93 of Law 2010 of 2019) lets resident individuals and Colombian companies that receive foreign-source income subject to income tax in the country of origin credit against Colombian income tax the tax paid abroad, whatever its name, assessed on that same income, provided the credit does not exceed the tax the taxpayer must pay in Colombia on that same income; for this limit, foreign income must be reduced by allocating revenues, costs and expenses. Tax paid abroad can be credited in the year of payment or in later periods, with the same limit based on foreign-source income of the same nature (paragraph 1).
How it changes with the LLC. A single-member LLC that the US treats as a disregarded entity has no obligation to file an income tax return as an entity, so there may be no income tax paid there to credit here; if it is foreign-owned and had reportable transactions, the IRS requires a pro forma Form 1120 with Form 5472, with a US$25,000 penalty for omission. If the LLC elected to be taxed as a corporation, it pays tax in the US as an entity and what it distributes to the member is a dividend: for dividends from companies domiciled abroad, article 254 provides a credit for the income tax paid abroad, with direct participation, proof of payment by a tax certificate from the relevant authority or other suitable evidence, and a certificate from the statutory auditor of the distributing company (items a to f). Independently of that, the controlled foreign entity regime (ECE, Tax Code, arts. 882 et seq.) may attribute to the Colombian resident the passive income of the LLC even if it is not distributed; in that case article 892 gives the right to the credits of article 254 in proportion to the participation, and paragraph 2 of article 254 governs the credit when only some passive income is attributed. In the US, payments of US-source income to a foreigner, such as dividends, are subject to withholding at 30% or at the treaty rate if there is one; since there is no treaty with Colombia there is no reduced rate by treaty, and Forms W-8BEN (individuals) or W-8BEN-E (entities) establish foreign status with the payer, who reports the withholding on Form 1042-S. For the LLC regime in Colombian income tax see declaring the LLC, and for the ECE regime see the ECE regime.
Keys to double taxation with an LLC
Ligal organizes the case end to end: how the LLC is classified, what was paid and where, how much can be credited and with what supporting documents, without promising results.
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We review the state of formation, the operating agreement, the federal classification (disregarded entity or corporation), the source of income, payments received, withholdings applied and the IRS forms filed or pending.
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We identify which income is taxed in the US and in Colombia, calculate the article 254 limit by reducing revenues, costs and expenses, and assess whether the ECE regime applies and how the tax paid abroad is credited.
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Jeysson Pulido and LIGAL Auditores gather the payment certificates, Forms 1042-S and returns, and we prepare the income tax return and the foreign-asset return so that the credit is supported.
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If the LLC was not declared, if a credit was taken without support or if assets were omitted, we assess how to regularize and, if DIAN has already opened a proceeding, we handle the defense end to end.
Double taxation of an LLC combines Colombian tax law, IRS forms and accounting. At Ligal the same team handles it.
Director · Ex-DIAN tax lawyer
Leads the legal strategy end to end: the LLC's classification, the article 254 credit, the ECE regime and the defense before DIAN if needed.
Accountant · Quantification and traceability
Rebuilds the LLC's flows, calculates the tax paid abroad and the credit limit, and prepares the supporting documents for the income tax and foreign-asset returns.
Certified public accountants
Accounting and technical support to reconcile the LLC's books with what is declared in Colombia.
That the US treats the LLC as a disregarded entity is a US-law classification; in Colombia the resident is taxed on worldwide income and wealth (Tax Code, art. 9), must analyze the ECE regime and declare foreign assets (art. 607) when they exceed the threshold. Omitting them can end in taxable income for omitted assets and an inaccuracy penalty (art. 239-1).
The credit cannot exceed the Colombian tax on that same income, which must be reduced by revenues, costs and expenses (art. 254), and for dividends a tax payment certificate or suitable evidence and the statutory auditor's certificate are required (item f). Without support the credit is lost.
The bank, platform or US client should receive the form that matches your foreign status (W-8BEN for individuals, W-8BEN-E for entities). A wrong form can mean withholding or reporting that does not apply.
With the LLC in hand, the first step is to know how it is classified for the IRS, what income it has and from where, whether there were withholdings or taxes paid, what forms were filed and how it was reported in Colombia. With that map the article 254 credit is calculated, the ECE regime is assessed and the supporting documents are organized. Ligal organizes the full route, from classification to the income tax return and the foreign-asset return. Juan Santiago Rodríguez Prieto, an ex-DIAN tax lawyer, leads the strategy together with accountant Jeysson Pulido and LIGAL Auditores (certified public accountants). The team, with lawyers, accountants and direct experience inside DIAN, handles real cases of audits, enforced collection and tax litigation.
Keep in mind: each case depends on the state, the structure of the LLC and its history. Ligal evaluates the situation and defines the route without promising results.
Director
Juan Santiago Rodríguez Prieto
Tax lawyer · Ex-DIAN
Each year without organizing the LLC can add taxes paid twice or undeclared assets. We assess your case within one business day. Use the form or open Diagnosis.
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TodayWe review the LLC documents, the operating agreement, the IRS forms, the Forms 1042-S, the statements and the returns filed in Colombia.
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1 business dayWe pinpoint how the LLC is classified, what was paid and withheld in the US, what was declared in Colombia and how much can be credited.
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ImmediateWe define the credit calculation, the missing supporting documents, the corrections or returns to file and who prepares each document.
Frequently asked questions
It depends on how the LLC is classified and what income it has. As a Colombian tax resident you are taxed in Colombia on your worldwide income and wealth (Tax Code, art. 9). If the LLC is a disregarded entity with no US-source income, it may not pay federal income tax there and then there is no double payment; if the US taxes or withholds on US-source income, or if the LLC is taxed as a corporation, there may be tax paid abroad and article 254 of the Tax Code lets you credit it in Colombia within its limits. The specific case must be calculated with the documents.
Not for income taxes. DIAN's list of international tax treaties records, for the US, agreements on maritime and air transport companies and on exchange of tax information, and the IRS list of income tax treaties does not include Colombia. That is why there are no treaty-reduced rates or residence tie-breaker rules, and relief depends on Colombian domestic law, mainly article 254 of the Tax Code.
Yes, under article 254 of the Tax Code: resident individuals and Colombian companies that receive foreign-source income subject to income tax in the country of origin may credit against Colombian tax the tax paid abroad, whatever its name, assessed on that same income. It must be tax that was in fact paid on that income, and it must be provable. If tax was withheld in the US on a US-source payment, that withholding is tax paid abroad whose credit should be assessed with Form 1042-S and the other supporting documents.
The credit cannot exceed the tax the taxpayer must pay in Colombia on that same income, and for this limit foreign income must be reduced by allocating revenues, costs and expenses (art. 254). Tax paid abroad can be treated as a credit in the year of payment or in later periods, and the excess carried to other periods is limited by the Colombian income tax generated on foreign-source income of the same nature as that which gave rise to the credit (paragraph 1).
A single-member LLC that the US treats as a disregarded entity does not file an income tax return as an entity with the IRS, but, if it is foreign-owned and had reportable transactions, it must file a pro forma Form 1120 with Form 5472, with a US$25,000 penalty for omission according to the IRS instructions. Since the entity does not pay federal income tax on its own, there is often no tax paid abroad to credit, except withholding or taxes on the owner for US-source income. That does not mean you need not declare in Colombia: the LLC participation, assets and income must be analyzed in your return.
Then the LLC pays tax in the US as an entity and what it distributes is a dividend. For dividends or distributions from companies domiciled abroad, article 254 provides a credit for the income tax paid abroad: it equals the amount of the dividends multiplied by the effective rate to which the commercial profits that generated them were subject, it requires direct participation in the capital that is a fixed asset (not a portfolio holding), it cannot exceed the Colombian tax generated by those dividends less attributable costs and expenses, and it requires a tax payment certificate or suitable evidence and a certificate from the statutory auditor of the distributing company.
If the LLC is a controlled foreign entity without tax residence in Colombia and you hold directly or indirectly 10% or more (Tax Code, arts. 882 and 883), its passive income may be attributed to you in your return even if you did not receive it (art. 890). In that case article 892 gives you the right to the article 254 credits in proportion to your participation, and if only some passive income is attributed, the credit corresponds to the tax effectively paid by the ECE on the same income, certified by the ECE and limited to the percentage of income attributed over the total (art. 254, par. 2). What is later distributed from profits already taxed under ECE is treated as income not constituting taxable income or occasional gain (art. 893).
According to the IRS, US-source income paid to a foreigner, for example dividends, royalties or certain services, is subject to withholding at 30% or at the reduced rate of the applicable treaty, if one exists; since there is no treaty with Colombia, there is no treaty-reduced rate, and certain income is exempt under US law itself. The foreigner gives the payer Form W-8BEN (individuals) or W-8BEN-E (entities) to establish status, and the payer reports the income and the withholding on Form 1042-S. That form is the natural support for tax paid abroad.
Article 254 requires, for the credit on dividends, proof of payment in each jurisdiction with the tax certificate of the relevant tax authority or other suitable evidence, and a certificate from the statutory auditor of the distributing company (item f). For other income it is wise to gather equivalent support: Forms 1042-S, IRS returns, payment receipts, the LLC's financial statements and the reconciliation with Colombian income. If the credit cannot be proven, it should not be taken.
Foreign assets that are not declared can constitute taxable income of the period under review, with an inaccuracy penalty on the additional tax (Tax Code, art. 239-1), and, depending on the value and circumstances, the case may escalate to the criminal sphere. A credit without support can be rejected with a penalty. The prudent course is to measure the risk and regularize before DIAN acts. Ligal assesses the case, quantifies and defines the route; if DIAN has already opened a proceeding, it handles the defense end to end.
That is a debatable point that must be analyzed case by case. Article 254 refers to tax paid abroad, whatever its name, assessed on that same income. A fixed state tax or an annual report fee, which is not assessed on income, hardly fits; by contrast, federal income tax or withholding on US-source income is tied to an income item. A credit should not be taken without reviewing its nature.
Ligal is a firm specialized in tax law and international planning. Led by Juan Santiago Rodríguez Prieto, an ex-DIAN tax lawyer, together with accountant Jeysson Pulido and LIGAL Auditores (certified public accountants), we combine legal analysis with accounting reconciliation and organize the case end to end: the LLC's classification, the credit calculation, the supporting documents and the Colombian return. Our work is backed by 5.0 / 5 on Google with 36 reviews: https://share.google/VVzMvULrOj8Mj52Au. The team handles real cases of audits, enforced collection and tax litigation. No result is guaranteed.
Free. Attach the LLC documents, the IRS forms, the Forms 1042-S and what you already declared in Colombia. We evaluate the credit and the pending items.