Last month, the Colombian Congress began processing a tax reform that could have devastating collateral effects for startups in this country. Now, the Colombian Finance Minister José Antonio Ocampo favored the creation of a special rule in the tax reform stating that entrepreneurs are not subject to the wealth tax for a certain period of time.
The 22nd article on the proposed tax reform defines the taxable base for the new wealth tax and establishes that the intrinsic value of the shares of the companies will be taken into account for its calculation, after dividing the liquid equity by the number of shares.
The potential impact of this tax reform alarmed entrepreneurs, whose startups’ private valuations are based on future projections due to the financing mechanisms that exist for this type of company. The Colombian entrepreneur Alex Torrenegra explained why this reform could have a devastating effect on the country’s startup ecosystem:
“When an entrepreneur receives a million dollars of investment, that is for the operation of the company, not for his pocket, and he would have to go into debt to be able to pay a tax like this. In a startup, the day they sell, they will have the cash and then they will pay taxes on that cash”.
The Minister José Antonio Ocampo asked entrepreneurs to present a concrete proposal to help correct the affectation startup founders would face if they were impacted by this wealth tax. Ocampo also highlighted a possible obstacle:
“We would have to see how to exclude subsidiaries of foreign companies and large economic groups from this.”
In many cases, startups are created in places such as Delaware or the Cayman Islands in order to access financing mechanisms like VC funding. In these cases, their operations in Colombia end up as subsidiaries.
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