Peter: Tax and your foreign Pension

Lowell says on Jun 22, 2007, 07:18:

10K a month in retirement. In my dreams! never in my lifetime!

Alfred E. Newman. "What. Me Worry?"

gringoloid says on Jun 22, 2007, 07:28:

Elk, thanks for your persistence in finding an answer for us. I got a medical extension on my tourist visa from DAS but my days here are running out. I have to get a visa soon and am trying to decide which way to go.

Yes, Esteban is a nice guy as lawyers go, I tried to hire him but I found he in in MDE and I'm in Bogota.

I hope that he includes some sources I can cite as I've heard about 15 different stories from the Embajada de Col in Los Angeles to the lawyers here in Bogota.

Thank you all for your help in this matter......

orestesdd says on Jun 22, 2007, 08:53:

When I retire, I will be getting about 2K a month in USD. However, my 401K account will have more money. I wonder how a foreign account from which I will withdraw for my retirement will be treated in Colombia.

I am visiting Colombia very soon, and I may want to retire there; thus, I am very interested in this thread.

Miguel_Clavo says on Jun 22, 2007, 10:51:

So we have a confirmed siting of Esteban...that is a good thing....i think that since the number of people who plan on retiring in Colombia will be on the rise for quite some time now, maybe Peter can create a "Services" Forum which might include PBH members posting leads on Colombian and non-Colombian reliable and sharp "Services" contacts such as lawyers, accountants, CPA, bookkeepers, Real Estate, immigration specialists, etc. As most of you know, a sharp and reliable lawyer, accountant, CPA is worth every penny spent on them. Basically, i would never refer someone to a lawyer, CPA, etc, who is not worthy of my referral and my reputation as the referring person. Posters who use these people can post their comments on the use of the contact. It would be basically a networking forum for all the expats and retirees living in Colombia......Retiring in Colombia was what brought me to PBH in the first place......a Services forum would also help Colombians who also could access the contacts, etc.......

"I would rather die living life, than to live a dying life."........ Oh, and my PM is always ON. Great Bumper Sticker: "Home of the Free, Because of the Brave"

Miguel_Clavo says on Jun 22, 2007, 10:57:

i created a new thread asking for Peters thoughts on a Services forum titled

Peter........how about a "Services Forum" for PBH?

FYI

"I would rather die living life, than to live a dying life."........ Oh, and my PM is always ON. Great Bumper Sticker: "Home of the Free, Because of the Brave"

lawyer CO says on Jun 22, 2007, 12:09:

Pensionado Income tax and general tax information.

By

Esteban R.
Colombian lawyer
Email: lawyerscolombia at yahoo.com


This is a short response to the questions regarding tax of foreign pensions and other income while residing in Colombia. I contacted DIAN which is equivalent to the U.S. Internal Revenue Service for answers to these questions. The following information is current as of 7 April 2007

Definitions:

Residency: For tax purpose, an individual is considered a resident of Colombia when has been living in Colombia for at least six months, which can be continuous or discontinuous.

Income Tax: Foreign citizens are obligated to pay income tax on income derived from a national source. Example: They work for a company here in Colombia and receive a salary.

Question 1: When is a foreign citizen required to pay taxes?

According to Colombian law foreign residents are required to pay tax on worldwide income after five years of residency in Colombia be it continuous or discontinuous residency. Certain types of income whose source is in Colombia, are however excluded and they must be pay since the first day the foreign citizen has the residence ( see tax definition).

Exclusions:

A Social security benefit from a foreign government would be exempt from Colombian tax.

All non-national pensions of less than $10,000 dollars per month are exempt.


In conclusion, you must pay income tax on all foreign income after five years of residency in Colombia, but not all that income will be taxable. You should consult your accountant for specific information.

Again, foreign pensions are not considered taxable income in Colombia unless they exceed $10,000 per month. I have asked DIAN to provide written documentation to cover the above questions and DIAN’s legal opinion in the matter.

orestesdd says on Jun 22, 2007, 12:43:

So if I were to retire in Colombia, and I withdrew, say $1K or $2K USD a month from my 401K retirement plan, then I would not have to pay any taxes at all in Colombia for this "income". I hope I understand correctly this. I know that the US government and perhaps California may want to tax my 401K withdrawals, but that I will figure out that as I get closer to retirement.

griffbos says on Jun 23, 2007, 10:53:

orestesdd, trying to get an address in a State that doesn't have an income tax and you should be able to escape part of the tax on your 401K, I am moving to Colombia soon and as of Jan 2008 I will be have a New Hampshire address so I do not have to pay a state income tax.

orestesdd says on Jul 18, 2007, 10:12:

griffbos:

I don't understand your reasoning. When I retire to Colombia, I will not have a US address at all. My permanent address will be in Colombia. I still think that California and/or the USA IRS will want to collect taxes on my 401K since it was money earned here.

rumronrum says on Aug 11, 2007, 06:35:

Don't fool yourself. Once you become a resident in Colombia you will pay more taxes then you expected...........Stay 5 years and you become a resident.

RumRonRum

sloopskipper says on Nov 14, 2007, 05:48:

Orestesdd, as you approach ex-patriation you will learn many things, perhaps like me, the value of maintaining a U.S. mailing address. I currently live in Panamá and have an account with http://airbox.ws which gives me two mailing addresses in Miami, one for letters, and another for packages. There is no broad based Florida income tax, or so I have read. But since this is only a mailing address I’m not so sure that is important.

I guarantee this makes my life easier, because receiving mail internationally can be difficult, and some times impossible. Almost anything you register for, in the USA, especially on internet, demands a city/state/ZIP, and often a telephone number. Many organizations block, out-going, international calls.

My mail is received in Florida and flown to Panamá and delivered to my apartment (there is no home delivery by the Panamanian postal “system�). That costs me about $20-25 per month, I think, depending on volume. I have inquired and they do offer service in Colombia, even in Cartagena (I just returned from there and am considering moving).

I also have a Skype-In telephone number with a Pennsylvania area code, (717). If you call that number, the call is forwarded to my cell-phone here in Panamá, see www.Skype.com

The number costs me less than $30 per year and incoming calls are about 2¢ per minute. Additional benefits are that, using a headset on my computer, I can call most countries for the same price, on the average (toll free numbers, in most countries are free calls). And computer-to-computer calls are free, anywhere, anytime.

Businesses are beginning to publish Skype addresses so you can call free, from your computer. You don’t have to be a network engineer like me to use it, it’s rather easy.

aztec says on Nov 14, 2007, 09:35:

sloopskipper, you are correct concerning a mailing address. One can manage their stay in Colombia easier if you maintain an official address in Florida. The Mailbox is an efficient way of accomplishing this.

Furthermore, Florida doesn't have an income tax and thus most pensions will not be taxed. Some states like California will still go after their expatriates.

Unless of course one wishes to surrender their US citizenship. Very few people are that dissatisfied with the USA. Expressions to the contrary are just false bravado.

I have attempted for 3 years to find an answer regarding taxing a foreign pension in Colombia. It is easy to read that all income will be taxed after the five year period. A literal interpretation would mean that both Colombia and the USA (plus some U.S. States) would tax the same pension income.

I suspect no one has a definitive answer. Certainly not the majority of accountants and lawyers.

orestesdd says on Dec 28, 2007, 06:58:

sloopskipper, I still think that California would love to get their hands on my 401K since I earned all my money in California. By the way, I am a computer programmer, and I understand what you are saying. I am still confused about how to maintain a physical address in the US when I don't even own any property here.

I've been tall elsewhere that I should keep my money in a US bank, but I will find that difficult once I move to Colombia. I will need a bank which allows me to use its ATM card permanently from Colombia. I know that I am years away from retiring if my health holds up; however, if I am forced to retire, then I may have to move to Colombia sooner rather than later.

Any more comments are really appreciated on this subject. Thanks.

rjstuff says on Apr 17, 2008, 10:38:

Orestesdd - I have a 457 account (similar to a 401) and all they withhold when I withdraw is Federal Income taxes (I have withdrawn just $4,000 so far). My friend in the Colorado State Revenue Department (I retired from there) tells me that there is 'No' state income taxation if I move to a foreign country (I was planning on Costa Rica but now I am thinking possibly Colombia). If I understand all the rules correctly - I can move to Colombia, become a resident and eventually a citizen - I will not have to pay taxes on my pension income till 2028 when my monthly pension would exceed $10,000. (At that point I will be 78!) And then only the portion exceeding the $10,000 would be taxable. However, during all this time, I will keep on paying Federal Taxes. I will get a savings on my state taxes once I move - So I would save $1,000 or more per year in State taxes. It wouldn't matter if I am maintaining an address in Colorado for example (for mail forwarding etc.) as it would be a non-resident address anyway - similar to if I now buy a home and move to Florida or Texas (or any of the other states without a state Income Tax) and still keep a vacation home here (not rental - then it becomes a business property and the rental income is taxable by the state etc.) - I would not be paying taxes in Colorado when I withdraw my 457 or other annuity moneys if I have moved out of Colorado (whether to Florida or to a Foreign country). Hopefully, more info is available sooner or later and we can get the Colombian source citation to use when we do move. Good Luck

robi666 says on Apr 17, 2008, 13:01:

"It is easy to read that all income will be taxed after the five year period. A literal interpretation would mean that both Colombia and the USA (plus some U.S. States) would tax the same pension income.

I suspect no one has a definitive answer. Certainly not the majority of accountants and lawyers."

Same here, changing USA with Italy.

"I am a citizen of the most beautiful nation on earth. A nation whose laws are harsh yet simple, a nation that never cheats, which is immense and without borders, where life is lived in the present."

rjstuff says on Apr 17, 2008, 17:21:

robi - my contact states that no US state will tax your income once you move out of that state and of course out of USA also. My contact is a high official in the Collections and Enforcement division - and I trust him just as he trusted me with my line of expertise. Some of his friends are living in Costa Rica and do not pay any Colorado Income taxes. How Colombia will treat it, is not absolutely clear, but I like the exemption of pensions up to $10,000 a month. I assume, some pension recipients are living in Colombia - hopefully one of them may let a PBH member know and that person might post it here. I will of course find out once I move there - We are currently looking but have not decided yet. Buenos

robi666 says on Apr 17, 2008, 17:31:

Ok, that could easily be that about pension. But, if you do not pay in the US, I'd assume that you should pay in Colombia. But, as stated before, it is still unclear. I doubt there is a tax agreement between the US and Colombia.


But, I was referring more to general sources of income.
A tax agreement is usually signed between two countries to avoid double taxation.

There for example agreements in act between Argentina and Italy, or between Uruguay and Italy. It is not necessary to mention about the US and Italy.
As an example, it is a normal habit between developed countries, that income from real estate properties is taxed where the properties are. Similar rules are usually in act for any source of income.

Now, there are no agreement between Colombia and Italy, so I was answered by the Italian Tax Ministry that, in absence of a treat, Italy applies international habits and that they will tax my income there, and NOT my Colombian properties.
But they CANNOT assure the fact that I will not be taxed again in Colombia on my Italian properties.

If Colombia applies the international habits, no problem. In the other case, double taxation.
Will it be left to the interpretation of the Dian officer studying the single case?

I decided to not say anything in Colombia and cross my fingers.

"I am a citizen of the most beautiful nation on earth. A nation whose laws are harsh yet simple, a nation that never cheats, which is immense and without borders, where life is lived in the present."

tomtom33 says on Apr 18, 2008, 04:25:

I think I heard that interest income is not taxed in Colombia. I also wonder about dividend income and short and long term capital gain income.

I am very interested in this stuff, but I am just using good accountants in both Colombia and the US - and crossing my fingers.

robi666 says on Apr 18, 2008, 04:39:

I think you're wrong Tom.

Estatuto Tributario Art. 24
Los ingresos de fuente nacional incluyen, entre otros, los siguientes:
4. Los intereses producidos por créditos poseídos en el país o vinculados económicamente a él. Se exceptúan los intereses provenientes de créditos transitorios originados en la importación de mercancías y en sobregiros o descubiertos bancarios.

"I am a citizen of the most beautiful nation on earth. A nation whose laws are harsh yet simple, a nation that never cheats, which is immense and without borders, where life is lived in the present."

tomtom33 says on Apr 18, 2008, 05:54:

Thanks, Robi. I am wrong often.

robi666 says on Apr 18, 2008, 07:08:

Who's not :)
I am not sure either...

"I am a citizen of the most beautiful nation on earth. A nation whose laws are harsh yet simple, a nation that never cheats, which is immense and without borders, where life is lived in the present."

rjstuff says on Apr 18, 2008, 10:06:

robi - I don't know about any tax agreement between US and Colombia but the US tax laws generally allow you a credit for taxes paid to another entity (to avoid double taxation); treaty or not - that would mean that even if there wasn't any treaty between the two countries - say Colombia taxed your income - The IRS would allow a tax credit (within limits) and thus you would not be taxed on the same income twice. I will try and do some more research on this - since I will have some 'passive' income like Interest and gain on mutual funds etc. and if Colombia charges me taxes on that (I think they definitely will) then I should be able to claim a credit for that on my US taxes. I have read (In a Costa Rica or Panama forum) that I would need to produce some sort of 'official' document from the authorities here in order to attach it to my US tax return - in reality one ends up filing an amended return as the process to get the 'official' document can take a long time. Any Colombian tax professionals dealing with Americans living in Colombia but having income from USA (and Colombia) might be able to clarify this.
As I write this, I realize how complex it all gets - my wife is eligible for Colombian pension in another 6 years - so, then we will be co-mingling Colombian Pension, American Pension, Colombian Interest income, US interest income, US capital gains etc. etc. - I wish my Spanish was good enough to try and figure out the Colombian tax statues (I know my English is not good enough to figure out the IRS statutes! jejeje - but I have friends who can help me with the IRS statutes.) Hopefully someone else can chime in and add some of their knowledge. Good Luck

Ctg Bound says on Apr 18, 2008, 12:58:

robi666,

"I suspect no one has a definitive answer. Certainly not the majority of accountants and lawyers."

I agree, the governmets create so many rules, wether its Colombia, US, UK, or wherever, that is why there are so many many lawyers and accountants to find ways around the rules.

The best bet in Colombia is to have an accountant who well connected to the local DIAN office.

tomtom33 says on Apr 18, 2008, 13:33:

Gee, and I thought that the lawyers and accountants were there to try to figure out what the law says so that we could comply with it.

Ctg Bound says on Apr 18, 2008, 13:43:

tomtom33,

Yeah and even then they cock it up half the time.

rjstuff says on Apr 21, 2008, 10:16:

From the IRS website - Taking a credit for income taxes paid to a foreign country - this doesn't look too difficult to do - using Form 1116; which seems to be included with the basic turbo tax software. Anyone who has done it or doing it? Any issues? http://www.irs.gov/businesses/small/international/article/0,,id=97060,...

tomtom33 says on Apr 21, 2008, 11:51:

Yup, my CPA firm in the US does it on my returns every year. They have been doing so for 12 or 13 years. No issues.

robi666 says on Apr 21, 2008, 14:09:

Let me understand...
Let's say that you have an apartment in the US and you get a rent from it.
Reading the tax law documents (Estatuto Tributario), Colombians say that you have to pay taxes on that rent in Colombia, which is against all internationally accepted habits in all developed countries.
You say it to the tax people in the US and they say "fine, you do not have to pay it here".
Quite absurd...

"I am a citizen of the most beautiful nation on earth. A nation whose laws are harsh yet simple, a nation that never cheats, which is immense and without borders, where life is lived in the present."

tomtom33 says on Apr 21, 2008, 15:49:

I was fairly up on the US tax code in the early 80s. But I simply did not have the time or inclination to keep up with the changes. I don't really understand any of this stuff. I just tell my accountants what happens, and they file my returns.

So far the situation you describe has not occurred. All of my foreign taxes to date have arisen from foreign stock holdings. Those taxes paid are credited against US taxes due.

I have long ago given up trying to make sense out of any of this.

rjstuff says on Apr 22, 2008, 09:49:

robi - it does make sense in a way (yes, I was an accountant (CPA) and processed taxes for Colorado for 20 years) - Many countries want to tax income from all sources if you live in that country (most do it if you stay for 6 months or longer) - US does it too. Generally they tend to exempt pension income and some other passive incomes but want to tax people who live there "to make them pay for the services they are using"; which seems perfectly logical to me - I am using roads, businesses, police/security, hospitals etc in another country that I am living in - I should pay at least something to use these services.
I am not sure if other countries allow you to take a tax credit for taxes paid to another country or not but the IRS does. So far everything seems to me to be doable for moving to Colombia for us - we shall see when and if we make that decision.