Source Retention Statement: Form 350

On May 2020, the National Tax and Customs Directorate (NTCD) issued Resolution 47 establishing Form 350, by which the monthly declaration of withholding at source will be made in order to comply with the tax obligations for the year 2020 and beyond.

The aforementioned resolution introduces modifications related to Decree Law 568 of April of the same year, regarding the withholding at source of the solidarity tax established due to the sanitary emergency produced by the COVID-19.

In relation to this, the purpose of this article is to be able to briefly explain about this declaration, the subjects obliged to it and the means by which it can be made.

Purpose of Source Retention

With the withholding of the tax at the source, the National Government seeks to facilitate and ensure the collection of income and complementary taxes and in some cases of the Sales Tax (VAT).

What does source retention consist of?

In the case of Income Tax, the following assumptions must be met:

• There must be a transaction in which there is a purchase of goods or services, which according to law are subject to withholding.
• The person who is retained must be considered as a taxpayer of the income tax.
• There must be a withholding agent, according to law, who pays for a purchase or service rendered to the withholder.

With respect to the Value Added Tax, the withholding shall consist of the fact that the buyer, when making the payments or credits in account for his purchase, shall withhold from the buyer a percentage of the tax, which shall depend on the withholding rate to be applied.

Who are Withholding Agents?

According to Article 368 of the Tax Statute, the following are withholding agents:

• Public law entities.
• Investment Funds.
• Securities Funds.
• Retirement and Disability Pension Funds.
• Consortiums.
• Organized communities.
• Temporary unions.
• Natural persons.
• Legal entities.
• Successions.
• De facto companies.

What are the obligations of a Withholding agent?

Withholding agents have obligations such as the obligation to perform the withholding at the source indicated above, to file the respective returns for each period, to deposit the amount withheld and to issue the corresponding withholding certificates for each taxable year.

In the case of certificates, these may be issued for salaries, which is called certificate of income and withholdings, and for other concepts different from this one.

In the latter case, the certificate must contain the taxable year, name or corporate name, NIT of the withholder, address of the withholding agent; data of the person to whom the withholding was made, concept and amount.

What items are subject to withholding?

According to article 383 of the Tax Statute, they are subject to income withholding:

• Labor income with rates from 19% to 39%.
• Dividends and participations.
• Fees, commissions, services and rentals paid or credited to account by legal entities and de facto companies.
• Financial income, such as interests, discounts, benefits, profits, utilities and in general the related to capital yields.
• Disposal of fixed assets of individuals, with a fee of 1% on the value of disposal.

How is the withholding declaration made?

The declaration of withholding at the source will be made by means of Form Nª350, it should be indicated that in this form not only the income and complementary tax is declared, but also the withholdings on sales tax and national stamp.

As for the withholdings made for VAT, the corresponding ones are declared for purchases and/or services to persons responsible for the simplified system, those made for services to non-domiciled persons and those made by persons responsible for the common system.

The declaration must have the digital signature of the declarant and the public accountant.

Do I incur a fine for filing late in the declaration?

According to Article 641 of the Tax Statute, for the untimely filing of the tax returns, a penalty must be paid for each month or fraction of a calendar month of delay, equivalent to 5% of the total withholding subject to the tax return, without exceeding one hundred percent (100%) of the withholding.