This is how Colombia’s super-rich evade, avoid and pay less taxes than the poor

In Colombia, extreme wealth and social inequality are two sides of the same coin. Many of the country’s richest people have evaded and avoided taxes for decades. Their assets have increased significantly, while the tax rates they pay to the state have stagnated or decreased. This paradox – documented in various academic studies – deepens inequality, undermines the country’s development and affects the daily lives of the millions of people who remain in poverty.

According to figures from the World Inequality Database (WID), the wealthiest 1% of Colombia’s population holds 40% of total household wealth, while the poorest 50% holds only 2%. This concentration of wealth is higher than the national average in Latin America, which is one of the most unequal regions in the world. According to the National Administrative Department of Statistics (DANE), 28% of Colombians — approximately 14.4 million people — suffer from food insecurity. The Colombian tax system, which should reduce these gaps, has a very weak redistributive capacity.

Do the ultra-rich pay less than the poor?

Oxfam’s most recent report on inequality, published in January of 2025, reveals that Colombian billionaires pay proportionally less in taxes than the poorest. A person belonging to the richest 1% paid an average of 17 cents in taxes per dollar of income up until 2021. Meanwhile, a person in the poorest 50% paid 21.1 cents in taxes per dollar of income. “This debunks the myth that the poor and the middle classes don’t pay taxes and shows that the opposite is true,” the document concludes.

This contradiction occurs for two main reasons. The first is that the national tax structure relies heavily on taxes on consumer goods, such as value added taxes (VAT), which are deeply regressive. This is because all citizens, regardless of their income level, pay the same rate. In contrast, little is raised by direct taxes, such as personal income and wealth taxes, which are key instruments of tax progressivity. In 2024, Colombia’s VAT raised $70 billion, almost 30% of total revenue, while the personal income tax contributed $22 billion. The wealth taxes added only another $1.4 billion.

The second reason is that the wealthiest Colombians use sophisticated strategies to either avoid paying taxes, or to pay less. They find loopholes to minimize their tax burden, deliberately hide assets, and benefit from laws that grant them broad exemptions and deductions.

The Commission of Experts on Tax Expenditures/Benefits, convened in 2022 by the administration of former President Iván Duque, reached conclusions that were similar to those found in the Oxfam report. “Regressive tax exemptions for personal income tax frequently result in the wealthiest Colombians paying less in taxes than their poorest compatriots,” the document states. According to the report, the ultra-rich manage to pay less taxes than high-income taxpayers: a person in the top 1% paid the state a smaller share of their earnings than a less wealthy person.

Luis Carlos Reyes is the former director of Colombia’s National Directorate of Taxes and Customs (DIAN) and former minister of Commerce, Industry and Tourism. In an interview with EL PAÍS, he explains that tax evasion in Colombia represents nearly 8% of the country’s annual GDP. In 2024, for example, Colombia’s GDP was 1.7 trillion pesos ($418 billion). Therefore, approximately 136 trillion pesos ($34 billion) were lost or not collected, due to nonpayment of taxes. “This is a lot,” Reyes sighs. “No country has zero [tax] evasion… but Colombia’s is very high. If progress were made and evasion reached the levels of OECD countries — around two percentage points of GDP — those six percentage points of potential revenue could be allocated to create or strengthen social programs that benefit the poorest people.”

The high levels of tax evasion are even more serious today, as the administration of President Gustavo Petro — the first leftist government in modern Colombian history — decided to break the fiscal norms, due to insufficient revenue. In the next congressional session the executive branch will present an ambitious tax reform seeking to collect nearly 20 trillion pesos ($5 billion). However, the current political reality and the lack of a legislative majority make this goal almost impossible to achieve.

Who evades taxes the most?

According to a recent DIAN report on tax amnesties — mechanisms that make it possible to rectify the tax situation of evaders who previously omitted assets or included nonexistent liabilities in their tax returns —the majority of those who admitted to evading taxes in recent decades are part of the country’s wealthiest population. People who use these voluntary mechanisms to regularize their assets with a special rate admit to not having declared them beforehand, so as to avoid paying the required taxes.

“As wealth increases, the likelihood of having hidden information from the tax authorities about assets or liabilities also increases,” the document states. The research shows that the wealthier the individuals, the more money they had hidden away. “97% of the people who participated in the 2019 amnesty belonged to the 5% of [Colombian] adults with the highest wealth (net worth) that year.” The richest 0.5% of people in the country regularized 91% of all the money declared by individuals during the 2019 and 2020 tax amnesties.

The situation is even more serious at the top 0.01% of the richest people in Colombia. A study by researchers Juliana Londoño Vélez and Javier Ávila indicates that, in the tax amnesties of 2015, 2016 and 2017, during the administration of Juan Manuel Santos (2010-2018), 40% of these ultra-rich people, or two out of five, admitted to tax evasion and availed themselves of this mechanism. And in the subsequent amnesties of 2019 and 2020, nearly 20% of this same group also admitted to tax evasion. In fact, the DIAN report reveals that the probability of having regularized your tax situation “if you are part of this top 0.01% [of earners] is 96 times higher than the average probability for a taxpayer.”

In the top 0.01% of the wealthiest individuals, there are nearly 3,700 people with assets exceeding $9.8 billion. Nearly 70% of this group are men and 30% are women, according to another DIAN report, which also reveals that the majority of their income doesn’t come from work. “These individuals receive an average of $4.05 billion in total annual gross income, divided as follows: income from capital, dividends and/or shares of $1.064 billion; non-labor income of $1.775 billion; labor income of $329 million; income from occasional earnings of $848 million; and pension income of $33 million.” $9.8 billion is the lower limit for this group, but according to the latest Forbes report, the five richest men in the country, including the businessmen Jaime Gilinsky and David Vélez, have fortunes of up to $40 trillion Colombian pesos (US$10.7 billion).

Luis Carlos Reyes — who, before joining the DIAN, was director of the Tax Observatory at Javeriana University — explains that, indeed, it’s the ultra-rich who evade and avoid taxes the most. Reyes states that productive Colombian society can be divided into four segments. The first group is made up of the lowest-income 50% of the population: informal workers who earn less than the minimum wage and aren’t required to pay income taxes. The members of the second group — 49% of the population, made up of mostly formal wage earners — fulfill their obligations, paying income tax and VAT, while the companies they work for withhold their taxes automatically, meaning that they have few mechanisms to evade taxes. “It’s of no use to them to have an account in the Cayman Islands,” Reyes notes. The third group is the richest 1% of Colombians, which also includes many high-income wage earners, such as company managers or executives of multinational corporations, who pay their taxes adequately. The remaining, very small group is made up of the ultra-rich. “That’s where the highest percentage of evasion occurs.” Reyes explains that these people file income tax returns, pay VAT and seemingly comply with what they’re required to pay… but, in reality, they are hiding a significant portion of their income and assets. “They don’t pay what they should.”

How do the richest people evade taxes?

The DIAN report on tax amnesties explains that these multimillionaire evaders hide their assets abroad. In 2019, nearly 90% of the undeclared money held by individuals belonging to the richest 0.01% corresponded to assets outside the country. “Half of the previously-untaxed money declared by individuals in the 2019 amnesty ($3.3 trillion of $6.8 trillion Colombian pesos) [consisted of] assets held abroad by the richest 0.01%,” the document states.

Juliana Londoño, a professor of economics at UCLA and one of the leading experts on tax evasion and inequality, explains that the ultra-rich hide a good portion of their money in tax havens. “The use of complex structures, such as trusts or companies abroad, particularly in Panama, is common among the wealthiest Colombians,” Londoño specifies, in an interview with EL PAÍS. “The tax secrecy that existed between countries until recently allowed the wealthiest people to easily avoid and evade many taxes through tax havens.” According to her research, the wealthiest tax evaders hid a third of their assets abroad. This was the main way they evaded the wealth tax: “Tax evasion abroad accounts for more than four-fifths of the wealth tax evasion detected [in Colombia].”

Professor Londoño’s research shows that Panama was an attractive destination for the wealthiest Colombians to hide their assets and avoid paying taxes. “Let there be no doubt: the use and abuse of offshore structures in tax havens has been the preferred vehicle for the wealthiest Colombians to hide their fortunes and reduce their tax burden,” the Colombian writes. She has also found that belonging to the richest 0.01% of the country’s wealthiest individuals meant that – compared to belonging to the richest 5% – you were 24 times more likely to have been a client of Mossack Fonseca. Before its dissolution, it was one of the five largest law firms specializing in offshore financial services.

However, thanks to agreements regarding the automatic exchange of financial information (for tax purposes) between countries, the DIAN for several years now has been able to determine the value of assets held abroad by the wealthiest Colombians. These agreements seek to combat tax evasion by requiring financial institutions to report information about their clients’ accounts to the tax authorities. In 2021, these agreements revealed $42.5 trillion Colombian pesos ($10.7 billion) that hadn’t been declared. An Oxfam report from late 2024 titled Tax Havens: A Pending Challenge for Colombia, explains that, in the last decade, one in every three dollars of incoming or outgoing investment capital to or from Colombia has passed through a tax haven.

Another one of the most common mechanisms used by the wealthiest individuals to evade taxes is the formation of family businesses. This allows them to deduct personal expenses as business costs, thus reducing their tax burden. Juliana Londoño explains that, while there are still no studies in Colombia that show the recurrence of this strategy, it’s a documented formula in other parts of the world. Luis Carlos Reyes explains that one strategy used by the wealthiest people is to have a family business in a country with low income tax that provides fictitious services to the real company in Colombia. These services are declared as “costs” so as to reduce the company’s profits in Colombia. Subsequently, these “costs” are converted into profits in the other country, which has a low income tax rate. “It’s an example of the many ways to reduce tax payments,” Reyes points out.

The ultra-rich use different strategies to underreport their assets in their tax returns, in order to pay less tax. Reyes explains that the declared tax value is often different – and much lower – than the actual value of assets held.

In another study, Juliana Londoño and Javier Ávila analyze the variations that have occurred in the wealth tax in Colombia in recent decades. They reveal how the wealthiest people declare the value of their assets as being just below the established thresholds, in order to avoid paying certain taxes, or to pay a lower rate.

“We found compelling evidence that taxpayers immediately reduced the wealth they declare in response to the implementation of the wealth tax. These effects don’t disappear when the tax is eliminated. On the contrary, they persist for years.” Specifically, Londoño explains, what many of the wealthiest individuals do is incorrectly declare elements that the authorities cannot verify, “such as inflating the amount of debts they have, or understating business assets not reported by third parties.” Additionally, the research notes, “wealthy taxpayers respond to tax increases by hiding assets in difficult-to-trace entities.”

In fact, a common way for the wealthiest people to reduce their tax bill is through the use of complex legal structures, such as trusts or companies, that allow them to manage their assets without them being directly in their names. Oftentimes, people combine several of these mechanisms. For example, they may keep their money in a trust in Panama, so as to underreport their assets in Colombia.

*This journalistic work is part of a series of publications resulting from the “Call for Coverage of Tax Justice Issues in Colombia,” promoted by the Gabo Foundation in partnership with Oxfam Colombia. This initiative has received support from the Spanish Agency for International Development Cooperation (AECID).