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HOW CAN A NATURAL OR LEGAL FOREIGN PERSON PURCHASE REAL ESTATE IN COLOMBIA?
If you are a foreigner, the process of purchasing real estate in Colombia can be easier than you ever imagined. It is the same process that a Colombian citizen must follow and, in fact, depending on the sum of the investment, foreign investors may acquire a 1 to 5-year resident visa along with the purchase.
It is important to state beforehand that you don’t need a Colombian resident visa or citizenship to invest in Colombia, specifically for purchasing real estate with foreign currency. However, in order to properly carry out this procedure, you must follow a set of legal guidelines that will avoid your tax surcharge or legal sanctions. In this guide, we will teach you what you need to consider regarding regulations and legal matters when investing in real state in Colombia
Step by step
MONETIZING FOREIGN CURRENCY
This is achieved when making a money transfer through commercial banks authorized for this purpose. These are responsible for converting the foreign currency to Colombian legal currency. Foreign exchange negotiation is carried out in accordance with the exchange rate of the day of each transfer of the foreign currency.
DISCLOSING THE ORIGIN OF MONEY TRANSFERRED TO COLOMBIA
When transferring (through a chosen commercial bank), the foreign investor has the responsibility of informing the bank the reason behind the transfer. They will, in turn, declare it to Banco de la República (the Colombian central bank) to confirm that the money being transferred into Colombia will be used for a foreign investment, which means that it is part of the investor’s assets and that it is not income generated in Colombia. This will avoid legal sanctions and future inconveniences when recovering the investment in case of cancellation or not settling and closing.
TAXATION FOR FOREIGN INVESTMENT IN COLOMBIA, SPECIFICALLY FOR REAL ESTATE PURCHASES
g the foreign currency to Colombian legal currency. Foreign exchange negotiation is carried out in accordance with the exchange rate of the day of each transfer of the foreign currency. DISCLOSING THE ORIGIN OF MONEY TRANSFERRED TO COLOMBIA When transferring (through a chosen commercial bank), the foreign investor has the responsibility of informing the bank the reason behind the transfer. They will, in turn, declare it to Banco de la República (the Colombian central bank) to confirm that the money being transferred into Colombia will be used for a foreign investment, which means that it is part of the investor’s assets and that it is not income generated in Colombia. This will avoid legal sanctions and future inconveniences when recovering the investment in case of cancellation or not settling and closing. The Colombian Tax Regulation (Estatuto Tributario Colombiano) states that natural foreign persons who do not have a resident visa in Colombia are only subject to income tax for their income and occasional earnings from national sources (regarding the investment made in Colombia for real estate purchases in accordance with the property’s value.) In the same vein, Article 9 of the Colombian Tax Regulations states that foreign residents in Colombia are only subject to income tax and its supplemental taxes for their income or occasional earnings from national sources (investment of profits and foreign assets brought into Colombia) after the fifth year or taxable period of continuous or discontinuous residence in Colombia. As such, in order to define if a foreigner has or does not have these qualities and what effect it has when purchasing real estate in Colombia, we must define who is deemed a foreigner with Colombian residence. The first point of Article 10 of the Tax Regulations defines residence for tax purposes as follows:
Residence consists of continuous presence in the country for more than 6 months in the year or taxable period, or completed within it. The same applies for discontinuous presence for more than six months in the year or taxable period. Two cases are stated here:
1.
Presence in the country for more than 6 months begins and is completed within the same taxable period. In this event, presence may be continuous or discontinuous, but it must occur within the same year or taxable period for acquiring the status of resident, and with it, the status of taxpayer of income tax and its supplemental taxes according to Article 9 of the Tax Regulations
2.
Presence in the country for more than six months begins in one year and is completed the following year. In this event, presence must be continuous. The status of the resident will be acquired, and with it, the status of the taxpayer of income tax and its supplemental taxes in the year in which the 6 months were completed. This implies that a natural foreign person will be liable for income tax for all income derived from the use and/or sale, in any capacity, of assets or services of tangible and intangible assets, as well as for providing services in the country.
As such, if the foreigner who will purchase real estate is a resident, they will have to pay income tax (on the money brought in from abroad) starting from the fifth year of continuous or discontinuous residence. Furthermore, foreigners without Colombian residence are only liable for paying income tax on properties or earnings from national sources. In short, non-resident foreigners’ foreign investments (foreign currency brought in from abroad) are not taxed in Colombia. They are only liable for recording their income and substantiating said investment in Colombia
With regard to the withholding tax applicable to income from abroad, Article 366-1 of the Tax regulation establishes that the withholding tax rate for income constituting income or occasional earnings received by taxpayers, who are or who are not liable for filing income tax returns and supplementary income, is 3% regardless of the nature of the beneficiaries of such income. Although the Tax Regulations have established a set of specific cases where withholding tax should not be applied to income from abroad (19 in total), it should be noted that the regulation stated in the previous paragraph determines the application of this withholding tax on income constituting the taxpayer’s income or occasional earnings. Income constituting income or occasional earnings is that which is likely to produce an increase to the beneficiary’s assets and which constitutes income that is subject to taxes in Colombia for the receiver. In accordance with the aforementioned regulations, the money that the foreigner wishes to bring into Colombia as a product of activities carried out in his or her country shall not be subject to withholding tax. In order for the financial broker who will convert the foreign currency not to apply a withholding tax, you must prove that the income to be converted does not constitute profit or occasional earnings, as it is part of the assets already held abroad.
HOW TO PURCHASE
If the purchase will be made in person, it is important to know that Colombian law allows for foreigners to carry out Title Registry by presenting his or her passport. If you are abroad and cannot purchase in person, you must grant a power of attorney for the transaction (attorney-in-fact) to represent you in Colombia. This power of attorney must also take on the record of foreign currency nationalization with Banco de la República, the securing of the purchase with an attorney at law (‘notario’, in Colombia), and the record of purchase with the relevant Public Instruments Office (Oficina de Instrumentos Públicos).
ADDITIONAL FEES
Purchasing property in Colombia entails certain payments such as recording at the Office of Public Records (Oficina de Registro de Servicios Públicos), notary and attorney-at-law fees, taxes, and broker commissions. The expenses at the moment of purchasing real estate in Colombia (apart from payment of the property) are:
Certificate of no property tax debt (Paz y Salvo Predial): The future seller must pay and guarantee that all municipal taxes over property have been paid. However, it can be agreed that the buyer will pay this yield.
Certificate of no valuation debt (Paz y Salvo de Valorización): The future seller must pay and guarantee that all taxes on the increase of the property have been paid. However, it can be agreed that the buyer will pay this yield.
Revising deeds and the Certificate of Delivery and Unencumbered Property (Certificado de Tradición y Libertad): A thorough revision must be made with these documents. This certificate issued by the Superintendence of Notaries and Registry (Superintendencia de Notariado y Registro) provides all the necessary information about the property in the last 20 years, such as property description, and whether it is subject to horizontal property regulations or if it has been divided into two or more properties (a lawyer or otherwise, qualified person must carry out this study in order to guarantee the legitimacy of the property and its owner.)