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Home / Practice areas / Buying Property in Colombia: Paying Seller

Buying Property in Colombia: Paying Seller

The following is intended to complement our video tutorial Buying Property in Colombia 101: Paying for Property in Colombia. Anyone planning to buy property in Colombia should review all the videos and articles in this series prior to actually making an offer.

The very first step in the property purchase process in Colombia is determining how to make payment to the seller. It is always the first step because it may take a while to prep your ideal payment strategy. You do not want to find your ideal target property and then be forced to wait weeks and possibly months before you can actually proceed with your investment.

Below are the most popular ways to pay seller when purchasing property in Colombia:

OPTION 1: TRANSFERRING FUNDS TO LOCAL BANK ACCOUNT

Transferring funds into your own personal bank account in Colombia is usually the best option when purchasing property. However, this option may not be viable for many foreigners:

  1. No “Cedula,” No Bank Account: Many bank branches will insist that you have a local “cedula” which is a local national ID card that a foreigner receives when they get approved for a visa.
  2. Have Bank Account But No History: If you pound the pavement you might be able to find a local bank branch that will open your account with your passport. However, even if you were able to open an account there is no guarantee that the bank will allow you to bring tens or even hundreds of thousands of dollars into Colombia immediately. Keep in mind that Colombia is still one of the top jurisdictions for money laundering. This means that Colombian banks may scrutinize your bank activity to the point of rejecting significant international transfers until you actually develop a long-term business relationship.
  3. Have Bank Account But Not a Tax Resident: This is a pretty significant restriction that not a lot of investors know about: you cannot legally purchase real estate in Colombia using funds that have been transferred into your own local bank account unless you are a tax resident.  This means that if you have NOT been in Colombia more than 6 months within a 12 month period by the time of your transfer you cannot use your own local bank to pay the seller.  This is why most foreign investors choose to register a local brokerage account when purchasing property.

Our Advice

Only use a local bank account to purchase property in Colombia if:

  1. you already have a personal bank account set up; AND 
  2. you have been using that account regularly for at least 6 months; AND
  3. you are a local tax resident (again, more than 6 months over a 12 month period).

Again, it is definitely possible that if you can actually open a local bank account you won’t have any issues with your transfers. However, we have seen too many clients have their transfers rejected because they just don’t have a long-term relationship with their local bank.

OPTION 2: TRANSFERRING FUNDS TO LOCAL BROKERAGE ACCOUNT

The single most popular option for foreign investors to purchase local property is via a brokerage account. These are financial accounts that you can use to buy stocks, bonds, mutual funds, and other securities. They can also be used by foreign investors interested in transferring funds into and out of Colombia.

Here are some clear benefits when using a brokerage company to purchase property in Colombia:

  1. No Need for a “cedula”: Unlike banks, brokerage companies will not require a local ID card.
  2. They Speak English: This is a HUGE benefit if your Spanish is limited.
  3. Communication is Simplified: You can actually talk to your local brokerage agent, send instructions via email, etc.

And here are some downsides:

  1. More Expensive: Depending on the amount of funds being transferred, you may be charged more than if you were use a local bank.
  2. Timing: Depending on the brokerage company, you may need to wait between 2 and 6 weeks before your brokerage account is registered. This can certainly delay the purchase process.

Our Advice

Assuming you don’t have a local bank account (or are disqualified from using one) register a local brokerage account ASAP. The sooner you start the registration process, the sooner you can pay the seller.

OPTION 3: TRANSFERRING FUNDS DIRECTLY TO SELLER IN COLOMBIA

One viable option to pay for real estate in Colombia is where you bypass the need to register a local financial account and, instead, transfer funds from your personal account abroad directly to the seller’s bank account in Colombia.

Here are some instances where this option may come into play:

  1. No Other Option: If (i) you don’t have a local bank account, (ii) are disqualified from using a local bank account and (iii) no local brokerage company allows you to open a brokerage account (this happens all the time) then sending funds directly to the seller is definitely on the table.
  2. Timing: If (i) it will take you several weeks to open a brokerage account, (ii) seller is considering various offers and (iii) you are determined to purchase the target property then paying seller directly may be the way to go.

While this is definitely a viable option it should be an option of last resort for the following reasons:

  1. Investment Registration Issues: We will be delving into the mechanics of registering your investment with the Colombian Banco de la Republica (“National Bank”) in later articles. Bottom line, it is crucial that you register your investment correctly when transferring funds into Colombia. Under normal circumstances, if you transfer funds into your own bank account or brokerage account YOU will be able to control the registration process because it is your account. If you transfer funds directly to the seller, THEY will control the registration process. It should be noted that we have dealt with incredibly irresponsible sellers who don’t really care about registering your investment correctly. Their primary focus is on nationalizing your funds ASAP without regard for applicable law. In the end, if your investment is not registered correctly you may face significant legal and regulatory problems.
  2. Cash Offsets: Another issue you may need to deal with is where a seller receives MORE cash in their local bank account post-transfer owing to currency exchange variations. Ordinarily, the parties can always balance out any overpayment by calculating applicable offsets pre or post-closing. But, occasionally, sellers will refuse to return any additional cash received, leaving purchasers no choice but to initiate a civil action.

Our Advice

Choose this payment option only as a last resort. Also, make sure that your own local attorney manages the investment registration process on your behalf. This means that they would need to (i) coordinate with the seller as funds are transferred and (ii) draft the documentation that the seller is required to sign in order to nationalize the funds being transferred.

OPTION 4: TRANSFERRING FUNDS OUTSIDE OF COLOMBIA

There are certain situations where you may be able to pay the seller outside of Colombia. Check with your local attorney to determine whether this applies to your own purchase.

If a seller suggests this approach chances are that their main focus is avoiding paying applicable taxes to the Colombian government. Note that this approach is diametrically opposed to your own legal interests. From your perspective, you need to properly register your investment with the National Bank and declare the full value of the transaction, regardless of how and where you make payment to the Seller. For this reason, negotiating how to make payments outside of Colombia can be pretty complicated.

Our Advice

If your local attorney can confirm that you can actually make payments to the seller outside of Colombia make sure that the attorney actually knows how this process is done (it’s a fairly complex legal procedure involving substituting the investment registration that the seller already has with the national bank with yours). In addition, make sure that the full value of the transaction is reported to the Colombian government.

This post is being published for general informational purposes only and it is not intended to provide specific legal and/or tax advice.  It should not be used as a substitute for competent legal/tax advice from a licensed attorney and/or accountant in your jurisdiction.

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