Buying Property in Colombia: Tax Considerations

Authors: 

Alan Gongora, Esq. (NY)
María Cristina Estrada, CPA (COL)

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

If you are considering purchasing property in Colombia you need to determine how local tax laws will impact your investment. Below are key tax considerations when purchasing property in Colombia:

WHEN BUYING PROPERTY: VALUE OF TRANSACTION

One of the most important decisions will you need to make when purchasing property in Colombia is what value to assign the transaction in the deed documentation.

Traditionally, buyers and sellers in Colombia could choose from at least two different values when registering the value of any real estate transaction:

  1. Commercial Value: This is literally the amount you are actually paying the seller for the property. 
  2. Registered Value: This is the value of the property as registered with the Colombian gov. It is also usually much lower than the commercial value.

Now, the reality is that if you were to use the Registered Value both you and the seller will both pay lower closing costs because the value of the closing costs will depend on the value you assign your transaction. However, you should NEVER use the lower value:

  1. Illegality: Using the lower value is actually illegal in Colombia as of 2018.
  2. Negative Tax Consequences: Using the lower value will mean assigning a lower basis on your purchase so that by the time you sell your property you will need to pay way more in taxes on the sale than you actually need to. This effect is outlined pretty well in our tutorial Buying Property in Colombia 101: Introduction at 8:02.

The reason this is always a very important decision for purchasers is that many sellers will continue to push to use the lower value because they either want to limit their own tax liability or they, themselves, used a lower value when they first purchased the property and now want to push this issue onto an unsuspecting purchaser.

Our Advice

Don’t ever, ever use the lower value when registering your transaction. If you engage with a seller that insists on using the lower value considering offering to pay their share of added closing costs that comes from increasing the value from the Registered Value to the Commercial Value. For you this may mean just several hundred dollars in additional expenses but would ensure you can purchase your target property while saving you thousands of dollars in taxes down the road.

WHEN BUYING PROPERTY: CLOSING COSTS

When purchasing property in Colombia you will be required to pay several types of taxes and fees in connection with your purchase:

  1. Municipal Taxes: These can vary depending on the location of the target property.  Budget US$270.27 ($1.000.000 COP) of the purchase price.
  2. Notary Fees: Budget US$81.08 ($300.000 COP) of the purchase price.
  3. Registration Fees: Budget US$208.91 ($773.000 COP).  Note that registration fees will vary from 0.622% to 0.910% of the purchase price depending on the value of transaction.
  4. Miscellaneous Taxes/Fees: Budget under US$54.

Note that the above assumes a purchase that is valued at COP$100.000.000.

Here is a great breakdown of applicable closing costs and taxes that will need to be paid by both the buyer and seller in connection with a local real estate purchase. Note that it assumes a purchase that is valued at COP$100.000.000 but you can certainly use it to extrapolate your own closing costs obligations. Do check with your own local attorney/agent/accountant to get a more accurate estimate applicable to your own purchase. 

WHEN OWNING PROPERTY: TAX FILINGS

Here are several consequences of purchasing property in Colombia:

  1. Filing Local Tax Return: If you own property in Colombia, chances are that you will need to file a local tax return starting the calendar year following your purchase. Keep in mind that having to file a return does not necessarily mean you will need to pay any income tax to Colombian authorities. Do check out our comprehensive summary of personal tax filing obligations for more information. Regardless, do check with your local accountant to determine your own specific obligations under local law.
  2. Paying Property Taxes: If you own property in Colombia you will need to pay local property taxes or your “predial”. Actual payment obligations will depend on the location of your property but typically range from 0.55% to 1.23%.
  3. Paying Wealth Tax: As of 2021, the Colombian government is assessing a 1% tax on the wealthy. In practice, you may need to pay this tax ONLY if your assets (including property) exceed approximately US$1.4M. Check with your local accountant to determine your own specific obligations.

The reality is that the property purchase process in Colombia is fairly antiquated. There are holes in the process that could be used by unscrupulous sellers and other third parties to attempt to defraud buyers. These include:

  • sellers selling the same property to multiple buyers at the same time (yes, this is technically possible);
  • sellers convincing buyers to register a sale at a lower value (leading to significant tax consequences for the buyer); and
  • sellers selling a property that may be subject to seizure by the Colombian government (usually because illicit funds were used in a prior purchase).

WHEN SELLING PROPERTY: TAX FILINGS

When selling property you will need to pay taxes to the local tax authority (the DIAN) as follows:

  1. Selling Within 2 Years: If you sell the property within 2 years of your initial purchase, any gains will be taxes based on your own applicable taxable income bracket under Colombia law. Current tax rates range from 19% up to a maximum of 39%. 
  2. Selling After 2 Years: If you sell the property after 2 years of your initial purchase, you will be taxed a maximum of 10% on any gains from the sale.

All estimates in US Dollars assume a currency exchange rate of US$1 to COP$3,700.

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.