Buying and selling real estate in Colombia involves a series of legal, accounting, and tax-related aspects that must be understood by both buyers and sellers. It is essential to be clear on the taxes to be paid, the costs associated with the transaction, and the regulations governing these operations. In this article, we will address all of these topics so you can understand the costs involved in selling a property, with a practical example to illustrate the process.
Example of Selling a Property for 1.6 Billion Colombian Pesos
Let’s assume you are selling a property valued at 1.6 billion Colombian pesos (COP). Below, we break down the different payments and taxes you need to consider, taking into account two possible scenarios:
- When the property has been owned for more than 2 years.
- When the property has been owned for less than 2 years.
Taxes and Costs Associated with the Sale
Here we break down the taxes and costs that a seller will need to cover when selling a property in Colombia.
Cadastral Appraisal: This is the value assigned to a property by the cadastral authority, which is used to determine certain taxes and contributions.
This value is generally lower than the sale price, but it is necessary for calculating certain taxes and contributions. For this example, let’s assume the cadastral appraisal value of the property is 800 million pesos (COP).
Occasional Gain Tax: If the seller has owned the property for more than 2 years, the occasional gain tax is applied to the profit obtained from the sale of the property. This profit is calculated as the difference between the sale price and the cadastral appraisal.
If the property has been owned for more than 2 years, the rate is 15% on the occasional gain.
If the property has been owned for less than 2 years, the occasional gain rate increases to between 35% and 39%, depending on the specifics of the transaction.
Example:
– Sale price: 1.6 billion pesos (COP)
– Cadastral appraisal value (assumed): 800 million pesos (COP)
– Occasional gain: 1.6 billion – 800 million = 800 million (COP)
– If the property has been owned for more than 2 years, the occasional gain tax (15%) = 800 million * 15% = 120 million (COP)
– If the property has been owned for less than 2 years, the tax could range from 35% to 39% of the occasional gain.
Withholding Tax: This tax is applied to the income obtained by the seller. Typically, this withholding tax is 1% of the sale value, but the seller should consult with an accountant to determine if there are any exceptions or special rates that apply.
Example:
– Withholding tax = 1.6 billion * 1% = 16 million pesos (COP)
Stamp Duty: This tax is applied to the value of the deed of the property, and the rate is 1% of the deed value. This tax applies when the property deed exceeds **845 million pesos (COP, approximately). If the sale is below this amount, no stamp duty will be required.
Example:
– Stamp duty = 1.6 billion * 1% = 16 million pesos (COP)
Commissions: If the sale is carried out through an intermediary or real estate agency, a commission will be charged for managing the sale. The typical commission for a real estate agent in Colombia is 3% of the sale price, and it is important to note that this expense is additional to the sale price of the property.
Example (3% commission):
– Commission = 1.6 billion * 3% = 48 million pesos (COP)
Notary Fees: Notary fees include the costs for the public deed of sale and other necessary legal procedures to formalize the property transfer. These fees are not fixed and may vary depending on the notary, but on average they range from 0.5% to 1% of the sale price.
Example (notary fees at 1%):
– Notary fees = 1.6 billion * 1% = 16 million pesos (COP)
Additional Aspects: AFC Accounts and Others
AFC Accounts (Savings for Construction Promotion)
If the seller has an AFC account, the accumulated resources may be used to partially exempt the occasional gain tax on the sale of the property. However, this is an option that depends on the seller’s specific circumstances and whether they have sufficient funds in the AFC account. The balance in these accounts can reduce the value on which the occasional gain tax is calculated, thus lowering the corresponding tax.
Summary of Costs for the Seller
Depending on whether the property has been acquired more than 2 years ago or less than 2 years ago, the taxes and commissions will vary significantly. Below are examples for both scenarios:
Scenario 1: Property acquired more than 2 years ago (Occasional Gain Tax at 15%)
Sale value: 1.6 billion
Occasional gain (15%): 120 million
Withholding tax (1%): 16 million
Stamp duty (1%): 16 million
Commissions (3%): 48 million
Notary fees (1%): 16 million
Total (excluding AFC): 216 million
Net total for the seller (approximately): 1.6 billion – 216 million = 1.384 billion pesos (COP)
Scenario 2: Property acquired less than 2 years ago (Occasional Gain Tax between 35% and 39%)
Sale value: 1.6 billion
Occasional gain (35%): 280 million
Withholding tax (1%): 16 million
Stamp duty (1%): 16 million
Commissions (3%): 48 million
Notary fees (1%): 16 million
Total (excluding AFC): 376 million
Net total for the seller (approximately): 1.6 billion – 376 million = 1.224 billion pesos (COP)
Conclusion
Selling a property in Colombia involves more than just agreeing on the sale price with the buyer; it also requires considering a range of taxes and costs that must be paid before completing the transaction. It is crucial for the seller to be well-informed about the processes and costs associated with the sale, as well as to seek the assistance of professionals such as accountants, lawyers, and real estate agents to ensure that the operation is conducted in accordance with current regulations and without financial surprises.
Each of the costs mentioned will depend on the time of acquisition of the property, the type of sale, and other specific factors. Therefore, it is always advisable to consult with an expert to understand the precise fiscal and accounting implications before proceeding with any real estate transaction.