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Brake to the Evasion of Taxes in the Purchase or Sale of Real Estate in Colombia
With the new law 1943 of 2018 in article 43, the private pacts for setting lower prices than the real and commercial value as well as the cash payments in the acts of sale of real estate are put on hold.
Private pacts that are commonly and recurrently made between buyers and sellers in order to deed a lower price than the real or commercial one and thus decrease (evade) the reference base on which the costs of the sale are imputed, such as : the income tax; the occasional gain, the registration tax; registration rights; notary fees and expenses and the current and new national consumption tax applicable to the disposals of new or used real estate, different from rural properties destined to agricultural activities, whose transfer value is equal to or less than 26,800 UVT, ie $ 918,436. 000 (see Section iv of this document).
The ultimate purpose of this provision contained in article 53 of the law 1943 of December 2018 is to prevent tax evasion and notarial expenses on the occasion of disposals of real estate. Also applicable for the sale of shares or shares of corporate interest of companies or national entities that are not listed on the Colombian Stock Exchange or one of recognized international suitability as determined by the National Tax and Customs Directorate (DIAN).
This is how we will analyze Title IV (measures to combat tax evasion and abuse), Chapter I, Article 53 of Law 1943 of 2018 that modifies Article 90 of the Tax Statute in relation to the sale of real estate; Article 21 regarding the national consumption tax applicable to disposals of real estate and Article 57 regarding the payment of the withholding tax for the execution of the public deed paragraph when the buyer of a real estate is a legal person or de facto company.
ARTICLE 53 OF LAW 1943 OF DECEMBER 2018 THAT MODIFIES ARTICLE 90 OF THE TAX STATUTE.
The obligatory nature of sworn statements regarding the real price and the non-existence of private pacts and if they exist, the values and other invoices generated in these pacts must be declared.
In accordance with Article 53 of the law 1943 of December 2018, the parties (buyer (s) as seller (s)) in the public deed of sale or declaration of construction must DECLARE UNDER THE GRAVITY OF OATH:
- That the price included in the writing IS REAL.
- That the price included in the deed has NOT BEEN OBJECTED TO PRIVATE PACTORS in which a DIFFERENT VALUE HAS BEEN COVENANT. OF EXISTING THESE PRIVATE COVENANTS in which it is agreed between the parties that a price different from the PACTED ONE IS TO BE INFORMED IN THE WRITING THE PRICE AGREED IN THE COVENANTS.
- That there are no sums that have been AGREED OR BILLED OUT OF THE SCRIPTURE and if they have been made MUST BE MANIFEST in the writing THE VALUE OF SUMAS that have been agreed or invoiced outside the writing.
It should be noted additionally that:
a) Real estate acquired through funds, trusts, real estate development schemes or similar, are subject to the provisions of article 53 of this law.
b) If acting through a general or special agent, the manifestation under oath must be contained in the powers of attorney.
The sanctions if the respective sworn statement is not made and if the price is not the real price.
If these sworn statements are not made in the public deeds of sale:
They will be settled on a basis equivalent to FOUR (4) times the value included in the deed THE FOLLOWING AMOUNTS:
THE INCOME TAX
THE OCCASIONAL GAIN
THE REGISTRATION TAX
c) The Notary will have the obligation to report the irregularity of not making the affidavits to the tax authorities for their jurisdiction.
d) The DIAN may determine the real value of the transaction for its jurisdiction. Determination that we interpret in accordance with the provisions of article 53 that will be made as follows: When the value assigned by the parties differs markedly from the commercial value of the goods or services on the date of their sale or provision, in accordance with the provisions of this article , the official who is advancing the respective inspection process, may reject it for the tax purposes and indicate a sale price according to the nature, conditions and status of the assets; taking into account the statistical data produced by the General Directorate of National Taxes, by the National Department of Statistics, by the Bank of the Republic or other related entities. Its application and discussion will be done within the same process.
The same article 53 of the law 1943 of 2008 establishes when a value differs from the commercial value as follows: "It is understood that the value assigned by the parties differs markedly from the current average, when it is separated by more than fifteen percent (15% ) of the prices established in commerce for goods or services of the same kind and quality, on the date of sale or provision, taking into account the nature, conditions and status of the assets and services. "
e) The sums that have NOT BEEN DISBURSED THROUGH FINANCIAL ENTITIES will not constitute a cost of the real estate.
The interpretation that I consider viable for this provision is that any payment or fraction of payment of the disposals of real estate that is made in cash can not be considered as included in the real value of the price of the act and as a consequence of its cost and could be understood that a different and non-real value would be agreed upon, giving rise to the different sanctions established.
On the other hand it would mean that this provision seeks to avoid cash payments in any proportion that is intended.
Therefore, it is recommended that until there are no pronouncements on this provision that are not agreed or cash payments are made at the time of disposals of real estate.
On the criteria for setting the sale price in the case of real estate
- The price of the property can not be less than the cost, the cadastral appraisal or the self-assessment, without prejudice to the possibility of a higher commercial value. Otherwise, it will not be accepted.
- When there are price lists, databases, offers or any other mechanism that allows to determine the commercial value of alienated or transferred real estate, taxpayers must refer to them.
- The value of the property will be made up of all the amounts paid for its acquisition, whether they are agreed or invoiced outside the deed or correspond to goods or services that are accessory to the acquisition of the property, such as: contributions, improvements, constructions, intermediation or any other concept.
Our interpretation is that, in addition, the price should include, for example, the intermediation fees or commissions of real estate agents as well as the professional fees of lawyers contributed for the deed. That is, all these amounts will have an impact on the elements that constitute the real price of the property and consequently on the basis of calculation for the payment of notary fees, taxes and registration fees, charity, occasional profit, national consumption tax, etc.
f) The commercial value indicated by the parties is considered as commercial value, which must correspond to the average commercial price for goods of the same species, on the date of their sale. This forecast also applies to services.
I interpret that this commercial value should be based on numerals 1; 2 and 3. of this document.
g) It is understood that the value assigned by the parties differs markedly from the current average, when it departs more than fifteen percent (15%) of the prices established in commerce for goods or services of the same kind and quality, on the date of sale or provision, taking into account the nature, conditions and status of the assets and services.
ARTICLE 21 OF THE LAW 1943 OF DECEMBER 2018 WHICH ADDITS ARTICLE 512-22 to the Tax Statute by implementing the NATIONAL CONSUMER TAX ON THE DISPOSALS OF REAL ESTATE PROPERTY.
The rate of this tax is 2% on the total sale price.
The properties subject to this tax are: Disposals of new or used real estate whose transfer value is equal to or less than 26,800 UVT ($ 918,436,000), including those made through assignments of fiduciary rights or funds that are not quoted in bag.
The value of the U.V.T year 2019 is $ 34,270 (Resolution 056 of November 22, 2018)
They are not subject to this tax:
- Rural properties destined to agricultural activities according to those indicated in the International Standard Industrial Classification (ISIC), Section A, division 01, adopted in Colombia through Resolution of the Directorate of National Taxes and Customs (DIAN).
- The disposals, in any capacity, of properties destined to the execution of housing projects of social interest and / or priority.
- All those goods acquired in any capacity, destined for collective equipments of public social interest. Provided that the buyer is a state entity or a non-profit entity that meets the requirements to be entitled to the special tax regime and that the asset is dedicated and used exclusively to social projects and meritorious activities.
This tax is paid by the seller or transferor of the real estate.
Its causation is instantaneous, it is not a deductible tax, nor a deductible expense but it will be part of the cost of the property for the buyer.
The form of payment will be in its entirety through the mechanism of withholding at the source and must be canceled prior to the alienation of the real estate, and submit proof of payment before the notary or trustee of the trust, private equity fund or collective investment fund .
ARTICLE 57 OF 1943 OF DECEMBER 2018 ADDING A PARAGRAPH TO ARTICLE 401 OF THE TAX STATUTE. RETENTION IN THE SOURCE IN THE DISPOSAL OF GOODS WHEN THE BUYER IS A LEGAL PERSON OR SOCIETY IN FACT.
When the buyer of an immovable property is a legal person or a de facto company, the withholding tax by way of income tax is a prerequisite for the granting of the public deed or the transfer of rights or quotas representing property. estate.
For these purposes, the legal person or de facto company will pay the withholding at the source by means of an official receipt for payment and, subsequently, will impute said payment to the withholding declaration in the corresponding source, in such a way that the notary or the management company of The trust or fund, as the case may be, can verify the payment as a prerequisite to the granting of the public deed or the transfer of rights or fees.