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Property Brokers and VAT
More and new players are entering the property brokerage business, and this raises doubts about whether this activity is taxed with the Value Added Tax (VAT). In order to clarify these doubts, step to expose in a clear and simple tax rules that apply to each case.
In the first place, it is necessary to clarify what kind of activity the property brokerage is and how it is framed within the tax legislation. In accordance with the provisions of article 2 of its Law No. 2 of the Law on Sales and Service Taxes (VAT), "service" is understood as the action or benefit that a person performs for another and for which he receives a interest, premium, commission or any other form of remuneration, provided that it comes from the exercise of the activities included in No.s. 3 and 4, of article 20, of the Law on Income Tax. For the case that brings us together, Article 20 No. 4 cited, in general terms, refers to the activities carried out by brokers, whether they are titled or not, without prejudice to what in this regard provides No. 2 of Article 42 of the Law on Income Tax. For its part, the No. 2 of Article 42 referred to above refers to those income from the exercise of the professions or any other profitable profession or occupation, not included in the first category or that is perceived as a dependent worker, including the obtained by brokers who are natural persons and whose income comes exclusively from their work or personal performance, without using capital.
For its part, subsection 1 of article 3 of the VAT Law establishes that taxpayers, for the purposes of this law, are natural or legal persons, including de facto communities and companies, that make sales, that lend services or carry out any other taxable transaction with the taxes established therein. Finally, article 8 of the VAT Law in the first part of subsection 1 states that "The tax of this Title affects sales and services."
From the above, we can obtain the following conclusions:
- The property brokering, as a rule, is a service that is taxed with VAT, since it is included in the activities that are taxed with the First Category tax (Article 20 No. 4 of the Law on Tax on the Rent).
- The property brokerage activity will always be taxed when it is exercised by a legal person.
- If the real estate brokerage activity is carried out by a natural person, it will be taxed with VAT when capital has been used to carry out the activity (example: purchase of a franchise).
- If the property brokerage activity is carried out by a natural person, it will not be taxed with VAT when capital has not been used for the exercise of the activity (article 12, letter E, N ° 8 of the VAT Law). Notwithstanding the foregoing, it will be included in the second category income, which will be applied to the Global Supplementary Tax or Additional Tax, as applicable.