Many would-be investors in Colombian real estate may find themselves in a tempting situation when negotiating real estate transactions. Given the sometimes complicated task of bringing foreign funds into Colombia the Colombian seller proposes to you, “just pay me in $USD into my US account”.
What could go wrong? The seller seems like a great guy, maybe speaks English, maybe is American himself and is willing to put everything in a Colombian purchase contract. Your real estate agent if you had one just wants his commission so he thinks it’s a good idea if you do. But because the money all stays in the USA there are no FX fees, and that has to be safer and easier than bringing money into Colombia right?! Well, the reality is that these deals are usually very good for the seller and potentially very bad for the buyer for 3 primary reasons.
1) Capital gains taxes
It’s highly likely the seller has incurred some kind of capital gain and if the money never enters into his account (even though property still changes hands at something close to valor catastral/previous title or deed) then there is no way that the tax authority (the DIAN) is going to know exactly how to calculate those gains. Advantage seller.
2) Withholding taxes
It’s possible that the seller has plans to take the money to the United States anyway for any variety of reasons. If that money transfer originates from Colombia then his bank is likely going to withhold some % of the transfer per central bank regulation to ensure that any outstanding debts in Colombia are taken care of. Advantage seller.
3) Time to sell
No one ever thinks much about selling real estate at the time of buying but let’s just say you acquired property in Colombia without ever properly registering your funds. Just as your bank requires you to produce documentation bringing money in, they require you to bring produce documentation on the way out. Depending on the paperwork you deliver (or don’t) there could be a range of withholding taxes applied. If your taxes are not in order and up to date then there are likely to be penalties from the DIAN.
The bottom line is that I’ve yet to hear a good reason for a foreign buyer to send a funds transfer to a non-Colombian bank account to purchase Colombian real estate. And despite this, every single day we have sellers offering this option to our buyers and I assume some percentage of foreign buyers (not ours) are actually buying property in this fashion. However you lose all the benefits that Colombia has tried to offer you as a foreigner in order to simplify the investment process from a tax, legal, and immigration perspective. No visa, no residency, no special tax benefits, and potential fines.
It would be my advice that If during your Colombian real estate search, this kind of deal is offered to you, either seek advice or walk away.
Happy and safe investing,
Brad Hinkelman – email@example.com
Founder/Owner – Casacol SAS