Building on our 7-step guide to Colombian Real Estate, we wanted to elaborate on some important implications in the tax department. In Colombia there are always two numbers associated with property values that any buyer should be well aware of before you start negotiating:
1) Valor Catastral : is basically the declared value of a property for tax purposes whereas
2) Valor Comercial: is the price you are paying for the property.
Because Colombian municipal tax authorities don’t do a thorough job of regular property tax assessments, they almost run the valor catastral (declared values) in part on an honor system that get updated every time a property gets sold. In Colombia, property owners commonly (and for now, legally) under declare the value of their homes even when the real price paid was a lot higher. You find the valor catastral on any quarterly impuesto predial (property tax form) – FYI.
There are 3 basic implications for foreign buyers as follows:
1) Under-declaring the value of property basically means lower notary/registro fees/taxes in the short run. The vast majority of Colombian-Colombian transactions will attempt to maintain a low valor catastral for this reason. This practice may perfectly suit your case although if/when tax laws change in Colombia, someone sooner or later may be caught with the hot potato (if there is a very large mismatch of catastral/comercial).
2) For foreign investment purposes the government is only looking at the valor catastral and not the valor comercial. So if you are planning on using your property purchase for visa/resident purposes your valor catastral should be in the ballpark of the valor comercial. If you paid $300 million COP and the valor catastral only states $150 million COP then you only get to declare a $150 million COP investment on your Formulario 4 regardless of what you actually paid.
3) Ganancial Ocasional – capital gains taxes. If you insist on approximating the valor castastral/comercial with the seller (this just gets negotiated), and the valor catastral is much lower than the commerical value (this happens over time as property values increase) then the seller may be liable to pay ganancial ocasional – capital gains taxes. We were working with a Colombian seller recently who at first refused to increase the valor catastral for this reason but then reviewed his tax situation with his accountant and we negotiated a mutually agreeable way to ensure that our client could declare the commercial value of the property for his residency purposes.
Some more detailed info here in Spanish as well.
Net/Net – tax law in Colombia is evolving and the practice of under declaring property values I’m sure will cease sooner or later like most developed countries. If you buy a property and grossly under declare the valor catastral then you may be assuming the future tax implications yourself vs. having the owner satisfy them up front. Having said tax laws in 2013/2014 have reduced the capital gains taxes to as low as 10%, I believe to encourage proper declarations of property values.
Every case is different and both the buyer/seller should be reviewing property purchase decisions with a lawyer/accountant before you start. Let us know if you need any free legal advice, our full-time lawyer is here to help at every stage of your purchase decision.
by Brad Hinkelman.