Medellin is a popular tourist destination.
Tax regimes vary greatly throughout Latin America. While some countries are investor friendly, others are not so open. There are several benefits (i.e. retirement programmes, tax discounts) but also some tax obligations. In this section we provide an analysis of the different tax structure in each country where January First Real Estate lists properties. This information may be very important for you to choose you retirement destination or where to invest. Keep in mind that there are related visa and residence issues which are discussed in Visa/Residence Requirements. Real estate assets are, without doubts, one of the most secure and profitable ways of investment. There are two main reasons for this: One, properties always tend to increase their value in the long term.They generate an income for their exploitation (rental/yields). And two, international real estate is set to be the biggest and best investment market of the next several years.
Income tax (Impuesto de Renta)
Nonresidents are subject to income tax on all his Colombian-sourced income. The tax rate is 35%, withheld by the tenant.
The nonresident can opt to file an income tax return. All expenses incurred in generating the income can be deducted. The amount previously withheld will be credited against the taxpayer’s final tax liability. In case the nonresident files an income tax return, a 10% surcharge is applied.
Surtax
Remittance abroad of Colombian-sourced income is subject to 7% surtax. This tax is levied on the rental income less the 35% withholding income tax, which is 65% of gross rental income. The effective tax rate would be 4.55% (7% tax on 65% of the rental income) .
Real Estate Tax (Impuesto Predial)
Property taxes are levied on the cadastral value of the properties as assessed by the municipalities. The rates of the unified property tax, on the aggregate value of the land and buildings, range between 0.1% and 1.6%. In Santa Fe de Bogotá, Colombia’s capital, the property tax range from 0.002% to 0.015%.
Wealth Tax (Impuesto al Patrimonio)
Wealth tax is an annual tax imposed on individuals who exceed a certain amount of wealth. The tax rate is 0.3% levied on the taxpayer’s wealth in excess of the threshold amounts. Assets and properties less than COP 3,000,000,000 (US$ 1,126,765) are not taxable.
Capital Gains Tax
Capital gains earned by nonresidents are taxed at a flat income tax rate of 35%. The taxable gain is computed by deducting the following from the transfer or selling price: acquisition costs (as revalued by the consumer price index), costs of transferring ownership, and improvement costs.
Living There
Residents are taxed on their worldwide income. Income earned by individual residents in Colombia is taxed at progressive rates.
The tax rates vary depending on the taxable income. Income up to COP20,400,000 (US$ 7,662) are not taxable. The maximum tax rate is 35% on income exceeding COP 96,000,000 (US$ 36,056). Residents are subject to a 10% surcharge on their income tax liability. Accordingly, the maximum tax rate would be 38.5% (35% + (10% surtax on 35%)). Foreign residents are taxed only on their Colombian-sourced income for the first four years of their stay in Colombia. On their fifth year of residence, foreign residents are taxed on their worldwide income. The income tax is determined in accordance with a progressive table, of which the highest marginal rate is 38.5%.
Capital Gains
Capital gains earned by residents are subject to tax in Colombia. The taxable gain is computed by deducting the following from the selling price: acquisition costs (As revalued by the consumer price index), costs of transferring ownership, and improvement costs.
Capital gains earned through a resident’s fixed assets are subject to special taxation. Fixed assets are houses, apartment, vehicles, chattels, and implements. If the property was sold within two years of acquisition, the capital gains earned are subject to tax at the standard progressive income tax rates. Profits generated through sale of the property held for more than two years is subject to the capital gains tax rate of 1%, withheld at source.
In transfer of the taxpayer’s homes, a reduction in the 1% withholding tax rate is applied if the property was acquired from 1978 to 1986. The reduction rates are as follows:
Year of Acquisition / Reduction
1986 / 10%
1985 / 20%
1984 / 30%
1983 / 40%
1982 / 50%
1981 / 60%
1980 / 70%
1979 / 80%
1978 / 90%
Realtors’ and Lawyers’ Fees in Colombia and Other Property Purchase Costs
Transaction Costs
% / Fee / Who Pays?
1.5% / buyer / Stamp Tax
1.5% / buyer / Local Government Taxes
1% / buyer / Notary Fees
0.3% / buyer / Real Estate Transfer Charge
0.15%-0.15% / buyer-seller / Estate Agents’ Fees
3% – 4% (+16% VAT) / seller
Costs paid by buyer: 4.45%
Costs paid by seller: 3.63% – 4.79%
Roundtrip transaction Costs: 8.08% – 9.24%
Granada Square is a must see.
Property Purchase Process in Colombia
All transfers of title on real estate as well as all encumbrances must be done by public document. All taxes must be paid in order for a transfer to be legally effective. Any document of transfer or judicial decision pertaining to property must be recorded with the Real Property Registry.
The following registration procedures are followed:
Step 1 – Obtain a certificate or Certificado de Tradición about the history of the property for COP 7,000 (US$ 2.98) from the Registry Office.
Step 2 – Your lawyer will study the property titles, which takes around 5 days to complete and costs around COP 1,000,000 (US$ 425.17). A certificate from the municipality should be obtained certifying that all municipal taxes on the property have been paid (Paz y Salvo Predial and Paz y Salvo de Valorizacion)
Step 3 – A preliminary deed or “Minuta” is prepared by the lawyer.
Step 4 – The Notary prepares the public deed. The participation of the notary in the preparation of this public deed is mandatory and his fees are 0.25% of property value. Moreover, the notary will also keep 1% of the value of the transaction from the seller as an advance payment to be applied to the Income Tax (Retencion en la fuente).
Step 5 – The Public Deed must be registered at the Registry Office. The Registry Tax (Impuesto de Registro) is paid. After registration, the new public deed is automatically sent to the Office of the Cadastre to register the change of ownership.
These procedures can be completed in around 23 days. Sales Tax, or Value Added Tax (VAT), is applicable to provision of services. VAT rate is 16%. However, for rentals of property for housing, VAT is excluded.
Inheritance
Inheritance and gifts of properties located in Colombia are subject to special income taxes (Impuesto Complementario a las Ganancias Ocasionale). The taxable inheritance of nonresidents is taxed at a flat rate of 35%. The heirs or the recipients of the inheritance are liable for this tax but the surviving spouse’s share in a jointly owned property is exempted from this tax.
The following must be deducted from the gross value of the property: the debts and liabilities of the deceased declared in his income tax return the year prior to the death, debts incurred in the inheritance process, duly substantiated debt claims against the deceased, and compulsory alimony.
Cartagena is one of Columbia's most beautiful places.
In cases of transfer on death, the surviving spouse and his forced heirs (direct descendants, direct ascendants, adoptive children, adoptive parents) can deduct COP 15,800,000 (US$ 5,934) as an allowance. The next COP 15,800,000 (US$ 5,934) are also taxed at 0% rate. Accordingly, the surviving spouse and the heirs will only be taxed on their inheritance exceeding COP 31,600,000 (US$ 11,869).
