Buying Apartment in Colombia - Tax and U.S. Dollar Repatriation Issues

miamimike says on Jul 22, 2008, 11:09:

You may want to try a Search here first, this topic has been discussed indepth many times in the recent past--Good Luck

"Wait a minute. What did you just say? You're predicting $4-a-gallon gas? That's interesting. I hadn't heard that." -- Feb. 28, 2008 --George W. Bush, Washington, D.C.

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gerry07 says on Jul 22, 2008, 11:13:

Thanks miamimike. I've searched everything already but my situation is a little different since unlike the traditional situations discussed on the board I won't initially be bringing any money into Colombia to purchase the property (since I'll be paying US dollars directly to the seller's U.S. account). Any additional thoughts or lawyer referrals would be much appreciated. Cheers.

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Ctg Bound says on Jul 22, 2008, 11:32:

gerry07,

1. Nothing in your case.

2. Depends on how much you OFFICIALY make.

3. You only need a lawyer with enough experience to draw up the sales contract in this case from what you have said.

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gerry07 says on Jul 22, 2008, 11:58:

Ctg Bound, perhaps I'm overthinking this whole thing but the commentary regarding forms 4, 5, and 11 on this board frankly scares the hell out of me. The potential problem I see for myself is that I sell the apartment in five years. The buyer pays me pesos and I go to Banc Colombia to convert those pesos to dollars and attempt to wire them to the U.S. But then someone at the bank taps me on the shoulder and says that (i) I can't transfer the dollars since there was never a form 4, 5 or 11 on file with the bank or Dian for the original purchase price, and/or (ii) I need to pay a 42% - 47% tax on the funds as Gator has stated in his other postings (since he apparently used form 5 as an existing Colombian resident when he bought property .... although that repatriation tax doesn't bother him since unlike me he doesn't have any future plans to move the money out of Colombia). Anyway, like I said, perhaps I'm over thinking this .... but a 42% - 47% potential tax translates to a lot of money so I obviously want to be absolutely 100% clear on this issue.

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Ctg Bound says on Jul 22, 2008, 12:32:

gerry07,

Just sell the apt to somebody outside the Country or take some pesos or dollars out of the Country each trip if you have to sell within Colombia or use a Colombian debit/credit card overseas from your Colombian bank account, a mix of the above and a many other options besides.

Its not a lot to worry about if you are only talking about 1 ordinary apt, remember there are a lot of scare mongers on PBH.

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fecherklyn says on Jul 22, 2008, 17:47:

Ctg Bound,

Apparently according to you I should perhaps change my username to "Scare Monger" because these same issues worry me and I have brought up these concerns on PBH.

BUT!!!!

You can search these boards as much as you want but NOBODY has given an authorative answer to these issues.

Ctg, you have have advised: Question 1 - Nothing in your case, Question 2 - Depends (on amount of gain). I would love to believe this....but how CERTAIN are you? There may be "scare mongers" on this board but there are also too many people who offer advice cheaply and on which other members may rely on to their detriment.

Gerry07, I have formally asked my bank (HSBC, Colombia) to examine both of these 2 points and provide me with a formal written reply. To date, some 2 months later and despite a written chase-up, I have received no reply. I will post any reply I receive.

You may also wish to consider that although you may be able to arrange for purchase price and sales proceeds to be settled outside Colombia in US$ there is still the matter of what will happen during the intervening period. For example, you may find yourself in the position of having to submit Colombian tax declarations. If so, you should record the value of any properties you own in Colombia as part of your "patrimonio" (unless you take the risk not to divulge the matter). You would then of course be in the position of a resident property owner in Colombia whose official records give no indication as to how he purchased or sold the property. This may of course amount to nothing as the Colombian Administration has yet to impress me it has any effective control or investigative ressources....but things can change.

In short, Ctg Bound and others may be perfectly correct in assuming there will be no problem. I prefer to verify these matters....a typical "scare mongerer"I suppose?

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Gringo Spy says on Jul 22, 2008, 18:17:

put the title of the property in the name of a Panamanian corporation. Then sell the corp. simple!

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Ctg Bound says on Jul 22, 2008, 18:51:

fecherklyn,

No. 1 If he isn't going to file the correct forms, he can't send the money home through the official channels without paying tax on it.

No. 2 How many Colombians do you think sell property and pay NO capital gains tax, the vast majority I can assure you, even those that do are just pay a small percentage of the real gains.

As to your other problem:

You only need to declare to DIAN if you have OFFICIAL assets of 80 million or so, you do not need to proove to DIAN in the declaration how you purchased those assets, but if they come asking (highly unlikely) you show them how, you do not need to file the forms to buy property in Colombia, ONLY to send the original money out of the Country tax free through the official channels.

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tomtom33 says on Jul 22, 2008, 19:15:

If you try to over think in Colombia, you will never do anything. Nobody knows anything and that includes Colombian government officials.

Here is another curve for you. I wired money into my BBVA account to buy my current house in Medellín. When my novia tried to register the transaction with Banco de la Republica, BdlR told her that they would not register money brought in through BBVA. Can I then wire money out of the country through BBVA without limitation? I certainly do not know. Maybe I will find out one day.

Meanwhile, all you can do is what you can do.

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viajero123 says on Jul 23, 2008, 03:25:

tomtom33, the bank is the one registering the international transaction with Banco de la Republica on your behalf. Of course, if you do not tell them to do it, they won't since ultimately it is your responsibility. I hope you have no problems when wiring the money out of Colombia.

The key to this is to find a good lawyer and tax consultant. Most of the advice given at PBH is helpful in directing you towards the right direction and contacting you with people who might know, but in the end it's your responsibility to do this properly and you cannot blame anyone on PBH because they told you to do a certain thing that was wrong. Each case is different.

What I do know is that Colombian notaries, where the title transaction takes place, have to report any unusual transactions and that they might withhold tax in case of capital gains. So make sure you go to a notaria that your seller or yourself trust, so you can explain them the origin of the money. As for taking the money of the country, I would strongly advise you to bring the money in and fill in the forms here. If there is no way you want to do that, then consult a lawyer on how to take the money out without paying an extravagant tax, I agree that you shouldn't engage in the business without having an exit strategy. Taking the money in cash dollars at $10K at a time seems a bit risky and not worthwhile if it is several 000's, but I am sure there are other strategies you can use to do this.

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Ctg Bound says on Jul 23, 2008, 10:23:

tomtom33,

Its no differant in the UK or anywhere else I have been, most people don't have a clue in the government or those working at a bank, I would never ask those people for advice on anything but a simple request, as it will most likely be wrong.

Even if they quote you a rule, there are normally so many rules that contradicte because of all the tax laws they write each year, hence why there are so many accountants around, for the loop holes.

Colombia is a pain for individuals for foreign transfers wether out bound or in bound, although I have one company that does several dozen out bound transactions a year and I have ZERO problems so far, touch wood.

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Ctg Bound says on Jul 23, 2008, 10:36:

viajero123,

I have never heard of a notary withholding money because they think you might need to pay it and I can't see it happening, do you have an example, sounds like an old wives tale?

I have never seen a notary question anything other than the busines at hand, they just check the documents and fill whatever in, they want the business so are not going to ask questions, otherwise you will just go to another notary, I have been into Notaries in Colombia several hundred times.

Also I wouldn't recomend anybody to consult a lawyer, simply because its nothing to do with lawyers, although some lawyers no doubt know the rules or think they do, its an accountants business.

If gerry07 doesn't want to fill the forms in I say fine, most foreigners I know don't and I see no real downside to it I am afaid.

I checked the above and many other things in 2003, 2 years after I moved here, with a switched on accountant, he adviced me on a number of things, one example, I do not pay tax on purchaes of property or sales tax for example, plus other taxs I avoid legally through his advice.

Although the latter won't help most people on the board.

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viajero123 says on Jul 23, 2008, 12:18:

Notarias withhold a 1% tax from the seller when the buyer is an individual. If the buyer is a company, then the company must do the 1% withholding.
http://www.portafolio.com.co/negocios/consultorio/2008-05-06/ARTICULO-...
http://www.gerencie.com/retencion-en-la-fuente.html
I agree tat they will not ask questions and refuse to do the transaction, but if they suspect they will report it.

Notarias also must report any suspicious transactions to UAIF (Unidad de Informacion y Analisis Financiero).
http://www.uiaf.gov.co/?idcategoria=1402#
This report is done systematically and online with a special software and its main purpose is the prevention of money laundering and the financing of terrorists, and although I think they might report to DIAN I don't think it is their main focus, because since the notary/buyer withheld taxes, then they report it to DIAN.

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Ctg Bound says on Jul 23, 2008, 12:31:

viajero123,

You stated "that they might withhold tax in case of capital gains", which I say is rubbish.

Your second post is a differant tax, RETEFUENTE, also your percentages are in-correct, normaly the buyer pays 1% and the seller pays 2% as far as I am aware, I don't pay these taxs, so I don't pay much attention to them.

It is a legal requirement for lawyers, accountants, virtually any business to report suspicious transactions, it is not notary specific.

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fecherklyn says on Jul 23, 2008, 15:05:

Ctg Bound,

You answered Viagero as follows:

"You stated "that they might withhold tax in case of capital gains", which I say is rubbish.Your second post is a differant tax, RETEFUENTE, also your percentages are in-correct, normaly the buyer pays 1% and the seller pays 2% as far as I am aware, I don't pay these taxs, so I don't pay much attention to them".

This does not concur with my understanding.

I have BOUGHT several properties as a private individual and never paid RETEFUENTE to my knowledge. However, on the 2 SALES I have made a retefuente at 1% of the registered value has been deducted from the sales proceeds by the notary. This deduction (retefuente) has been explained to me as a form of withholding tax against any eventual capital gains tax liability.Thats the limit of my understanding.

You also replied to me (22/07): "No. 1, If he isn't going to file the correct forms, he can't send the money home through the official channels without paying tax on it". I'm not sure what you mean here but I think there may be some misunderstanding.

When you say "file the correct forms" I imagine you mean the Forms 4 & 11 which are intended to open up a foreign investor file with the Banco de la Republica. This procedure guarantees the free repatriment of the invested funds in the future (I.e.Purchase of foreign currency and remittance to a bank account outside Colombia without any "obstacle" such as is faced in Venezuela due to their battle to combat "capital flight").

Thus you are right if you mean filing Forms 4 & 11 will avoid any future problems in "getting your money out of Colombia". BUT, THIS PROCESS IS NOT AVAILABLE TO PERSONS WHO HAVE LIVED MORE THAN 6 MONTHS IN COLOMBIA.

Accordingly, many (most?) foreigners living in Colombia as RESIDENTS (more than 6 months here) are faced by a different situation when purchasing property. If bringing the purchase money into Colombia by bank transfer mechanism they will use Form 4 (rather than Form 4 & 11 which are not available to them). Thus the obvious question that arises is "If specific exemption is given to repatriation of invested funds by foreign investors who made the initial investment as NON-RESIDENTS...does such dispensation also apply to funds brought into the country by foreigners with RESIDENT status?" The question is appropriate as it seems strange to set up a procedure providing a specific right to Non-Residents but then make it available to everyone!

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fecherklyn says on Jul 23, 2008, 18:44:

Error in last post:

"If bringing the purchase money into Colombia by bank transfer mechanism they will use Form 4" should read "they will use Form 5", the usual form of declaration used for the release of incoming funds destined for general, day- to -day purposes.

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tomtom33 says on Jul 24, 2008, 01:02:

You can really get far too bogged down in all this shit.

My reading of the statute says that you must register funds used for investment no matter how you get the money into Colombia. That includes money brought in via ATMs and cash in your suitcase.

I registered money brought in via ATM and used to remodel an apartment. And BdlR registered that money with no problem. Since I did not wire any of this money to any bank, I could not have told any bank to register anything. Of course my novia had to go to Bogotá with the remodeling receipts and explain things in person to BdlR.

Sometimes yes, sometimes no, sometimes no one knows. And of course everything depends upon who and when you ask. This is Colombia.

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viajero123 says on Jul 24, 2008, 01:30:

Well, there you go, tomtom33 did it. So according to this you should be able to just buy the property with a transfer in the US, and then just take the escritura to BanRep and legalise the funds so you can repatriate them once you sell. I hope it is this easy, but try your best finding out that it is actually possible for your particular circumstances.

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tomtom33 says on Jul 24, 2008, 02:10:

Not quite. BdlR would not let me register money brought in via BBVA. Nobody knows anything. And the rules change daily.

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viajero123 says on Jul 24, 2008, 02:31:

Yes, it is so annoying. No one knows anything exactly, the rules change, or they are enforced differently depending on the person in charge. An although this happens everywhere, in Colombia it seems to happen always!

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tomtom33 says on Jul 24, 2008, 05:29:

While it does happen everywhere to a certain extent, it rarely happens in the US. I feel very confident in my CPAs and attorneys in the US. I cannot say the same about Colombia. Of course, I will admit that part of the problem is my lack of understanding of the Colombian system. But then Colombian accountants, attorneys, and government officials don't seem to understand the Colombian system either.

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Ctg Bound says on Jul 24, 2008, 09:46:

fecherklyn,

The seller pays 2% and the buyer pays 1%, from what I have seen on approx 30 transactions, the tax is called retefuente, I just think of it as sales tax, any taxs you pay can count towards capital gains tax calculations, plus other things to minimise the bill.

As to the forms, you are correct in both cases, I don't pay them much heed as I think its all a waste of time, it is VERY EASY to get any money out of Colombia or any other Country if you really want to and if you wish to move the money out of Colombia it probably means you wish to leave, so you do what is necessary to move the money out.

If you just want to move some of the money to another Country but stay in Colombia, that is also easily done at a more leisurely pace.

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Ctg Bound says on Jul 24, 2008, 09:49:

tomtom33,

I agree most accountants, attorneys, and government officials, have no clue in my view in Colombia, I find that in the UK as well, although I have found accountants pretty switched on in the UK.

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Ctg Bound says on Jul 24, 2008, 09:52:

viajero123,

"Yes, it is so annoying. No one knows anything exactly, the rules change, or they are enforced differently depending on the person in charge. An although this happens everywhere, in Colombia it seems to happen always!"

Sounds about right, hence why I don't worry as you can get out of most potential problems easy enough, by finding somebody to interpret the rule differantly.

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tomtom33 says on Jul 24, 2008, 11:13:

You got that, CB. Entonces, don't sweat the small stuff.

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deathnova says on Jul 24, 2008, 11:56:

gerry07,

I just shot you a PM. My company is a registered currency dealer (U.S.) and can help with these types of transactions.

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