Colombia Property Title Law 

The process of selling a house in Colombia is more complicated than in other countries. First, you must ensure the deed has all the correct numbers. The papers are approved by the National Directorate of Taxes and Customs (DIAN). Then, the seller and buyer set the house’s sale price, and this joint agreement does not have any limit because of contractual freedom. However, there is a range of acceptable prices to reap the tax benefits, irrespective of the terms the parties have settled on.

The tax norm will only acknowledge the sale price, which is determined based on the rule of the tax statute. As a result, a minimum price is set without prejudice, even if a higher one exists. Since the tax statute in Article 90 regulates and limits a property’s sale price in Colombia, making a public deed crucial for tax purposes.

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Values Related to the Sale and Purchase of Real Estate

Several different values are taken under consideration for selling Real estate in Colombia. It is decided which one should be written in the deed. These values include:

  • Property Valuation
  • Price or Value Agreed between the Seller and Buyer (Real Value)
  • Commercial Value
  • Tax Cost
  • Self-Assessment

Each value can be either lesser or more significant. All of them matter when evaluating the property from the tax’s point of view.

The Value at Which the Real Estate Must Be Registered

According to the tax norm, there is a minimum sale price limit of the property known as the cadastral appraisal. However, this does not mean the property can be set with the same value because the norm says that the house should be priced without prejudice.

Here is how the actual price is recognized according to Subsection 6 of Article 90:

In the public transfer deed or construction declaration, the parties must declare under oath that the price included in the deed is real and has not been the subject of private agreements that indicate a different value. If agreements with different information are found, the price agreed upon must be reported. In the same deed, it must be declared that no amount has been agreed upon or invoiced outside of it. Otherwise, its value must be stated. Without the declarations mentioned above, the income tax, the occasional profit, the registration tax, the registration rights, and the notarial rights will be settled on a basis equivalent to four times the value included in the deed.

The Value at Which the Real Estate Must Be Registered

A simple explanation of Subsection 6 is that the deed should have an accurate price to which both parties agree. The deed price is then considered the accurate price, and it should not be lower than the property’s cadastral appraisal. It also shouldn’t differ from the property’s commercial price. Lastly, the agreed price should be lower than 15% of the commercial value

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In conclusion, the property’s sale price must be lower than 15% of the commercial value and higher than or equal to the cadastral appraisal.

Here is an example to help you understand this:

Real Estate Values
Property Valuation
Commercial Value
Allowable Margin
Deed Price Estimated by National Directorate of Taxes and Customs (DIAN)
Amount
COL$ 200,000,000
COL$ 300,000,000
COL$ 255,000,000 (-15% Commercial Value)
COL$ 255,000,000

The commercial price will be deemed relevant by the DIAN only if they supervise the income. Meaning: The deed will be authorized by the notary if the sale price does not deviate from the requirements, which are:

  • The amount should not be less than the set cost
  • The amount should not be less than the cadastral appraisal

In this example, the cadastral appraisal is COP$ 200,000,000. The notary does not have to determine the property’s commercial value to limit the deed’s price to 85%. The notary verifies the deed price and that it is not lower than the property’s cadastral appraisal, and then the rest is DIAN’s job.

If the set deed price is lower than what is required by the law, the official handling the case can reject the deed.

Tax Effects

If the value written in the deed is lower than the property’s cadastral appraisal, the deed will be rejected. However, there is still room to lower the price so that another one can be written. Here is how tax affects the seller and buyer:

For the Seller

If a taxpayer mentions a low price, they obtain a benefit as they can avoid paying taxes. This usually occurs when they show a lower income. Hence, they pay a lower tax.

However, there is something you need to consider. Suppose you omit a vital amount, which results in unjustified equity. A difference will eventually occur. You receive money that you do not declare and then acquire an asset with that money, which you are required to declare. This will increase your equity, which must then be justified.

For the Buyer

Let’s say that a taxpayer pays the price higher than the one stated on the deed. Naturally, this will cost them more as they will pay the tax amount the seller didn’t. However, the property’s actual cost is written in the deed, an amount of which you will lose that you paid. Sooner or later, this will happen because the financial cost will determine your income if you decide to sell the property.

Keep in mind that if the deed’s price is different from what the parties agreed to, you commit fraud. You will have to answer the law to evade taxes and not declare your assets.

If the DIAN proves your criminal act, not only will you have to answer for your actions, but every document the buyer and seller signed will be null and void. In addition, the DIAN will have full authority to impose a higher tax, default payments, and penalties. As long as you can justify the price on the deed and show the DIAN that you are not in the wrong, you won’t have any troubles.

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