Who pays capital gains tax in Ecuador? Those who buy real estate are usually surprised by paying a down payment for, for example, a house, and they have to pay a value that was not in their financial plans.
Art. 556 of the Organic Code of Territorial Organization, Autonomy and Decentralization (COOTAD) indicates that “it was established a 10% tax on profits and capital gains arising from the transfer of urban real estate“, this is what is known as capital gains tax that is paid when real estate is sold within an urban area.
The norm indicates that the percentage can be changed by ordinance.
Those who have this tax obligation are property owners who sell them making a taxable profit and therefore real, stands for art. 558 COOTAD.
Notice of what you are signing in the obligation to buy a house, factory damage repairs, deadlines and penalties are defined, but the contract must be notarized
Capital gains tax is a tax on the increase in the value of land in the urban area, i.e. taxes the result of the positive difference between the price at which the property was purchased and the current selling price (profit).
The standard foresees this the buyer who pays this tax will have the right to “require the Municipality to start co-activities so that… (that) the corresponding value is compensated”.
But art. 558 also provides that “this right cannot be exercised if the person who paid the tax has accepted this obligation by contract“, as in a private contract on the promise of purchase which stipulates so.
Marlon Vera, a real estate attorney, argues that this tax must be paid by the seller. “There is an exception when the seller excuses himself, which is directly stipulated in the contract of purchase and promise to pay taxes. The contract is concluded between the parties.
These agreements occur when the buyer asks the seller for an abatement, and the seller agrees to the abatement, but asks the buyer to cover the appropriate capital gains tax.
The house is for sale for $110,000, but the buyer is making an offer of $100,000. In this hypothetical case, the property owner agrees to sell for the collected amount, but asks the buyer to pick up the capital gains tax.
“It is advisable to make purchase promises, with this the rules of the game are clear from the beginning. There you can find out which values correspond to the assumption of both the buyer and the seller, without future surprises”, says Vera.
For the calculation of this tax, the municipalities will deduct from the profit the amounts paid for special contributions for improvements and encumbered assignment of rights, according to the law.
You also have to decline 5% of net profit for each year that has passed from the moment of acquisition to the sale.
Marcos Armijo, CEO of real estate franchise Travi Bienes Raíces, mentions an example and a simple way to explain it.
That a piece of land was purchased in 2015 for $10,000 and actually seven years later, it is sold for $50,000, how much capital gains tax would be paid?
first this The tax is calculated on the capital gain or profit, which in this case is the difference between the cost of purchase and sale, i.e. USD 40,000, in that case it would be 4000 USD (10% profit).
He Capital gains tax amounts to 10% of the difference between the transfer of city real estate, i.e. it is calculated on the amount realized by the resale of the real estate based on the municipal assessmentit says on the blog of the real estate agency Unión Andina Ecuador.
I also know reduces the amount of tax by 5% per year for each year of the purchase and sale of real estate.
In the case of the above example, the reduction would be $1,400 for the past seven years ($200 per year, which is 5% of 4,000), with the taxable amount being $2,600 for that sale.
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Notaries cannot issue deeds of purchase and sale of real estate without presenting a tax payment certificate, according to Art. 560 of COOTAD, therefore it is the value that needs to be covered as a condition for the delivery of the house to the new owners and the processing of the loan when it is acquired on credit.
Notaries who do not comply “will be fined 100% of the unpaid tax.” Plus a fine ranging between 25% and 125% of the single minimum monthly wage of a private worker in general, depending on the severity of the offense.
Surplus value is defined as increase in the value of property over a certain period of time, among other things in the case of real estate, homes, offices, buildings, business premises, plots of land; It is generated by external factors such as location, age, accessibility, urban infrastructure, proximity to public transport, commercial spaces and development and projection. city general
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Source: Eluniverso
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