While tax reform initiated by President Daniel Noboa continues its course in the National Assembly, outside of it it provokes debate in various sectors. This time it comes from the real estate sector, which warns that, if approved, from January 2024 those who “occasionally sell” real estate will have to pay income tax (IR).

The Association of Ecuadorian Entrepreneurs (Apive) presented its analysis after reviewing the draft of the Organic Law on Economic Efficiency and Job Creation: “This, which appears to be a mistake in the draft, affects the assets of households and companies, limits their progress and well-being, with the transfer of funds and household liquidity to the Tax Administration (SRI) that the construction sector could allocate to reactivate employment.”

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The project proposes the reform of several legal bodies, one of them, the Organic Law for Economic Development and Fiscal Sustainability, for which Article 24 requires that the fifteenth transitional provision is repealed, which Apive questions him.

This provision currently states that the PK taxing the occasional sale of real estate by natural persons or companies will not arise on the first transfer of real estate ownership carried out from its validity, until five years after its entry into the Official Registration, which was carried out in November 2021.

Citing figures from the National Institute of Statistics and Census (INEC), Apive spokesperson Jaime Rumbea indicated that more than 60% of Ecuadorian households own their own home, and some of them also have some assets that they inherited or acquired. or space, either personally or as a company. “This law as it is from January 1, 2024 implies that those people who have real estate when they sell it, if there is any profitability, will pay tax on that differential amount, without this law they will not pay tax on the income they receive,” he said. .

As an example, Apive states that if a citizen bought land in 1996 worth $50,000, and in January 2024 has a client willing to pay $100,000, at the time of deal closing, that citizen will have to pay SRI $6,000 as IR and goods equal or better since sold they cannot be bought.

In addition, the seller already assumes the costs charged by the municipality and notaries public when concluding the sale (alcabals, capital gains, certifications, etc.), so this citizen will receive $92,000 from $100,000, i.e. he would lose 16% of the sale, so fees increase based on sales value, according to Apive.

Rumbea urged us to take into account that the occasional purchase and sale of an ordinary citizen is not the business of buying and selling real estate, because in these cases it is paid.

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Apive also refers to the president’s reform of the Internal Tax Regime Law (ZPPNO), which, among other changes, calls for the replacement of number 14 of Article 10 of that regulation.

The requested changes are to say instead: “arising from the occasional sale of real estate by natural persons”, be told: “those arising from the sale of real estate by natural persons within a period of five years”. While what follows below remains.

According to Apive, the legal category of “occasional sales” prevents this incentive to save and invest in real estate, so “the only ones directly affected” if these reforms are approved will be citizens who invest in real estate to capitalize their labor income.

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The project is being processed by the Commission for Economic Development. Its president, Valentina Centeno, plans to prepare the report by this Friday. This Tuesday, he indicated that in The changes they analyze refer to real estate projects. “Most likely, this part will come out of the law so that the construction sector can have peace. PK for real estate, which was one of the proposals of the law, would be abolished,” he said.

In a recent video released by the Presidency of the Republic about the proposed law, it was indicated that in case of sale, transfer of real estate or donation of the policy, the person who owns and receives it will be exempt from paying VAT.

“In the case of real estate, this does not apply, except what they (Government) call he who receives does not pay, that has nothing to do with what we are talking about, in this case it is a sale and he who sells pays,” said Rumbea.

Apive solutions suggestions

Given this context, Apive provides two proposed solutions.

In order to present arguments about the project, Rumbea stated that the request for a hearing was sent to the President of the Republic, the President of the National Assembly Henry Kronfle and the President of the Commission.