New tax for real estate transfer
Submitted by ptiffer on Fri, 2013/02/22 - 08:30.
Hello NL readers, The new tax law from December of 2012 increases the transfer tax on real estate properties. Prices are in US dollars: From 0.01 to 50,000.00 1.00% from 50,000.01 to 100,000.00 2.00% from 100,000.01 to 200.000.00 3.00% from 200.000.01 and up 4.00% In San Juan del Sur and Tola the local government or Municipality charges 1% for the transfer additional of the percentage the national government will charge (from 1% to 4%). According the law, the transfer tax must be paid by the seller. Best Regards, Paul Tiffer Attorney at Law ptiffer@cablenet.com.ni
There's more to pay
You're right Paul, the seller pays 2% of the selling price. And the buyer has to pay 1.5% of the selling price to register the property with the CORTE SUPREMA DE JUSTICIA REGISTRO PUBLICO in Estelí. The selling price was above $50,001 below $100,000.
Of the "declared" selling price
I have been involved in this game in two countries. In both cases, I was the seller. In both cases there was a legal document with the actual transaction price. Once because I sold on a mortgage and needed to record it, once because it was sold on a Promesa de Venta -- roughly equivalent to what is called a Real Estate Contract in the US.
If it was a cash sale, then the tax would be on a creative number you put on the Compra-Venta. I was just looking at the Compra-Venta for 19 manzanas I bought near Estelí about eight years ago. (Looking at it because I am looking into selling it.) It says I paid C$5000 for it. Even if that was $5000 it still would be way, way low.
Note that I didn't pick the numbers -- a judge (who was almost the seller) did.
In Costa Rica this problem is typically addressed by creating an S.A. (corporation) who owns the property. Then, rather than selling real property, you just sell the corporate stock. This is even commonly used for cars.
Gradual
The modification is the 4%, which is for properties over $ 200,000.00. During the government of President Enrique Bolaños, was decreed the 4% for any property, now is gradual.
Paul Tiffer
Paul, with respect, you are talking about Capital Gains Tax
Not Property Transfer Tax.
The government will retain or withhold taxes on capital gains when property is subject to registration with a public office . Hence its paid by the seller.
If you have any losses, you offset the gains against losses (as you would anywhere) to calculate you 10% for Capital Gains tax for residents and non residents.
LEYNo. 822 Sección V Deuda Tributaria Art. 87 Alícuota del impuesto.
The other taxes (Fyl and Kenny1) are the usual Municipal Transfer Taxes.
Both
Hello Juanno,
I confirmed with my accountant one more time and both were change with this new law. The transfer tax and now a new tax will be the Capital Gain.
I was very interested to show the gradual percentage of the transfer tax in this comment
Best Regards,
Paul Tiffer
Transfer tax
Today I confirmed the information and is the gradual tax over a transfer of a real estate property.
Best Regards,
Paul
Yes Paul, I know what its collected on...
I am not disputing that. Yes, its the gradual tax collected by the goverment from the seller of the home.
But the Article its collected under (Art. 87 Alícuota del impuesto) and the chart that appears in the gaceta that lists the values you posted, relates to Capital Gains and Losses or "ganancias y pérdidas de capital"
It strictly says that where the transfer of goods (a house) is subject to registration with a public office, there will be a proportional amount (Alícuota - 1%, 2% ,3% or 4%), as you listed, of IR (TAXES) withheld.
This gets retained against your RUC number until you complete a tax form and calculate your capital gains and losses.
You then pay a flat 10% on the total Capital Gains made in that tax year.
Entonces...if you sell the home for $200,000.01 you will pay $8,000 at the time of the retention. If you paid $100,000 for the house, then you made $100,000 in capital gains in that tax year so you owe $10,000 but you have already been credited with $8,000 against your RUC number for the sale of the property.
Now, a question. I presume there is no capital gains if it is your principal residence but they will collect it if you sell it because the law says that they must!
Here is a good summary of taxation in Nicaragua - in English
Its by Deloitte
http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Tax/...
NOTE: Its is before the new tax changes but none the less gives a good idea of the different components.
Questions
How is it that the seller pays when it is the buyer who has to register the property? By the time the buyer starts the registration process, the deal is long done!
How is the capital gain fairly determined when the registration office of the local municipality decides the value each time the property is bought and sold? (they don't rely on the price put on the official docs)
Nimodo
The figures that Tiffer posted refer to a Capital Gains Retention.
The Gov are getting their money when they can. Think of it as a minimum tax as say a mutual fund would do if you cashed a 401K or RRSP (Canada). By law they have to retain a minimal amount for tax and forward same to the gov.
If you were to complete a tax form here and show some capital gain losses that tax year then you can offset the taxes paid against those losses.
This is not a Municipal Transfer Tax which is what everyone else is talking about.
irrelevant worries
There is a long-standing tradition of putting a low valuation. Worry about something important--when a property sells the tax people come to see it and assess the value. You may not even be there and aware of the visit. If it is out of town, you may be required to provide transportation for the assessor. On small or predictable properties, or at the whim of the assessor, they may just tax you property based on size of lot and m2 of house. Rank worrying about low sells value with whether or not Gringo is the proper term for Americans.
Next problem--the law says the seller pays some taxes--your lawyer should make sure it is done because yes, once the money has changed hands, you may have a tad or difficulty finding the owner and squeezing money out of him. The approach we did on one property, per advice from our lawyer, was that she got the tax amount due and deducted it from the money due the seller and then we personally went and paid the tax. This was done with the advance consent of the seller who didn`t want to piddle with a sum of a handful of cords.
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