You are looking to make a purchase of, or an investment in, Colombian real estate where the cost is $10,000, $50,000, or $500,000 (USD). But how do you get it here? With a country that has historically had money laundering issues, there are an extensive number of controls on transferring money into Colombia. And most of the methods foreigners are used to employing generally come with extensive fees and tax consequences that make bringing cash into the country, using a bank with both US and Colombian offices, and wire transfers all untenable options. Luckily, with the assistance of an attorney with hundreds and hundreds of such transactions, you can take advantage of a manageable and inexpensive way to move your funds into Colombia.
Let’s take a look at the flaws in the traditional methods:
Physically bringing money into Colombia
- Limited to bringing $10,000 US
- Conversion fees can easily subtract 10% or more from your total
- Lack of security in transferring and securing (almost impossible for a foreigner without Colombian ID to get a local bank account) large amounts of cash
- If you repatriate the funds from rent or the sale of your property back to the U.S. at some point, you could be facing up to 46% in taxes
Using a bank with both US and Colombian offices
- Banks such as Citibank and Bank of America tend to function as separate banks in each country, resulting in:
- significant exchange fees of five percent
- being subject to an additional Colombian tax (“quatro por mil”)
- potential IRS investigation of any internal transfers over $10,000 USD
Wiring money into account of seller
- Circular dilemma – without a signed agreement, you won’t want to wire money to a stranger in Colombia; without the money, however, the seller won’t sign the agreement
- Wire transfer fees of up to 16% by the US bank
- Seller may also register the money incorrectly, which can lead to significant fines, and even disqualification as a foreign investment
- Can make you ineligible for a foreign investment visa
The solution used by experienced transactional lawyers in Colombia is to work with recognized Colombian brokerage houses that can open an account for you. The fees are relatively inexpensive; it provides a secure place to transfer and store your funds, and you can access your money for simultaneous exchange on the day of the transaction. You will have to undergo considerably more due diligence (letter from accountant, six months of bank statements, personal interview, back tax statements,etc.) than opening a U.S. brokerage accountant. It’s legally mandated, however, and Colombian brokers can be held personally liable if they accept a client who is found to be moving illicit funds.
Registration still comes into play, and there are two forms that can be utilized. Leave it up to the brokerage house or bank and your transfer will likely not be registered as a foreign investment (triggering the up-to-46% tax on money repatriated to the U.S.). There is also no guarantee that they will fill out the forms correctly or on time. You could face the same issues as you would have by wiring the money directly to the seller.
It is critical that you engage an experienced Colombian attorney to insure that the most advantageous form is used, that it is filled out correctly, and within the legally mandated time-frame. This will ensure that your transfer is registered as a foreign investment, is not subject to any taxes, and that proceeds from the sale of the house or rent can be transferred back to the United States tax free.
And, if you are pursuing an investment visa, you can’t risk getting this process wrong and potentially disqualifying yourself from receiving that visa.