Strategic Partnership: Real Estate Investment in Colombia and Brazil

Recently, PGP Abogados and the Brazilian firm Cescon Barrieu hosted a joint webinar to discuss the legal frameworks for foreign acquisition of real estate in Colombia and Brazil. Our experts Claudia Mora (Corporate and Energy Partner), Viviana Africano (Tax Director), and Laura Pinilla De Brigard (Criminal Law Associate), alongside Marcos Prado (Real Estate Partner) and Daniel García (Real Estate Associate) from the Brazilian firm, detailed the requirements for foreign investment, highlighting key similarities, differences, and the unique legal nuances of each jurisdiction.

Colombia

• Constitutional Framework: Private property is a constitutionally protected right that encourages foreign investment. Exceptions are minimal and primarily concern baldíos (unclaimed or state-owned public lands).
• Unified Regime: Unlike Brazil, Colombia does not have a separate legal regime for foreign real estate investment; the same regulations apply to both domestic and foreign investors.
• Public Lands (Baldíos): While state-owned lands cannot generally be acquired by private entities, Law 160/94 establishes specific cases where these plots can be adjudicated to individuals. Once adjudicated, they transition to private property status and may be acquired by foreigners.
• Formalities: Property transfers are formal legal acts requiring a public deed.
• Tax Identification: Foreigners must obtain a Tax Identification Number (NIT) to complete a real estate acquisition.
• Currency and Exchange Controls: Payments must be made in Colombian Pesos (COP). Consequently, the investment must be registered with the Central Bank (Banco de la República) to comply with foreign exchange regulations.
• Due Diligence: A comprehensive due diligence process is essential and should include:
  1. A title search and analysis of the chain of ownership.
  2. Physical verification of the property.
  3. A procedural study regarding potential asset forfeiture (extinción de dominio) under SAGRILAFT (Anti-Money Laundering) protocols.
• Regulatory Compliance: It is also critical to verify the property’s tax status, horizontal property regulations (condo laws), and land-use permissions under local urban planning.

Taxation in Colombia

• Reporting Requirements: While Colombian tax residents must file if their gross assets exceed approximately USD 64,000, non-residents are exempt from filing income tax returns provided all their Colombian-source income was subject to the appropriate withholding rates.
• Double Taxation Treaty (DTT): A treaty between Colombia and Brazil has been signed but is not yet in force. Under its provisions:
  • Real estate income may be taxed in both countries if the investor resides in Brazil and the property is located in Colombia.
  • A 20% withholding tax in Colombia generally exempts non-residents from further filing requirements.
  • Once active, the treaty will allow Brazilian residents to credit Colombian withholdings against their domestic taxes. Currently, such credits must be analyzed under Brazilian domestic law.
• Asset Valuation: Per the Tax Statute, the sale price cannot be lower than the seller's fiscal cost, the cadastral appraisal, or the taxpayer’s declared self-assessment.
• Wealth Tax: This applies to net assets held in Colombia exceeding USD 1 million (as of January 1st each year), with progressive rates ranging from 0.5% to 1.5%.

Brazil

• Rural Property Restrictions: Foreign real estate investment is subject to a special regime regarding rural land, as Brazilian law prioritizes the protection of domestic property rights in these areas.
• Tax ID Requirements: All buyers—whether domestic or foreign, individuals or corporations—must hold a Tax Identification Number to acquire property.
• Conveyance: Property transfers are formal and must be executed via public deed.
• Tax Liability: Real estate acquisitions trigger specific tax obligations within the Brazilian system.

Innovation in Communication: A key highlight of the webinar was the implementation of AI-driven simultaneous translation, ensuring seamless and precise real-time communication between participants.

At PGP Abogados, we continue to provide our clients with expert legal guidance and strategic business vision for all their regional market operations.