Modification of the Real Estate Property Transfer Tax Law came into effect on September 28, 2012.
On September 28th of this year (2012), the new Law on Tax Management Improvement (Law number 9069) was published on the Official Newspaper (La Gaceta). This new Law has established very important changes on several matters related to taxes. Some of those changes have included modifications related to the payment of transfer taxes and the inclusion of indirect transfers as transactions that will have to pay the Transfer Tax.
In 1995 a tax was created to be applied to any transfer of real estate properties, by means of which at the time a property is transferred from one person or entity to another party, a Transfer Tax, currently equivalent to 1.5% of the purchase price or of the registered value of the property (whichever is higher), is to be paid, as part of the registration requirements.
This tax did not contemplate those cases where the property is owned by a company and the acquisition of the property takes place as a consequence of a purchaser acquiring the totality of the stock (shares or quotas) of said company.
With the modification now created by the Law on Tax Management Improvement all “indirect transfers” of property are subject to the payment of the Transfer Tax above indicated.
Said Law has modified article 2 of the Real Estate Property Transfer Tax Law, which is the one that included the definition of a Real Estate Property Transfer.
The said article now reads as follows:
“…For the purposes of this law, a transfer will be understood to be any juridical transaction or business by which a real estate property is, directly or indirectly, transferred, attending to the legal nature of the corresponding transaction or business and not to the denomination given to it by the parties. An indirect transfer shall be understood to be any juridical transaction or business that implies the transfer of the power of control over an entity that is the owner of a real estate property. (…)…”.
As a consequence, if a purchaser acquires the stock of a company and this company is the owner of a real estate property, it will be understood that an indirect transfer of the said property has taken place, and such transaction will be subject to the payment of the real estate property transfer tax.
Another reform, created by means of the Fiscal Transparency Enforcement Law (which was also published on September 28, 2012) has made it mandatory for all companies to keep up to date the entries of their Stockholders Registry Book in order to show the current and actual owners of the stock of the company. Non-compliance of said obligation results in a fine equivalent to one “base salary” (around $732 as of October of 2012). This reform is aimed at helping the Tax Administration to keep a better control on the happening of any indirect transfers of real estate property.