ILN: BUYING AND SELLING REAL ESTATE - AN INTERNATIONAL GUIDE

[BUYING AND SELLING REAL ESTATE IN ECUADOR]

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V. TAX REGULATIONS A. The excise (Alcabala) tax is the highest in Real Estate Purchase-Sale Contracts (only in definitive or final ones; not in Promise of Sales agreements), 2% on the purchase price or on the Official Record of the Real Estate municipal appraisal, whichever is higher. Capital gain tax applies when there is a profit made in the sale, it is 10% of such profit but there are many deductions that have to be made including the real estate annual municipal taxes paid for the property while owned by seller, repairs, maintenance costs; and it is diminished by 5% of tax each year after the second one of having been acquired by seller, until at the 20th year when there will be no capital gain tax. Capital Gain is on the seller´s account unless otherwise agreed in the deed. B. Regarding income tax, it all depends on if the property is a productive estate, as for instance for renting, in which case, either in the form of a stock or other company or as individual property, the income tax level is between 22%-25% of net income. Corporations are subject to a “double tax,” once on the corporate level, and again on dividends or distributions to shareholders, which directly affect the stockholders and not the company itself. Companies have more options to deduct general expenses from their income tax filings than individuals. VI. DISTINGUISHING FEATURES A. PROPERTIES HELD IN TRUSTS 1. Fiduciary relationship between “trustee” and beneficiaries listed on the corresponding trust contract. 2. Trustee has no power to deal with the trust property except as specifically

directed by beneficiaries – legally an “agent” - for beneficiaries. 3. Third parties are entitled to rely on certificates signed by trustees of record. 4. Beneficiaries may terminate or amend trust at any time. 5. On termination, the trust property is conveyed to beneficiaries. 6. Advantages 1. Beneficiaries are undisclosed (privacy). 2. Trust property can be effectively conveyed by assignment of beneficial interests. Useful for intra- family gifts; albeit there is income taxation on trust level in Ecuador. 7. Disadvantages 1. No limited liability for beneficiaries. 2. Deeds excise tax on transfer of beneficial interest. B. JOINT PERSONAL TITLES: If title in the name of all the co-owners, all must sign the deed. Attachments against co-owners individually can affect the title even if referring to an individual obligation or debt. C. STOCK COMPANIES Shareholders can be individuals or other companies. 1. Advantages 1. Limited liability of shareholders by statute. 2. Free transferability of stock. 3. No deeds excise tax on sale of stock.

ILN Real Estate Group – Buying and Selling Real Estate Series

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