First let’s establish what goods are, according to Article 747 of the Federal Civil Code: All things that are not excluded from commerce can be appropriated. This means that it is everything that can be appropriated in the market.
The basic classification of assets is according to their transferability:
- Furniture: goods that you can move from one place to another.
- Real estate: All those assets that, because they are tied to the land, cannot be transferred.
Now, the disposal of property itself is defined as the transfer of ownership of a good or asset from one person to another and can be done for free or for a consideration (in exchange for a good), the most common methods being sale and purchase, donation and assignment.
Whatever the form, there are tax implications in terms of income tax and VAT and to avoid complications it is important to report it to the SAT:
- ISR- Payment for the profit of the transaction.
- VAT – Payment on most sales.
Tax Consequences
Legal Entities
For corporate taxpayers, Article 18, Section IV of the Income Tax Law provides that the gain derived from the sale of fixed assets and land is taxable income, for which the corresponding tax must be determined for such income and a tax return must be generated for the total amount of the transaction.
The case of the sale of land has a special mechanism to determine the tax in which the profit from the sale of the asset must be determined (total income – original amount of the investment in the land, updated), in case of a loss, taxpayers may deduct this amount.
Individuals
As long as our main activity is not to dispose of real estate, tax exemptions, for example, are available to us:
Sale of a Dwelling House: Individuals do not pay the tax on the alienation of their dwelling house, provided that the consideration does not exceed 700,000 Udis ($ 5,446,543.00 approximately) and the transfer is formalized before a notary public.
In the event of not falling under the above assumption, the law establishes the following deductions (Art. 131 LISR):
- Local and federal taxes, with the exception of income tax, as well as notary fees incurred in connection with the acquisition.
- Other expenses incurred in connection with lawsuits in which the right to acquire is recognized.
- Payments made in connection with the appraisal.
- Commissions and mediations paid by the acquirer.
On the other hand, if you are an individual with business activity and professional services, the law establishes that the gain on the disposal of assets must be accumulated, under this understanding, if the asset that is disposed of is used for the development of your activities, it is cumulative and the corresponding tax must be paid.
Another common example worth mentioning is that the sale of a car by an individual is exempt from VAT.
This is provided for in article 9, section IV of the LIVA: No tax shall be paid on […] Used personal property, with the exception of those sold by companies.
