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Realtors’ and lawyers’ fees in Ecuador and other property purchase costs
Transaction Costs
Fee/ % / Who Pays?
Real Estate Transfer Tax (Alcabala) / 1.00% / buyer
Additional Transfer Tax / 0.50% / buyer
Notary's Fee / 3.75% / buyer
Legal Fees / 1.00% - 3.00% / buyer
Agency/Acquisition/Disposition Fees / 4.00% - 6.00% / seller
Costs paid by buyer: 6.25% - 8.25%
Costs paid by seller: 4.00% - 6.00%
Roundtrip transaction Costs: 10.25% - 14.25%
Property purchase process in Ecuador
There are no restrictions on foreign investment in real property in Ecuador, except within 50 km. of the country’s borders or coastline.
Due to the current economic turmoil some foreigners may see Ecuador as a real estate bargain. Shortage of cash from a bank account freeze is forcing many people to sell their real estate to access funds for business or living. The result has been lower real estate prices in all residential sectors and in all parts of the country. However, foreign investors are warned that because of the problems with corruption, gaining protection for property rights from the local court system has at times been complicated or unsatisfactory.
Announcements of apartments and houses for sale can be found in the local newspapers but in the majority of these, they are houses with previous owners so a good check of the condition of the house and the different installations (especially in the case of colonial houses) is advisable.
Generally, a down payment is needed and the rest of the value will be deferred over 1-7 years with a bank credit of mortgage.
Valuation fees cost 0.1% of property value.
The Property Appreciation Tax is reduced to 0.5% for the first transfer of any property delivered after January 1, 2006. Property Appreciation Tax is imposed on the difference between the sale-price and the acquisition-price of the property.
There is no Value Added Tax (VAT) on the transfer of real property.
In Ecuador, many properties for sale are not listed and there are no multiple listing services. Real estate transaction is highly localized in Ecuador. This makes it difficult for those who are not locally based to get information about the property market. The transfer of title must be by public instrument and should contain a true statement of the consideration since the state tax on transfers of title is based on the real consideration. Deeds must bear stamps, signed by both grantor and grantee and recorded in the Registry of Properties.
The law in Ecuador recognizes the use mortgage as a bilateral agreement between the relevant parties. Mortgages must be executed in the form of a public instrument as mentioned above. They may be made in a foreign country with respect to property in Ecuador. Recording of the property with its encumbrances is very important. The mortgage is effective only from the date of record in the registry. Mortgage foreclosure is effected by a summary executor suit. After closure there is no right of redemption.
The financial institutions and banks in Ecuador prefer short term financing rather than long term debt financing. There is a limited mortgage market in Ecuador. Most banks provide short term funding in order to limit their financial exposure in most of the projects. Due to lack of long term financing, real estate is dominated by those who have excess cash to invest.
Property acquisition costs in Ecuador are normally paid by the seller to the real estate agent. Legal fees are not set by the government but paid according to the negotiation of the parties involved. Registration fees are also paid when documents are recorded in the Registry of Property.
The whole process of registering a property can be completed in around 21 days.
Inheritance
Inheritance law
The relevant inheritance law for foreigners and for property owned by foreigners in Ecuador is Ecuador’s national law. This inheritance law applies to everyone in Ecuador, without distinction of religion, nationality or country of residence. Property can be inherited by anyone who is entitled by law.
Ecuador’s Civil Code is the ruling law, especially the “Third Book of Successions because of Death” and “Donations among the Living”. The principal laws that apply to foreigners are: Art.1035 and Art.1036. Foreigners who are intestate are entitled to the same rights, laws and rules as Ecuadorians.
The competent authorities to deal with inheritance issues are civil judges, who also take inheritance cases of non-residents and foreigners. Notaries can also intervene in certain inheritance affairs as a result of recent reforms to statutes which pertain to notaries. Inheritance cases typically average from one to two years.
The only people who cannot inherit are those who are disabled or unworthy, the deceased’s last treating doctor, the priest of the community where he attended, and the notary who authorized the will, or anyone who is related to the notary. Disabled people include deaf-mutes, the mentally ill, under-age children and substance addicts; for whom a curator or a tutor is assigned by the appointed judge, if none has been previously provided. Unworthy to inherit are people directly involved in the homicide of the deceased, or who have intervened in the crime, or who were able, but did not help the deceased, or who illegally hid the will.
Reserved Portion
The reserved portion covers 75% of the estate. At death of one spouse the spousal estate is divided into two, and one half of the estate is distributed as follows:
- Spouse's portion: 25%.
- Legitimate Descendents: 50% to parents and children (both in or out of the marriage), nieces and nephews. If there are no nieces and nephews, to the next nearest family members.
- "Fourth of Improvement”: 25% of the estate to chosen people.
The Fourth of Improvement is that portion of the estate outside the reserved portion. The deceased can benefit descendants, or anyone outside the family circle, such as friends. In the absence of a will the Fourth of Improvement cannot be gifted.
The Will
It is not unusual for middle to upper class groups to write wills. It is advisable for a foreigner to make a will, to avoid long hazardous proceedings for inheritors and family members.
There are two types of will:
1. The open will. This has to be presented either to a notary and three witnesses, or before five witnesses.
2. The closed will. This has to be presented to a notary and three witnesses. The difference between the two types of will is that the content of an open will is made public to the witnesses, while the content of a closed will is a secret, even to the witnesses, until the inheritor is dead and the will is opened.
Witnesses are people who are not identified as incapable, or of the family of the testator, or who have any relation with the notary.
Non-resident foreigners have to be in the country to make a will; someone else cannot be delegated to make a will. Foreigners who are residents in Ecuador can make a will through the consulate where they are located. The following paperwork is needed: marriage license and birth certificates of children and identification that legitimates residence in Ecuador.
Any will written as a result of the use of force is null and void.
The will is opened at the time of death at the last domicile in Ecuador where the diseased left his/her will to a notary.
Under-age children who inherit property under a will are appointed a curator (under 14) or tutor (under 16) until they come of age, when they can administer their own estate. If none has been appointed, the civil judge provides him/her with one. If there is a condition in the execution of the will, an executioner is appointed until the condition is fulfilled.
If an inheritor has not received his rightful percentage and has been left out of the will on purpose or by mistake, they are entitled to reform the will on their behalf within a period of four years in order to obtain their part.
If there is no will, a representative of the state or procurator takes the case. Family members of the deceased must come to Ecuador and prove their lineage and make a formal claim or petition to open the case. The will is distributed in the same way as before, except that the government takes a percentage, and there is no Fourth of Improvement.
During the lifetime of the property-owner
The law considers the owner of a property to be the person whose name is written on the title deeds. This does not exclude or neglect the spouse which name is not written in the title if a community property exists because of marriage. The only case where there is exclusion is when there is a prenuptial agreement or a separation of marital property. The law that applies is the law of the country where the non-resident foreigner got married.
An owner can freely give his/her property prior to death. This freedom does not apply to property which is not entirely owned, or which is part of the spousal estate, i.e., it applies to anything that you had before getting married or agreed to keep separate in a prenuptial agreement.
Donations between the living (transfers, in a free and willing way, of part of an estate to another person in an irrevocable way) can be challenged if the property is donated to a non-family member, and weighs more than the Fourth of Improvement. To avoid this problem, the owner should know how much of the estate s/he can dispose of as the Fourth of Improvement, and should leave behind enough for his/her legitimate heirs.
Ecuador, make your dream investment come true. |
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