Capital Gains Tax Repealed!

Capital Gains Tax on Real Estate is Gone!

The highly controversial and wildly unpopular 75% capital gains tax on real estate, signed into law by former president Rafael Correa between Christmas and New Years of 2016 has been repealed via referendum.

The 7-question referendum, which took place on February 4th of this year, included the repeal of the tax, the approval of which signals good times ahead for the real estate and construction industries as well as Ecuador’s broader economy.

This means that the tax structure for capital gains returns to the previous law – 0% capital gains for rural properties and 10% capital gains for urban properties. However for urban properties the rate reduces by half a point every year meaning that after 20 years of ownership the tax rate for urban properties is also zero.

All 7 referendum questions up for vote were approved.

While the media focused on the results of the question proposing to reinstate a two-term limit (the two term limit had been removed towards the end of Correa’s presidency), effectively ending speculation of Rafael Correa attempting a return to power – the most important question from my perspective was the capital gains tax which had scared off investors and created a significant drag on the economy.

The ‘yes’ vote was widely expected however, so the results may have been baked into the economy already.

Ecuador’s economy has been recovering steadily since a downturn towards the end of the Correa presidency and this news can only help that trend continue.

The 7 approved questions were:

1 – Increased penalties for public officials convicted of corruption.

2 – Reinstates 2-term limits.

3 – Reduced the authority and role of a controversial board that oversee various governmental agencies. The aim was to de-politicize the organization and reduce their power.

4 – Added protections, stiffened penalties and got rid of statute of limitations for sex crimes against minors.

5 – Added restrictions against mining.

6 – Repealed Capital Gains Tax on real estate.

7 – Limited oil drilling in Yasuni.

As you can imagine these were widely popular questions and most of them seemed like no brainers.

A good day for Ecuador.