Buying Real Estate in Costa Rica: THE BASICS
PART II: TAXES
Now that the international borders have reopened, the real estate market in Costa Rica is starting to heat up. Our last LegalEase article in the May 2021 Howler issue focused on the basics of making a real estate purchase in paradise. This month we take a look at the required taxes. Buying real estate in Costa Rica has many variations from what is common in the U.S., Canada and other “home countries.” These articles are meant to provide a basic overview.
Required Taxes
1. Real estate tax and garbage collection fee
Property taxes are 0.25% of the purchase price or registered value, whichever is greater. The garbage collection fee is USD $200 per year.
These taxes are payable to the municipality where the property is registered, either a year in advance or quarterly. The due date for the first quarter is March 31 each year.
2. Home luxury tax
The home luxury tax only applies to houses, condos, or apartments over a certain construction value, which is adjusted each year. The current minimum amount for 2021 is ¢133,000,000 or USD $240,000.
The due date is January 15 each year.
In addition to paying the tax annually, the applicable homeowners must fill out the form called ‘Formulario Único de Inscripción, Declaración y Pago Impuesto Solidario para el Fortalecimiento de Programas de Vivienda, Law #8683, every three years. The next assessment date for submitting this form will be in 2022.
3. Annual corporate tax
Law 9428: Tax over legal entities applies to owners of properties registered to a corporation. The tax amount is fixed for inactive corporations — currently USD $120. A progressive rate applies to active corporations, depending on their gross income, the current maximum being USD $380. These amounts are adjusted each year.
January 31 is the annual corporate tax due date.
4. Capital gains tax
Law 9635 established a capital gains tax of 15%, which applies to all investment income and real estate.
A capital gain arises from the difference between the value of an asset at the time of purchase and the asset's value at the time of sale. If there is a gain — in other words, the value is positive — this amount should be subject to a 15% tax.
The law provides three exceptions to the required 15% capital gains tax.
Purchase price + value of the investments and improvements made — the sales value X 15% = capital gains tax payable The home luxury tax only applies to houses, condos, or apartments over a certain construction value.
• A one-time exemption for property owners who owned property before the law came into effect on July 1, 2019. For this one-time exemption, the seller will pay 2.25% on the gross sale price.
Selling price X 2.25% = capital gains tax to be paid
• The sale of the primary residence/home is, and will always remain, exempt from capital gains. For these purposes, according to the law, the “primary residence is the property whose primary purpose is to serve as the shelter, protection and home in which the owners reside.”
• However, if the property is owned by a foreign corporation and/or person who does not have a domicile in Costa Rica, known as a “non-domiciled person,” the law requires that the BUYER hold back 2.5% of the purchase and sale price of the property to ensure that any capital gains tax is covered and paid.
Selling price X 2.5% = holdback for capital gains tax to be paid
Costa Rican corporations (either a SA or an
SRL) duly registered with the National Registry are considered “domiciled” in Costa Rica as long as their legal domicile (domicilio social) or place of business
(domicilio fiscal) is within Costa Rica.
The sale of commercial or investment real estate will be subject to pay the capital gains and submit the proper tax form, D-162, to comply with the law. This form must be filed and paid by the seller before the first 15 natural calendar days of the month following the purchase execution date.
We are available for your real estate questions. Please feel free to contact us at info@gmattorneyscr.com