Living in Costa Rica might have important income tax consequences for you if you’re a taxpayer in the United States. The rate is 13%. The Personal Income Tax Rate in Costa Rica stands at 15 percent. But one thing that won’t change is that Costa Rica is a great place to live and own property – as well as vacation! The law is officially known as law 9635 or the “Law to Strengthen Public Finances”. Low property taxes and a lack of capital gains taxes have inspired other investors and retirees to do just that. Residents of Costa Rica who sell their primary residence are exempt. What are the implications of the new law? so long as the property was properly registered at the price you paid for it. A capital gains tax taxes the difference in the purchase price and the sales price of items such as real property or shares of a corporation. The real problem the government faces, however, is a burgeoning budget deficit. Costa Rica property taxes underwent a change on July 1, 2019. Similarly to the United States, local governments are tasked with performing routine appraisals of the real estate property located in their jurisdiction. The lowest tax bracket is 10% and the highest is 30%. View our range of houses, villas and apartments for sale in Costa Rica. Costa Rica approves a series of tax reforms. m. In Alajuela, house prices rose by 5.5% to US$997 per sq. As of July 1, 2019, there will be a new Costa Rica capital gains tax of 15%. What is it, and how does it affect you? What if a house is sold at a loss from the cost to build or buy it? In the past, official property values were kept as low as possible, sometimes artificially, in order to minimize property taxes. A 15% tax on the capital gains is now imposed when a property is sold. Now that the capital gains tax is in effect, the strategy changes. A 15% tax on the capital gains is now imposed when a property is sold. Costa Rica News – The General Directorate of Taxation is now offering online services through the ATV portal. ), tax in Costa Rica wasn’t something most travelers needed to concern themselves with. Only revenue earned by an individual within Costa Rica is subject to an assessment by the tax authorities. This page provides - Costa Rica Personal Income Tax Rate - actual values, historical data, … In addition, they should keep receipts to document the cost of any improvements they make such as remodeling or additions. Second, the tax is levied based on the property’s cadastral value, as assessed by the tax authorities. For example, suppose you bought a vacation condo for $200,000 before July 1, 2019. DGT-R-075-2019 (the Resolution), on the obligation of “inactive companies” (i.e., entities that do not carry on a trade or business in Costa Rica) to register with the Tax Registry and file a specific tax return. Many individuals who work and any Corporations that are involved in commerce in Costa Rica have to pay Income Tax. For that reason, low property tax is one of the many reasons to invest in Costa Rica real estate. Here we pay .25% of the registered value per year so on a property valued at $100,000 the annual taxes would be $250. While it is best to contact Meléndez & Bonilla directly for advice on your exact real estate holding and tax situation, this page will help you with some basic information on the Costa Rican property tax environment. The new tariff is part of the broader “Law to Strengthen Public Finances” that was passed the previous December. Those low property taxes and a lack of capital gains tax in Costa Rica makes real estate investment a viable opportunity for foreign investors. The local government also has the ability to set a payment schedule for property taxes. Costa Rica real estate has developed rapidly for many years. The new law is designed to bring in more tax money to address the ever increasing infrastructure needs. Some owners of property in Costa Rica don’t even know that a corporation tax (impuesto a las personas jurídicas) was created in December 2011 through tax law No 9024. Updated COVID Requirements Costa Rica October 23. hybrid mismatch arrangements). I never spam and will never pass on your email to any other party. This tax is separate from property taxes that all Costa Rican residents must pay. Another effect of the new tax law is that it is now it is much more important to document the value of any property that is not exempt from capital gains tax. https://www.specialplacesofcostarica.com/costa-rica-property-taxes-guide Data collected by Datosmacro.com in 2019 show that over 12,000 registered U.S. retirees and ex-pats prefer to live in this Central American country. Find Property for sale in Costa Rica. The percentage of the annual property tax is 0,25%, as regulated by Law 7509. Costa Rica property taxes underwent a change on July 1, 2019. The calculation on the property tax is based on the registered value on the register, which is always lower than the real one. First, the rate is 0.25%. Foreigners were told that this is the best protection for their assets as most corporations are registered in the S.A. (sociedad anonimo) category. We weren’t planning on covering these because they are so new that it’s premature to measure the impact on our real estate. Why was the new law enacted? It’s still too early to tell. The goal of the tax reform law is to change the sales tax into a Value Added Tax (VAT) that will be broader in scope by covering products and services. Theoretically, yes. The Costa Rican level of property taxation (currently 0.25 percent) is quite a savings from most North American countries, the United States included. Three new tax and corporation laws were introduced in Costa Rica in 2019. There is some good news for Costa Rican Citizens and Permanent Residents as the capital gains tax will not apply to the primary residence of these persons. Hi Russ, Costa Rica will implement a 15% capital gains tax. Your options are to pay 15% of the gain (15% x $50,000 = $7500) or 2.25% of the sale price (2.25% x $250,000 = $5625). Among the new tax law measures are items related to income tax reform and to the reform of the general sales tax regime by replacing it with a value added tax (VAT) system. However, if you sell any additional property in Costa Rica—commercial or investment real estate–the capital gains tax would be collected. But then Costa Rica passed a law whereby all corporations, active or inactive, would be subject to a yearly corporation tax. Meléndez & Bonilla has experience dealing with these types of arrangements and can assist you as you pick a property, purchase it and then manage it. The general rate of property tax is 0.25 percent of the registered value of the property, usually determined by the appraisal commissioned by the local government responsible for the piece of land. The new tariff is part of the broader “Law to Strengthen Public Finances” that was passed the previous December. The tax is based on a sliding scale and depends on the property value. Search for real estate and find the latest listings of Costa Rica Property for sale. Keeping track of the cost of improvements is imperative in order to reduce the tax burden. However, the infrastructure in many regions has not kept pace. While annual payments are most common, it is also possible for a local government to decide on biannual or quarterly payments for property taxes in that region. Are there any exceptions to the new capital gains tax? Having a local company on your side to keep you informed on changes in the tax code will also help you as you monitor your investment either from within Costa Rica or from your home elsewhere. On 20 December 2019, Costa Rica’s tax authorities published, in the Official Gazette, Resolution No. The Costa Rican level of property taxation (currently 0.25 percent) is quite a savings from most North American countries, the United States included. As long as the two requirements of Costa Rican residency and primary residence are met, the transaction should be tax free. When and what to pay. On a side note, one interesting piece of information that you might consider when contemplating buying real estate in Costa Rica is the Zona Marítimo Terrestre. Costa Rican tax law has largely deferred to local governments on the issues of property taxes, but there are some guidelines that you can learn that will largely apply to your real estate dealings in Costa Rica. Yes. A lot of foreigners come to Costa Rica thinking they don’t have to pay taxes. However, a relatively newer tax has hit the real estate market that you should keep in mind should you consider purchasing property in Costa Rica. If you reside in Costa Rica at least 183 days in a year and the home you sell is your habitual residence, the sale will be exempt from paying capital gains tax. Many, especially realtors, are aghast at the nerve of the Costa Rican government for doing such a thing. Property taxes are levied on the cadastral value of the property as assessed by the tax authorities. m. in July 2019.But condo prices surged by 40.8% to an average of US$1,181 per sq. Property Tax: One of the great benefits of owning property in Costa Rica is due to low property taxes. A. The law does not stipulate how often or how many times someone can apply for the exemption. Tax didn’t apply to several types of tourism services, including adventure and nature tours, shuttle services, and car rentals. Your email address will not be published. Because of all of these local statutes, individual experiences may vary, but there are some common tenets these property taxes usually follow. Non-residents are liable only for the applicable withholding taxes (WHTs), depending on the nature of the local income. Notably, the reform introduces a VAT Law that substitutes an antiquated sales tax system, and brings significant changes to income tax law adopted over 20 years ago in an attempt to harmonise it with international standards and the debatable recommendations of the OECD for a country such as Costa Rica (e.g. INCOME TAX. In Costa Rica we have a sales tax of 13% that only applies to a limited amount of products. If you want to keep up with what is happening in Costa Rica sign up for my monthly email. Whether that be your car, your property, or even your cell phone. Costa Rica Offers Tax Advantages . Sales Tax (sometimes referred to as VAT) Properties that engage in short term rentals are viewed as competition for hotels in Costa Rica, and thus must register, collect and pay sales tax on tenant payments (Impuesto Sobre La Venta). The Zona Marítimo Terrestre is a law passed by the Costa Rican government banning the personal ownership of beachfront property throughout Costa Rica. The Corporation Tax Costa Rica has to be paid every year, the first 30 days after January 1st. New Costa Rica tax laws went into effect on July 1, 2019. Instead of paying 15% of the increase in value, you could choose to pay 2.25% of the total sale price. In this scenario, the alternative 2.25% tax is lower. However, not everyone has to pay, individuals are exempt for the first $5,700 a year. Some time later, after the new law has taken effect, you sell it for $250,000. Utilities in Costa Rica, Changing is easy! Many refer to it as the IVA (impuesto de valor agregado) for its initials in Spanish. What if you sell a property that is subject to capital gains tax but you owned it before the new law went into effect? Unfortunately in some cases they do. Those low property taxes and a lack of capital gains tax in Costa Rica makes real estate investment a viable opportunity for foreign investors. m. in July 2019 from a year earlier.Condominium prices increased 5.1% to an average of US$1,051 per sq. As well as Costa Rica having been known worldwide mainly for its stable democracy that abolished its army in 1948, the country has welcomed foreigners, is located three to five hours away from most major U.S. cities, has a low property tax compared to other countries, and has a very good quality of life. Check here how much. Costa Rica property tax runs from the 1st of January until the 31st of December of each year. If a house is sold for a loss you do not have to pay the capitol gains tax. For example, a US$ 500,000 property pays US$ 1,250 per year in property tax. Costa Rica: Personal Taxation Property Tax. In Costa Rica, the taxation of individuals is based on the principle of territoriality, meaning that all personal income that has a foreign source is tax exempt. If your primary residence is outside of Costa Rica, and you sell a vacation home in Costa Rica, you will have to pay the tax. Find overseas properties to buy in Costa Rica with the UK's largest data-driven property portal. Potential property owners are likely quite familiar with property taxes. The luxury home tax applies to anyone with homes valued at more than $218,000 at the current exchange rate. This measure ensures that the capital gains tax is paid by the non-resident property owner. If that’s the case, you should apply for a tax exemption in your home country so that you don’t pay the capital gains tax twice. Joe: We invite you to contact us directly for information on your specific tax situation and to help you establish long-term property prosperity in Costa Rica. In Guanacaste, house prices fell by 2.8% y-o-y to an average of US$1,158 per sq. The law requires that the buyer set aside 2.5% of the purchase price. Local governments can waive this ban, but if you are looking to purchase beachfront property in the country, you should know that governments are prohibited from issuing waivers for foreigners that have not lived in Costa Rica for at least five years. Personal income tax rates Self-employed individuals. Costa Rica property taxes are extremely low—just 0.25% of the declared value—so municipalities have had little funding to use for improvements. Your capital gain, assuming no improvements were made to the property, is $50,000. What effect, if any, will the new tax law have on the Costa Rica real estate market? These appraisals are then used to develop a property tax for a particular piece of real estate which is ultimately the responsibility of the local government to collect. Does the capital gains tax still apply? Required fields are marked *. Property buyers should ensure that their “escritura” (deed) reflects the true purchase price. It’s called the Impuesto Solidario para el Fortalecimiento de Programas de Vivienda (roughly translated as the Solidarity Tax for the Strengthening of Housing Programs) Costa Rica’s tax reform law is called “The Law on Strengthening Public Finances” (Law #20.580) and will fully come into effect starting on 1 July 2019. Costa Rican-source income is understood to be any income derived from assets used, goods located, or services rendered within Costa Rican territory. You should contact your local tax office for details on when and how payments are to be made. And more importantly, we’re not lawyers or accountants so didn’t want even the … Property taxes are payable quarterly, but you can pay until the end of the year in advance and there is a 5% discount if you do so. Americans are increasingly choosing to relocate to destinations like Costa Rica. Costa Rica property tax or impuesto sobre Los Bienes Inmuebles is calculated over the registered value of your property in the municipality where the property is located. The real estate tax is calculated on a calendar year basis and must be paid annually, semiannually or quarterly, depending on … The Costa Rican tax system is based on the principle of territoriality, according to which any business activity in Costa Rica is subject to income taxation on local income in the same way as a registered business, irrespective of the place of incorporation. Your email address will not be published. If the property is later sold, these expenses will be added to the purchase price of the property to determine the cost basis for calculating the capital gain. There is a property tax in Costa Rica, though it is very low. Property taxes in Costa Rica include transfer taxes, annual taxes and a luxury home tax on homes valued at more than US$225,000, according to Roger Petersen, an attorney in Costa Rica … This page was last updated on 16 August 2019. 4 Note: The solidarity tax is a tax on dwellings (real estate properties), including those used habitually, occasionally, or for recreational use, established under Law 8683, to support Costa Rica’s social housing program (impuesto solidario para el fortalecimiento de programas de vivienda). A further consequence of the new law comes into play if a foreign property owner sells his Costa Rica property. Fast forward to today (2019) and tax in Costa Rica … Meléndez & Bonilla has lawyers that specialize in these types of cases and would love to help you set up your dream home or dream investment property in Costa Rica. Costa Rica: Summary of tax reform changes, new VAT system Costa Rica: Summary of tax reform changes New law in Costa Rica provides a comprehensive reform of the tax system. Property taxes are levied by the municipalities at the flat rate of 0.25%. For example, could a Costa Rican resident sell his primary residence, buy another, and then sell it without paying capital gains? The tax laws in Costa Rica are changing and it is important to know and understand the new obligations so your business remains compliant when operating in the country. Each seller will determine which option results in a lower tax bill. In this special case, the law allows you to pay a one-time alternative tax. m. 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