As a “real property” owner in Costa Rica, you should be aware of the various taxes that need to be paid annually. Failure to pay them will generate penalties and lead to a collection process.
To own property as an expat, you are generally required to set up a corporation of some type, to facilitate ownership; although it is possible to personally own property in Costa Rica. In any case, obtaining appropriate legal advice is essential, to ensure that all the required filings are done correctly. The good news is that you can obtain solid legal advice at very reasonable rates.
Costa Rica’s amazing beaches are one its top attractions.
Once you have navigated the process of the property purchase, and have successfully obtained title to your own residence in Costa Rica; you then need to be aware of the myriad taxes you may owe on an annual basis. Costa Rican taxes are numerous and varied, and are generally comparable to what you are probably used to, in your home country. There are a couple of unique exceptions of course… the good news though is that the actual dollar amounts levied as property tax, in this beautiful land are not that expensive at all.
Some of the types of taxes you may encounter while living in Costa Rica:
If you are already living here or thinking about moving to Costa Rica, we hope you will find the following collection of information useful, as you explore the rules and subtleties of each of the taxes you might encounter:
Luxury Tax in Costa Rica
Costa Rica has made many recent changes in its complicated tax laws. One of these is a “luxury” tax on higher value homes, established in 2009.
Whether you must pay this tax depends on the value of your constructed home, along with other improvements such as ranchos, swimming pools, walls, internal streets, sports fields, etc. The threshold at which the tax kicks in applies only to these types of construction and improvements, not to the land itself.
However, if you meet the threshold, you must then add the value of the land to the value of the construction, and pay the tax based on the entire amount.
Thresholds for luxury taxes in Costa Rica
The threshold at which the tax kicks in rises every year. For 2020, that threshold is 133,148,400 colones (about $233,900). So if your constructed home (not the land underneath it) is worth less than this, you don’t have to pay the tax. But if the home is worth more than this, you then have to add the value of the land to the value of the home and other improvements, and then pay the tax based on the total value of the property.
The tax ranges between 0.25% and 0.55%, again depending on the value of the home. Payment must be made by Jan. 15 each year, or penalties will be imposed. The Costa Rican government expects homeowners to have their homes assessed, determine the amount of tax due and pay it on their own; although they may check to verify that the correct amount has been paid.
Every three years, those affected must fill out a form called “Formulario Único de Inscripción, Declaración y Pago Impuesto Solidario para el Fortalecimiento de Programas de Vivienda, Ley 8683.” But the tax must be paid annually. Your attorney can assist you with this.
Costa Rica Property Taxes & Garbage Fees
When it comes to Costa Rica property taxes, for once the news is good: They are much lower than in the United States or Canada.
And for once, the rules are simple: the property tax (“impuesto sobre bienes inmuebles”) is 0.25% of the purchase price of your property or the value assigned by the National Registry, whichever is higher. So if your property is worth $200,000, your property tax would be $500 a year.
It’s your responsibility, by the way, to have your property value assessed every five years. If you don’t, you may face penalties, and the municipality may choose to assess the value of your property itself. Most of the time, your legal counsel can do this on your behalf.
Garbage collection fees
Fees for garbage collection (“recolección de basura”) are due at the same time as property taxes, and both are paid to your local municipality. The garbage fee is a fixed amount, that is adjusted annually. The fee varies depending on the location of your property and whether it’s used for residential or commercial purposes.
Property taxes and garbage fees can be paid quarterly — at the end of March, June, September and December — or they can all be paid at once for the entire year.
Costa Rica Corporation Taxes
It’s common in Costa Rica for foreigners to have corporations for various reasons — to buy property, for example; or to be able to work legally.
That means that most expats have to pay Costa Rica corporation taxes, and the payment is due every year by Jan. 31, or interest and penalties will be applied.
Inactive companies, meaning those that are not generating any revenue, (most of us, who have only our homes/ real property in the Corporation) have to pay corporate taxes of about $120 a year. For active companies (corporations that do business) tax liability is based on their revenue.
Costa Rica Shareholder Declaration
Costa Rica has been on a tear lately passing new tax laws, and though they won’t make your life any easier, ignoring them can make your life much more difficult.
Case in point: the “Law to Combat Tax Fraud,” which requires virtually every corporation in Costa Rica to file a complicated declaration, stating how many shareholders it has, what their stake in the company is, what types of stock are held, and many other details.
The ostensible reason for this requirement, is to comply with international requirements for tax transparency — in part, to satisfy conditions to become a member of the Organization for Economic Cooperation and Development. The requirement is also intended to reduce tax evasion and combat money laundering.
The requirement applies to the smallest mom-and-pop company — S.A. companies (“Sociedad Anónima”), LLCs (“Sociedad de Responsabilidad Limitada”), general and limited partnerships, branches of foreign corporations in Costa Rica, trusts and others.
Costa Rica shareholder declaration requirements
The list of information required is long and complex, including company identification, type of stock, total number of shares, names of shareholders and beneficiaries, details of share ownership and more. Unless you know off the top of your head what terms like “usufruct” mean, you may need some help to fill out the form correctly.
An additional complication is that to complete the online-only shareholder registry form yourself, you must obtain a “digital signature” (“firma digital”) from an authorized Costa Rican bank. This is a USB device inserted into a computer with a digital card identifying the holder. And of course there’s a catch: Only Costa Rican nationals or foreigners with legal residency / DIMEX card can obtain the digital signature.
The work-around? You can assign power of attorney to another party, usually a lawyer or notary, to use their digital signature to fill out the shareholder declaration for you.
Failure to make this declaration is punishable by pricey penalties — starting around $2,000 and in some cases, believe it or not, reaching nearly $79,000. So ignoring this requirement is really not an option.
If you have a Costa Rican company and have not fulfilled this requirement, contact Ballena Legal Team to have them do this on your behalf.
We hope that this information helps you to understand your tax responsibilities and make life easier for you!
To answer more questions, etc… contact one of our team!
If you are wondering what properties are available for you… check out our Costa Rica Real Estate.
Our agents can prequalify any property for you – with video conversations, etc; to ensure it suits your desires and needs!
We are here to help you with the entire process!
The team at Ballena Properties