The new capital gains tax in Costa Rica, implemented in 2019, does not apply to primary residences. However, for other types of real estate or business assets, the tax rate ranges from 2.25% of the sales price to 15% or 30% of capital gains, depending on the original date of purchase, the asset’s economic activity, and whether it is a residential or commercial property.
All properties in Costa Rica are subject to a 0.25% municipal property tax, and properties above a certain value (currently set at ₡137,000,000 or around $200,000) are also subject to a luxury property tax, also known as a solidarity tax, at an additional rate of 0.25% to 0.55%.
Municipal property taxes may be paid on an annual basis in January or in four quarterly instalments, typically in March, June, September and December. However, it’s important to note that the schedule of payment may vary by municipality. The solidarity tax is due during the first two weeks of January. It is important to note that all information provided in this post is current as of the publication date but should not be considered as legal advice. It is always recommended to consult with a real estate attorney for current laws and specific situations. To get more detailed information on property tax calculation, property valuations and more, it’s recommended to consult with a real estate attorney or other relevant authorities.
How is Your Costa Rica Property Tax Calculated?
Property taxes are primarily calculated as a percentage of the property’s value, which ranges from 0.25% to 0.8%, depending on the value of the property. The taxable value, also known as the declared value, is determined by the property owner, and the property’s value should be updated every 5 years. The percentage applied to the property’s value also depends on the value of the property. When purchasing a new property, the property’s value is considered to be the purchase price.
For existing homes, there are two basic methods to determine the property’s value: contacting the municipality’s tax department and providing either the corporate ID number (cédula jurídica) if the property is held by a corporation or the ID number of the property owner if held personally or visiting the local municipality in person with the necessary documentation and personal ID. It is important to note that the property owner has the responsibility to notify the municipality of any changes in the property tax information after purchasing a new property and registering the deed.
Property Taxes in Costa Rica: A Sliding Scale
Property tax is calculated based on a sliding scale, which takes into account the total value of the property. The base rate is 0.25%, which applies to all properties. However, properties above a certain value may be subject to an additional luxury tax, also known as a solidarity tax, which ranges from 0% to 0.55%. The solidarity tax is aimed at funding social housing projects. For example, a property worth $100,000 will be subject to an annual tax of $250, while a property worth $500,000 will be subject to an annual tax of $1,250 (based on the 0.25% rate). The additional tax rates are applied based on the property’s value, with properties above a certain value being subject to a higher tax rate.
Costa Rica’s Luxury Home Tax / Solidarity Tax
In Costa Rica, the solidarity tax, also known as the luxury tax, is an additional tax applied to residential properties that are valued above a certain threshold. For the 2021 tax year (paid in 2022), this threshold is set at ₡137,000,000 (approximately $198,000 to $205,000+ at current exchange rates). This tax applies to primary residences, part-time residences, and vacation homes. The calculation of the tax is based on the cost of construction and land value. If the construction costs are below the threshold, the property is exempt from the solidarity tax. If the construction costs exceed the threshold, the land value should also be added to the calculation. The tax rate is based on the total value of the property, and ranges from 0.25% to 0.55%. The tax is paid annually, and declarations are made every three years. The proceeds of the solidarity tax are used to fund social housing projects for those living in extreme poverty.
You can get a good idea of your tax rate in three steps:
- Separation of Value: Calculate the square footage (build or rebuild) for your main home and all accessory structures, for example, a rancho, swimming pool, driveways, and more. To determine the tax value of this square footage, you may use the Manual de Valores Base Unitario por Tipología Constructiva (Manual of Base Unit Measures by Construction Type) from the Ministerio de Hacienda, or Tax Authority.
- Exemption or Payment Determination: Once you have calculated your home’s value (total square feet multiplied by the indicated price per square foot), you will know whether you are exempt from the solidarity tax. (Again, for 2022, exemptions are given for homes valued up to ₡137,000,000.) If your construction costs exceed this base amount, then you must then also add your land valuation to your total. The sum of these totals (construction + land) represents your valuation for the solidarity tax.
- Declare the Solidarity Tax: Declarations are given every three years – currently, we’re heading into the 2022/2023/2024 period, which will entail a new base rate – but for 2022 (paying 2021 tax), we’re in the final year of the ¢137,000,000 exemption value. Declarations are made via the form known as, ”Formulario Único de Inscripción, Declaración y Pago Impuesto Solidario para el Fortalecimiento de Programas; payments are due every year during the first two weeks of January.”
Once you have your total valuation (step 2 above), you can calculate your solidarity tax rate based on the following:
Up to ₡344,000,000: 0.25%
₡344,000,000 to ₡691,000,000: 0.30%
₡691,000,000 to ₡1,036,000,000: 0.35%
₡1,036,000,000 to ₡1,383,000,000: 0.40%
₡1,383,000,000 to ₡1,726,000,000: 0.45%
₡1,726,000,000 to ₡2,073,000,000: 0.50%
Above ₡2,073,000,000: 0.55%
For a simple conversion to dollar rates, use a rate of approximately ₡675 to $1. (Multiply your purchase price, in dollars, by ₡675.) In other words, the first tax bracket (“up to ₡344,000,000”) applies to properties worth up to about $509,000.
Note that these solidarity tax rates are in addition to the basic 0.25% tax rate. So, for that home valued at $500,000 (the 0.25% solidarity tax bracket), you’ll pay a still relatively low municipal tax of 0.25% ($1,250) + solidarity tax of 0.25% ($1,250), for a total $2,500 in annual property tax.
How Does Costa Rica Define Capital Gains?
The tax laws regarding capital gains are different compared to other countries like the United States. Capital gains tax applies to an investment (such as real estate) that has appreciated and is incurred when the investment is cashed out, for example when a real estate property is sold for more than the purchase price. In the United States, capital gains tax applies to almost every type of investment. In Costa Rica, capital gains tax does not apply to personal investments such as real estate or banking. The Costa Rican definition of capital gains is an increase in value of a capital asset but it is typically not taxed for personal capital gains. Instead, the focus of the tax law is mostly on business and investment.
Does Capital Gains Apply to Everyone (Expats, Non-Residents, Residents, Corporations, Etc.?)
Yes. Anyone, including corporations and non-residents, can owe the capital gains tax in Costa Rica. The key is in knowing if the tax applies to your capital gains situation.
Are There Exceptions or Exemptions to Capital Gains in Costa Rica?
Yes, there are exceptions to capital gains tax in Costa Rica. Specifically, capital gains on real estate do not apply to the sale of a primary residence if the seller has lived in the property for 183 or more days per year. This exception may appear as an exception when compared to capital gains tax laws in other countries.
No Gains on a Primary Residence
A significant exception to capital gains tax in Costa Rica applies to the sale of a primary residence. Capital gains tax on real estate only applies to properties that are not considered the main residence of the seller. Therefore, if a primary residence is sold for more than its purchase price, no capital gains tax will be owed as long as the seller can prove they have lived in the property for 183 or more days per year.
One-Time Exception for Properties Purchased Prior to July 1, 2019
Another exception to the capital gains tax law in Costa Rica applies to properties purchased prior to July 1, 2019, when the current law came into effect. For these properties, upon sale, the seller may have the option to pay either the standard 15% capital gains tax or a flat rate of 2.25% of the sales price. This means that if a property purchased for $250,000 a decade ago is sold for $500,000, the seller may choose to pay the flat rate of $11,250 (2.25% of $500,000) rather than the full capital gains tax of 15% ($27,000) on the $250,000 capital gain. It is important to consult with a real estate and tax attorney before making any financial decisions.
Taxable Amounts Under ¢100,000
If capital gains from a residential property are to be taxed at less than ¢100,000, then they will not be taxed.
Business Activity as the Normal Course of Business
Another exception to the capital gains tax in Costa Rica is that it does not apply to normal business activities. For instance, if a person’s earnings come from a real estate investment company, capital gains tax would not be applied to their sales. Instead, income tax would apply to the company’s profits. However, it is important to note that this exception is specific and laws may change. It is always recommended to consult with a business or tax attorney before making any major financial decisions.
When and Why Would You Have to Pay Capital Gains in Costa Rica?
Per the new 2019 tax law in Costa Rica, capital gains apply in several scenarios, primarily concerning real estate transactions. However, it’s worth mentioning that there are some exceptions to the rule, such as the primary residence exception and the exception for normal business activities, which we have previously discussed. It’s always recommended to consult with a tax attorney before making any major financial decisions, as laws may change and the specifics of each case can vary.
Non-Primary Residential Property
If you purchase a residential property that is not your primary residence, a 15% capital gains tax will apply upon sale. It is important to note that for a property to be considered a primary residence, the owner must reside there for 183 or more days per year. Additionally, there is a one-time exception for properties purchased prior to July 1, 2019.
Businesses (Including Vacation Rentals)
For businesses, capital gains in Costa Rica are taxed at a rate of 30%. This rate applies to any income-producing asset, including a second home that is used as a vacation rental. It is important to note that this tax rate for businesses is different than the tax rate for individuals and it is important to consult with a tax attorney to ensure compliance with the law.
Property Held in a Financial Investment Fund
For real estate held in the name of a financial investment fund, a 20% capital gains tax will apply.
How to Determine Your Capital Gains
To determine the capital gains tax for a property in Costa Rica, it is necessary to contact the country’s fiscal authority, the Ministerio de Hacienda, also known as Hacienda. The first step is to determine the registered acquisition value of the property according to Hacienda, which includes updating the value based on the INEC consumer price index, municipal taxes, any investments, and improvements made to the property.
To declare capital gains and losses, the D-162 Form, “Declaración de ganancias y pérdidas de capital” (Declaration of Capital Gains and Losses), must be used and is available via the ATV Taxpayer Online Portal. It is important to note that laws, regulations, and procedures are constantly evolving and it is highly recommended to seek professional services to ensure compliance with the current laws.
Does Costa Rica Recognize Capital Loss?
Yes, Costa Rica defines capital loss as the opposite of capital gains, which is when the value of an asset decreases between the purchase and sale of the asset, such as in the case of real estate.
For real estate, the transfer value includes the full sale price and the acquisition value, which is calculated as the sum of the acquisition and the cost of any investments or improvements made to the property. The acquisition value, and hence the capital loss, is calculated according to Hacienda as:
V = Value of the acquisition, investment, or improvement
D1, D2, D3, Dn = Variation of the INEC Consumer Price Index (IPC) for all corresponding months, starting from the month and year in which the acquisition, investment, or improvement was made.
It is important to note that this calculation is based on the current laws and regulations and it is always recommended to consult with a tax attorney to ensure compliance with the current laws.
Dreaming of a Home in Costa Rica?
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