Costa Rica taxes. ☎️ Personal, Corporate and property taxation.
Taxation is a reality of life. This article will cover the vast majority of taxes in Costa Rica. This country has personal, corporate, and real estate taxation. Personal taxes include VAT or IVA taxation, and income taxes. Every time you purchase something or hire a service, you are subject to the Value Added Tax, or “impuesto del valor agregado” in Spanish. If you perceive income in Costa Rica, you will also be liable to pay income taxes. Assuming you are a landowner, you must also pay property taxes each year: the municipal (or territorial tax) and the luxury tax, if applicable. Corporate taxes are also a fact of life, and include the anual corporate tax, and income corporate tax.
To be clear, the property taxes that I describe here have nothing to do with the property transfer taxes that are paid to the Public Registry when a property transfer occurs. The Costa Rica property taxes I describe here, are the yearly taxes you must pay to the State, once you own it, once you own the land.
Property Taxation:
Costa Rica has two main property taxes: the municipal property tax (or territorial tax) and the luxury property tax (the solidarity property tax).
1. The municipal Costa Rica taxes (territorial tax)
The municipal property tax in Costa Rica was created by law number 7509. This property tax law establishes this tribute in favor of the local governments or municipalities. Hence, this kind of taxation is paid not to the Central Government of Costa Rica but to the local municipalities. Most municipalities in Costa Rica have a website where you can obtain information on how much is owed. Before buying a property in Costa Rica, it´s necessary to establish the amounts owing in property taxes. A municipal certification that all taxes are up to date is always a good idea.
The municipal property tax is of 0,25% of the declared value:
This real estate tax applies to all kinds of land in Costa Rica, with the tax law’s exceptions. (Such as property destined for religious cults or embassies.) The property tax is a quarter percent or 0,25% of the property’s value in Costa Rica. The municipality determines this value.
Nonpayment compliance and the statute of limitations for real estate taxes:
The municipality can initiate debt collection proceedings if the owner doesn´t pay the taxes promptly. A municipal functionary certifies the principal amount owed, plus interest. This constitutes what´s called a “legal mortgage.” This enables the municipality to proceed judicially, through a “pure execution process,” with privilege over other creditors. As every right is born, with time, every right dies. This is what´s called a statute of limitations. Property taxes have a statute of limitations of three years, in accordance to article 8 of law number 7509.
Other Municipal Costa Rica real estate taxes:
Municipal tributes, such as trash collection services, have different statutes of limitations. These tributes have a statute of limitations of five years, in accordance to the Municipal Code.
2. The luxury property tax in Costa Rica:
This is an ideological tax. It levies the “appearance” of success. You are subject to this tax if you own a house worth over one hundred and forty-eight million colones. As a vibrant democracy, Costa Rica has varied ideological views. The taxation is supposed to finance state housing projects. It’s also called the “solidarity tax”, and it levies residential properties of high value.
Luxury Property Tax characteristics:
Article 2 of the Costa Rican luxury property tax law establishes a special consideration for this tax. It applies to properties that have residential use only. This tax goes directly to the Central Government of Costa Rica and is determined by the property’s fiscal value.
Escalated Costa Rica taxes amounts:
Congress in Costa Rica loves to levy wealth and success. Instead of a single equal tax, they like to apply escalated taxation. They call this a “progressive tax”; I call it the “Robin Hood” complex. Luxury tax in Costa Rica is no exception. Per article 5 of the luxury property tax law, this is what you would have to pay:
- A starting point of ₡148.000.000,00 and up to ¢371.000.000,00, pays a luxury property tax of 0,25%.
- Over an excess of a property value of ¢371.000.000,00, and up to ¢ 744.000.000,00, the tax amount is 0,30%.
- Over an excess of a property value of ¢ 744.000.000,00, and up to ¢1.116.000.000,00 the tax amount is 0,35%.
- And so on, up to a 0,55 percent rate.
The Statute of Limitations:
The statute of limitations for this property tax must abide by article 51 of the General Taxation Code of Costa Rica. Therefore, this article establishes that, in general terms, all tributes have a statute of limitations of FOUR YEARS.
Personal Taxation in Costa Rica:
Personal taxation is another fact of life. You will find two main personal taxes in Costa Rica: Income tax and the Value Added Tax, or VAT. Corporations are considered persons by law, and they are subject to income tax as well as physical persons. However, I cover corporate taxes in another section. So, with no further ado, these are the personal taxes you may have to comply with in Costa Rica:
1. VAT or IVA:
The Value Added Tax (VAT), is called “Impuesto de Valor Agregado”, or IVA in Costa Rica. This type of consumption tax levies the value added to every stage of its production and even distribution. Hence, things become expensive for taxpayers. The standard VAT tax in Costa Rica is 13% over assets, services, and their importation. So next time you want to take a tour in your vacation or pay for a car rental, expect to have the VAT or IVA tax included in your bill. The same goes for all types of services, such as paying your attorney, your accountant, dentist, etc.
2. Personal income tax:
The Costa Rica income tax, levies rents, income and benefits, that come from a Costa Rican source, and are generated exclusively in our national territory. The law establishes that the Costa Rican national territory is the one established under articles 5 and 6 of the Costa Rican Constitution. This type of taxation levies the income you have received, from Costa Rican sources, during the fiscal year, which runs from January 1st to December the 31st of each year.
3. The Capital Gains Tax:
I consider this one to be a type of income tax. Capital Gains taxation became a reality in Costa Rica, in 2019, with legislature number 9365, which is supposed to “strengthen” the public finances of the State. This tax levies the positive difference between the value of the asset since it was purchased and when it was sold. So if you bought a property for $200,000 and sold it a few years later for $250,000, then you are subject to pay capital gains tax, on the $50,000 you made in profit. The capital gains tax is 15% of the positive difference. So in the previous example, you would have to pay 15% of the $50,000. Your capital gains tax would be a total of $7,500, with no applicable deduction.
Capital Gains taxation exemptions:
The capital gains legislature came into effect in the year 2019. If you have owned the property since before that time, and you sell it, you have a choice you can make. You can either pay the customary 15% which is the capital gains tax, or a 2.25% on the total sales value of the property. It´s hard to say if this is a positive choice, it will depend on the circumstances. A true exemption of this tax is if you are selling your primary residence. In this case, the seller can apply a total exemption of the tax. You must be clear, that this applies if the asset is your primary residence, the place where you actually live.
CORPORATE TAXES IN COSTA RICA
If you own a corporation, tax compliance includes the following two types of corporate taxes:
1. Corporate Tax:
The Costa Rica Corporate Tax taxes the corporation to be able to exist. Every year, you must pay the State a “canon” so that the corporation isn´t dissolved. Yes, you read this correctly. Basically, if the corporate taxes are not paid, the corporate entity can cease to exist. This corporate tax is applied to all types of corporations and must be paid yearly.
Failure with corporate tax compliance will provoke interest in overdue tax amounts. You won´t be able to get corporate certifications from the Public Registry (Personerías), and the Registry will bounce all notarized scriptures that relate to the corporation. So if the corporation attempts to purchase real estate, the document will be automatically rejected by the Registry, until the corporate tax is paid. The most severe sanction for noncompliance is the revocation of the corporation itself. This will happen if you don´t comply with corporate tax payments for at least three consecutive years. The corporation will get automatically dissolved, and this creates a problem of its own.
2. Corporate Income Tax:
Just like their physical counterparts, corporations are persons that are subject to income tax. The same rules apply. The corporation gets hit with corporate income tax, from rents, income, revenue, and benefits from Costa Rican sources. Gross income gets reduced by tax-deductible costs, and the result is the net corporate income tax that corporations must pay the state. Corporate income tax in Costa Rica is escalated in the following manner:
- From 1 colon to 5,761,000.00 colones, the corporate income tax is 5%.
- From 5,761,000.01 colones to 8,643,000.00 colones, the corporation´s income tax is 10%.
- From 8,643,000.00 colones to 11,524,000.00 colones, the corporate income taxation is 15%.
- If gross income is more than 122,145,000.00 colones, the corporation is liable to corporate income tax of 30%.
- An excess of 11,524,000.00 colones, and up to 122,145,000.00 colones, income tax is 20%
Double impositions and the Legal Reserve Matter.
The Costa Rican Constitution, establishes that you can only be taxed once for a specific reason. Taxation can only be levied by law and not by decrees. Our country is one of the oldest true democracies of America, and is founded in the division of powers, where the Executive Branch can´t legislate. The legislative power truly resides in the nation.
Dr. Christopher Pirie Gil.
