Costa Rica property taxes. ☎️ What you need to know.
It´s important to understand property taxes when you buy or sell land in Costa Rica. Every land transfer is subject to property tax payment under Costa Rica real estate tax laws. So, before purchasing property, you should know how much you will have to pay in real estate taxes. In principle, the buyer always pays the transfer taxes and Registry costs. This is aside from attorney legal fees. Property transfer taxes and registry costs in Costa Rica are 2.5% of the property’s sales price or fiscal value. But this has to do with transfer taxes, and not the actual Costa Rica real estate taxes, once you actually own the property.
Transfer taxes are one thing: the obligation arises only when you sell land. To be clear, property transfer taxes are paid only when a property transfer occurs. But the Costa Rica Property Tax is another thing entirely. Property taxes in Costa Rica are taxes you must pay to the State for owning land. When buying a home or a real estate property, you must assess if the seller is up to date with these taxes. As a step of due diligence, this should be ascertained before you buy a house or property. Costa Rica has two central property taxes: the municipal property tax (the territorial tax) and the luxury property tax (the solidary property tax).
1. Municipal Costa Rica taxes:
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 research the due amounts. 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.
Property tax is of 0,25 percent:
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 a left-wing 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. At an exchange rate of 566 colones per dollar, this tax applies to over three hundred seventy thousand residential constructions. Costa Rica has varied ideological views. The taxation is supposed to finance state housing projects. You would think that Costa Rica would not have a housing project problem. Nevertheless, the fight against poverty in Costa Rica has been a failure. This type of property taxation discourages foreign investment. These types of taxes beg the question if we have private property or if private property is a mere privilege granted by the State?
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.
A possible Double Taxation Imposition:
Constitutional law in Costa Rica establishes that you can only be taxed once for a specific reason. Taxation can only be levied by law and not by decrees. This is called a “Legal Reserve Matter,” a matter that can only be established by law. So, on the one hand, we have the municipal property tax, which already levies taxation on property ownership. On the other, we have the luxury property tax law, which also taxes property ownership. I consider this double taxation; therefore, applying both laws is unconstitutional. You can´t be taxed twice for the same motive. It´s important to be aware of these real estate taxes, when you do your estate planning for your future heirs.
Conclusions:
Social democrats in Costa Rica follow the ideas of John Maynard Keynes. Thus they believe in State intervention in economic areas. (The word “social” can be used as a magic blanket to mean anything.) These laws erode private property for the State to be able to pay for salaries. Therefore, if personal property is a human right, these laws should all be considered unconstitutional. The problem is constitutional interpretation is subjected to the Constitutional Court. The Supreme Justices or Magistrates have an ideological tendency; therefore, objectivity is blurred.
The role of the State and the current problem:
The problem with Costa Rica is that the State has too many mouths to feed, and being Latin America, there is a heavy influence of socialism. We have about 330 institutions and thousands of State Functionaries. This is huge for such a small country. As Costa Ricans, we should concern ourselves with the reduction of the State and with a consequent decrease in taxes. Contrary to the followers of Keynes, I believe in the classic liberal economics as taught by Adam Smith. The State’s role should be limited to personal and legal security, public constructions, and division of powers. It´s not the State´s job to provide housing to some by taxing others. In reality, what happens, is that most taxes go to the salaries of the State Apparatus. I believe most, if not all, State interventions are prejudicial to the economy and society.
Dr. Christopher Pirie Gil.