Real Estate Taxes in Costa Rica
Daniela Quiros, Friday, 1 November 2013
This article is part of a series of 8 articles about buying property in Costa Rica. The other articles in the series cover the following topics:
Costa Rica is mild not only in climate, but also in taxes. Thousands of foreigners have learned to appreciate the beneficial tax system of this country within the past 20 years. Once the basics are clear, there are very few bureaucratic procedures a property owner has to comply with once a year.
Law 7509 states the requirements and conditions for real estate tax in Costa Rica. The tax amount is calculated based on the value of land, buildings and affixed structures. The Municipality, or the City Hall, is the authority responsible for real estate tax collection. It is also in the Municipality’s jurisdiction to determine the tax value, oversee property appraisals, and carry out proper tax payment. Consequently, it is Municipality that is responsible for sending out the bills and receipts for real estate taxes. It collects and administers tax revenue paid by tax payers. In case the property owner fails to pay the tax, the Municipality is entitled to proceed with tax collection by court action. One of the dire consequences of not paying the real estate tax may be an auction sale of the property.
Value of Property Taxes and Transfer Tax
Property Tax is 0.25%, one quarter of one percent, of the declared property value. For example, if the declared value of the property is $100,000, the property owner pays $250 per year. Property tax is one of the reasons foreign investors favored Costa Rican real estate market.
Corporation Tax is relatively new. It was passed in 2012, and Ministerio de Hacienda is the authority responsible for the collection of this tax. The fixed $180 fee applies to all inactive corporations and $360 for active corporations. Property owners often open corporations to register their property. In most cases, these are inactive corporations because they do not report any income. In case the property is a rental business, it is possible to open an additional active corporation account, and report expenses and income.
Luxury Tax applies to properties with the value of $250,000 and more. Ministerio de Hacienda collects $2,500 and up yearly on luxury dwellings. The extra amount depends on the declared value of the property.
Transfer Tax of 1.5% of the purchase price applies to any property acquisition in Costa Rica. The buyer’s lawyer pays this tax to National Registry. Very often, the Buyer and the Seller split this amount. As of 2013 legislation amendment, there is not much of a savings opportunity here.
Who Is Subject To Real Estate Tax?
All property owners are subject to real estate tax once they register their title in the Public Registry, which is obligatory. Property owners whose title has not been recorded in the Public Registry are subject to real estate tax, as well. Other categories of real estate owners that are subject to taxation are concession holders, permit buildings and occupants of both Terrestrial Maritime Zone and border zone. A different tax system, or special municipal tax, applies to permanent buildings and structures that are built on the land as a public asset.
Properties that are exempt from real estate tax are those owned by State, local authorities, such as autonomous institutions and municipalities; churches and religious organizations when the property is used for worship ceremonies; diplomatic offices, residences of diplomats or consular agents, although these may have limitations on tax exemption. Also, exempt from real estate tax are properties in forests, watershed, indigenous and biological reserves and national parks. International organizations and Red Cross also belong in this category.
There is also a category of individual owners exempt from real estate tax. These are the individuals whose sole asset is the property. The property value is multiplied by 45 base salaries, which is currently 200.200 colones. This amount constitutes a deduction of 9 million colones from the tax base. In case the property is worth 9 million colones, or less, the property tax does not apply. For example, if the property is 50 million colones worth, minus the 45 base salaries, equals 41 million colones multiplied by the 0.25% tax rate. In this case, the owner pays an annual property tax of 102.500 colones (approximately $205.10).
Where And How Often Are Property Taxes Paid?
City Hall, or ‘Municipalidad,’ is the authority that collects the property taxes in Costa Rica. The tax year coincides with the calendar year, beginning on January 1st and ending on December 31st. Property owners have the choice to either pay once in three months, or yearly. Most of the Municipalities work with state or private banks to process payments. The City Hall issues a bill, and the property owner pays it at the bank.
Filing a Tax Return
According to Article 16, Law 7509, all property owners are obliged to state the value of their properties to the local Municipality at least once in five years. The Technical Standardization Bureau for Property Appraisals has the right to amend the value declared by the owner. The procedure of an appraisal of the property offers the owner the possibility to appeal the changes to the value.
This article is part of a series of 8 articles about buying property in Costa Rica. The other articles in the series cover the following topics:
Costa Rica is mild not only in climate, but also in taxes. Thousands of foreigners have learned to appreciate the beneficial tax system of this country within the past 20 years. Once the basics are clear, there are very few bureaucratic procedures a property owner has to comply with once a year.
Law 7509 states the requirements and conditions for real estate tax in Costa Rica. The tax amount is calculated based on the value of land, buildings and affixed structures. The Municipality, or the City Hall, is the authority responsible for real estate tax collection. It is also in the Municipality’s jurisdiction to determine the tax value, oversee property appraisals, and carry out proper tax payment. Consequently, it is Municipality that is responsible for sending out the bills and receipts for real estate taxes. It collects and administers tax revenue paid by tax payers. In case the property owner fails to pay the tax, the Municipality is entitled to proceed with tax collection by court action. One of the dire consequences of not paying the real estate tax may be an auction sale of the property.
Value of Property Taxes and Transfer Tax
Property Tax is 0.25%, one quarter of one percent, of the declared property value. For example, if the declared value of the property is $100,000, the property owner pays $250 per year. Property tax is one of the reasons foreign investors favored Costa Rican real estate market.
Corporation Tax is relatively new. It was passed in 2012, and Ministerio de Hacienda is the authority responsible for the collection of this tax. The fixed $180 fee applies to all inactive corporations and $360 for active corporations. Property owners often open corporations to register their property. In most cases, these are inactive corporations because they do not report any income. In case the property is a rental business, it is possible to open an additional active corporation account, and report expenses and income.
Luxury Tax applies to properties with the value of $250,000 and more. Ministerio de Hacienda collects $2,500 and up yearly on luxury dwellings. The extra amount depends on the declared value of the property.
Transfer Tax of 1.5% of the purchase price applies to any property acquisition in Costa Rica. The buyer’s lawyer pays this tax to National Registry. Very often, the Buyer and the Seller split this amount. As of 2013 legislation amendment, there is not much of a savings opportunity here.
Who Is Subject To Real Estate Tax?
All property owners are subject to real estate tax once they register their title in the Public Registry, which is obligatory. Property owners whose title has not been recorded in the Public Registry are subject to real estate tax, as well. Other categories of real estate owners that are subject to taxation are concession holders, permit buildings and occupants of both Terrestrial Maritime Zone and border zone. A different tax system, or special municipal tax, applies to permanent buildings and structures that are built on the land as a public asset.
Properties that are exempt from real estate tax are those owned by State, local authorities, such as autonomous institutions and municipalities; churches and religious organizations when the property is used for worship ceremonies; diplomatic offices, residences of diplomats or consular agents, although these may have limitations on tax exemption. Also, exempt from real estate tax are properties in forests, watershed, indigenous and biological reserves and national parks. International organizations and Red Cross also belong in this category.
There is also a category of individual owners exempt from real estate tax. These are the individuals whose sole asset is the property. The property value is multiplied by 45 base salaries, which is currently 200.200 colones. This amount constitutes a deduction of 9 million colones from the tax base. In case the property is worth 9 million colones, or less, the property tax does not apply. For example, if the property is 50 million colones worth, minus the 45 base salaries, equals 41 million colones multiplied by the 0.25% tax rate. In this case, the owner pays an annual property tax of 102.500 colones (approximately $205.10).
Where And How Often Are Property Taxes Paid?
City Hall, or ‘Municipalidad,’ is the authority that collects the property taxes in Costa Rica. The tax year coincides with the calendar year, beginning on January 1st and ending on December 31st. Property owners have the choice to either pay once in three months, or yearly. Most of the Municipalities work with state or private banks to process payments. The City Hall issues a bill, and the property owner pays it at the bank.
Filing a Tax Return
According to Article 16, Law 7509, all property owners are obliged to state the value of their properties to the local Municipality at least once in five years. The Technical Standardization Bureau for Property Appraisals has the right to amend the value declared by the owner. The procedure of an appraisal of the property offers the owner the possibility to appeal the changes to the value.
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