Purchasing property in Costa Rica is somewhat similar to places like North America and Europe, and there are some practices to which you may be unaccustomed. One such example is that in Costa Rica, a licensed Costa Rica Attorney (who is also a Notary) must represent both the buyer and seller. It is more common that the buyer/seller each have their own attorney but in many cases the same attorney is used by both parties. One question we receive with many transactions is “what are closing costs going to run?” If the answer was as simple as telling you a percentage, I wouldn’t need to blog about it…
The closing cost question variance comes mostly from one single fact: In Costa Rica, transactions are not always declared for the correct amount when purchased. In most countries everyone can see what a property was purchased/sold for right on the Internet; however, in Costa Rica the buyer declares the amount of the transaction (and some people register a lower number than the actual purchase price…wink-wink). Now, I am in no way condoning or promoting this action, but it does happen. Costa Rica loses millions of dollars each year: potential revenue that could be used on things like infrastructure, health care, etc. The “declared value” of the property at the time of closing is the basis for the annual property tax which is only 0.25% (e.g., $100,000 property would pay $250 per year federal property taxes). You are also required to re-declare your property’s value every five years.
Over the years I have seen many instances where a property was purchased for upwards of $200,000, yet the declared value reported was at something like $15,000. This is also the reason that there is no Multiple Listing Service (MLS) here. The data would be incorrect too often to determine legitimate real estate comps/values.
So, while property taxes are fairly cheap, closing costs aren’t as painless.
Your declared real estate purchase amount will have a huge bearing on what you will pay in closing costs. Here are some approximate numbers that will help you calculate:
- Transfer Tax 1.51%
- Stamps for Registry .5%
- Stamps for Documents .3%
- Fee for Attorney (Notary) 1%
- Legal Fees 1% – 1.25%
= 3.31% – 3.56%
I found a very helpful closing costs estimator on https://costaricalaw.com/calculators/closingcosts.htm. By crunching the numbers you can see that the declared value can have a significant impact on the amount of taxes/stamps paid. That is a subject best discussed with your preferred attorney.
Please keep in mind that there can be other fees outside of these closing costs. One such fee is for due diligence on the property’s title. Some attorneys charge a flat fee for due diligence while others a percentage of the purchase price. The due diligence is the MOST IMPORTANT part of the purchase process. Good due diligence can avoid future problems and can save you money and time.
Other potential costs could be to incorporate, forming a new corporation, aka Limitada (LTD) or Sociedad Anonima (S.A.) that will own the property. Some buyers will buy the shares of the previous owner’s corporation, while others will want to form a new corporation. Most new corporations cost around $1200, but this fee is also at the discretion of the attorney.
Lastly, there are some additional taxes that you may be liable for other than property tax. These taxes are not due at closing but are paid annually, including the “Luxury Tax” (if applicable) and the new corporation tax (new as in 2017).https://www.american-european.net/costa-rica-real-estate-blog/costa-rica-taxes/the-new-costa-rica-annual-corporation-tax-2017-is-in-effect/). The new corporate tax is known as “Ley de Impuesto a las Personas Juridicas #9428”.
The Costa Rica taxes are not nearly as high as in North America/Europe… but the “death and taxes” rule certainly applies. It is solely the responsibility of the property owner to pay their property taxes. A bill does not come in the mail.
I hope this helps…
