July 1, 2019 will be ‘A Date Which Will Live in Infamy’ in Costa Rica. Well, that may be a bit of an exaggeration. There was no sneak attack by foreign invaders and FDR may have had slightly graver circumstances (Millennials: Google December 7, 1941 if you’re not following this…). This is the date that the new Capital Gains Tax Law takes effect in Costa Rica. I suppose I knew it would happen one day… but, like a prostate exam, I chose to ignore it until the time has come and… the time has come. Much like a prostate exam, we’re going to feel it where the sun don’t shine. Here is what you need to know:
The Capital Gains charge is 15% for residential properties and 30% for commercial properties; however, there is an option of a 2.25% tax of the total sale price that can be applied one time per property (this does not include commercial properties). So if you bought a lot for $100,000 before the law and sold it for $200,000 after July 1, 2019, you can:
- Pay 15% or $15,000 on the $100,000 profit or
- Pay 2.25% or $4500 on the $200,000 (sale price)
The 2.25% option will not be available to the new purchaser of this property. It can happen only one time per property and only if the purchase date was prior to July 1. It’s kind of like a soft jab before the knockout punch.
Exemption: If you are a resident of Costa Rica and selling your primary residence, you do NOT have to pay Capital Gains Tax.
Commercial: Properties that are used or rented for commercial use: offices, restaurants, stores, etc will be charged with a 30% Capital Gains rate.
Vacation Rentals: Are home rental producing properties (vacation, long-term rentals) considered “commercial”? YES! If a vacation rental property is declaring rent and paying taxes, it would be liable for a 30% Capital Gains Tax; however, if the rental income is not declared and there is no record of it, Capital Gains could be avoided (nudge, nudge… wink, wink). This is not a recommendation, I’m just stating the facts that have been told to me.
Real Estate Commission Tax: Sellers are liable to pay 13% tax on the amount of the real estate commission. So, using the same above scenario… if the sale price was $200,000 and there was a 6% commission ($12,000) an additional tax of $1560 will be deducted.
V.A.T. (aka IVA or Value Added Tax): Capital Gains was not the only tax laws put into play. There is also a new V.A.T. (Value Added Tax). The ‘VAT’ tax is more convoluted than the Capital Gains Tax and will have more effect on residents of Costa Rica rather than foreigners who own property here. There has long since been a 13% sales tax. The new ‘VAT’ tax has been added to other services/products that were exempt before the new law. Here are a few of the taxes where EVERYONE will feel it: lawyers, architects, engineers, builders (pay attention if you are about to build…), accountants, doctors/dentists, etc. I am personally about to build a new commercial building and the prices I have been quoted are significantly higher than a building I did less than two years ago.
So… if you’re feeling like Dr. Shaquille O’Neal just checked your prostate, you’re not alone!!!
Here is a valuable link: