All about Taxes in Costa Rica
WHAT YOU NEED TO KNOW
Owning a property means you will have various tax obligations. As the coast is developing, the government is beginning to become more aware of rental properties. There are a couple different ways to facilitate ownership as a foreigner, in any case, obtaining appropriate legal advice is essential to ensure that it is done correctly.
TAXES IN COSTA RICA
+ CORPORATE TAX Starting a corporation is a common way for foreigners to buy property in Costa Rica and in doing so, they are responsible for paying taxes on that corporation. It's a yearly payment due by January 31st. If you don't pay, interest and penalties are applied. The "Impuesto a las Personas Juridicas" or Corporate Tax applies to corporations even if they are inactive, meaning, they do not generate income. In this case, it's around $120 a year. For active corporations, tax liability is based on their revenue. The Costa Rican government calculates it based on a percentage of the monthly base salary of a government employee, known in Costa Rica as a “Base Salary.” That amount is currently 462,200 colones, or about $943 (monthly). Please note that it makes no difference how many employees your company may have, if any at all. Many corporations are set up with just three representatives and no employees. So the base salary of a government employee is nothing but a benchmark used to measure the revenue of a company (or lack thereof). The calculation is: 1) Inactive corporations pay 15% per year of that monthly Base Salary: 69,330 colones, or about $140. 2) Gross revenue of less than 120 times the Base Salary (less than 55,464,000 colones, or about $113,190) pay an annual corporate tax of 25% of the Base Salary per year: 115,550 colones, or about $235. 3) Gross revenue of 120 to 280 times the Base Salary (55,464,000 to 129,416,000 colones) pay an annual corporate tax of 30% of the Base Salary: 138,660 colones, or about $282.98. 4) Gross revenue of more than 280 times the Base Salary pay an annual corporate tax of 50% of the Base Salary: 231,100 colones, or about $471.
+ LUXURY TAX Luxury Tax, officially know as the Impuesto Solidario. The purpose of this tax in Costa Rica is to build homes for people living in poverty. You are obligated to pay this tax depending on the value of your property, which includes the house and other additions such as, swimming pools, walls, pathways, sports fields or courts, etc. The threshold at which the tax kicks in applies only to these types of structures and improvements, not to the land itself. However, if you do meet the threshold with the previously mentioned structures, you must then add the value of the land and pay the tax based on the entire amount. The Tax Rate rises every year. For 2023, that threshold was 145,000,000 colones (about $295,900). So if your home (not the land underneath it) is worth less than this, you don’t have to pay Luxury Tax. But if the home is worth more than this, you have to add the value of the land to the value of the home and other structures, and then pay the tax based on the total value. The tax ranges between 0.25 and 0.55%, again depending on the value of the home. Payment must be made by Jan. 15th each year, or penalties will be imposed. To determine that value, the Costa Rican government expects homeowners to have their homes assessed by a lawyer.
+ SALES TAX AND DIGITAL INVOICING Sales Tax or Impuesto de Valor Agregado (IVA) is mandatory for anyone who sells goods or services in Costa Rica. The rate is 13% and you will find it in anything you buy and will need to add it to all sales made through the factura electrónica or Digital Invoicing. Its purpose is to reduce tax fraud and it requires monthly declarations and payments. For example: if you own a property in Costa Rica and a contractor renovates your kitchen for $10,000, he will have to send you a factura electrónica for $10,000, plus the 13% IVA, for a total of $11,300. The Costa Rican tax agency, Departamento de Hacienda, will automatically receive an electronic copy of this “factura”. When the contractor receives your payment, he will owe the 13% ($1,300) to the Departamento de Hacienda. Same concept applies to all the sales you make, the 13% must be added to the total. So, when the end of the month comes and its time to file and pay your sales tax, you can deduct the 13% that was charged to you on all your expenses to reduce the final paying amount. Luckily, Eden Properties in collaboration with our quality accountants will take care of this for you, making all the facturas electronicas to add the 13% to all sales and also processing all your expenses so that when the end of the month comes all the deductions, filing and payments can be made. The process is as follows: Every factura electrónica contains three documents — one PDF and two XML documents that must be uploaded into a software. We manually accept the electronic invoice and then store it in the appropriate tax group. The system allows you to keep all documents for five years, but it is recommended to always save your PDFs. If you have any questions on this issue, don't hesitate to contact us. We are happy to help, and committed to making your life as easy as possible in a complicated business environment.
+ PROPERTY TAX & GARBAGE FEE When it comes to Costa Rican property taxes, it's good news for once: They are much lower than in the United States or Canada. And also, the rules are simpler: Property Tax or Impuesto Sobre Bienes Inmuebles is 0.25% of the purchase price of your property, or the value that was assigned by the National Registry, whichever of the two is higher. So, if your property is worth $200,000, your property tax would be $500 a year. It’s up to you, by the way, to have your property value assessed every five years. If you don’t, you may face penalties, and the municipality might choose to assess the value for you. Regarding the fees for garbage collection or recolección de basura, they are due and billed at the same time as your property taxes. The total can be paid in your area's Municipality. The garbage fee is a fixed amount that is adjusted annually. This fee varies depending on the location of your property and whether it’s used for residential or commercial purposes. Property taxes and garbage fees can be paid quarterly — at the end of March, June, September and December — or they can all be paid at once for the entire year. It is up to you!
+ INCOME TAX When it comes to Income Tax or Impuesto Sobre La Renta there are two different tax systems you can choose from: The first option is known as the "15 / 15 Tax". The way this system works is you deduct 15% on your rental income and pay 15% on the remaining balance. in other words, you pay a 15% tax rate on 85% of your income. This system intertwines with the monthly sales tax filing, payment and digital invoicing. However, it eliminates the need to file an expense report. This system is perfect for property owners who do not have an employee or caretaker. The second option is only applicable if the corporation has an employee or caretaker. In this case, expenses including maintenance are deducted from the rental income and taxes are paid on that remaining balance. The tax rate varies and it is determined by the properties' net income. These rates are listed and published by the General Directorate of Taxation, in Spanish "Direccion General de Tributacion" and they range from 15 to 30%, depending on your gross revenue. The down side to this option is that if you do choose it you have to comply for 5 years.