Real estate is one of the topics that we get asked the most questions about. The real estate market in Costa Rica is very robust. Buyers and sellers alike need to be aware of the country’s regulations and laws.  This article will answer some of the most frequently asked questions. 

We always encourage anyone selling or buying property to retain an attorney with experience or expertise in real estate. It’s important to coordinate a meeting (virtual or in person) to discuss in detail all the aspects and relevant matters. 

In my home country, we go through a due diligence process when buying real estate. Is that required in Costa Rica?

Yes, before any purchase, due diligence may be performed by the buyers’ attorney, checking that all the paperwork of the property is in order. It should also ensure that there are no outstanding charges or taxes and there are no encumbrances or liens on the property. 

During the due diligence period, the buyers and buyers’ attorney shall have the right — but not the obligation — to perform a complete study of the property. That includes, but is not limited to: physical, title and survey, confirmation of no adverse possession, survey plan, boundaries and other documents. 

Do I need to be a Costa Rica resident to own real estate?

No, it is not required by law to be a Costa Rica resident to own real estate in Costa Rica (concession land is an exception). However, many expats do make the choice to do so. 

To apply for residency in Costa Rica, the Costa Rican government requires applicants to provide proof of financial stability in one of three ways:

1. As a retiree with pension: Certification that the applicant receives a lifetime pension of at least $1,000 USD per month.
2. As an investor: Must demonstrate a real estate investment in Costa Rica with a value of at least $150,000 USD per recent law #9996 which reduced the amount from $200K.
3. As the holder of a fixed annuity: Certification that the applicant receives a guaranteed annuity of $2,500 USD, per month, for at least two years.

Other requirements are to provide a birth certificate, police records from the home country and marriage certificate (if applicable) — all duly apostilled or legalized by the Costa Rican consulate in the country of issuance of the certifications.

What taxes am I required to pay?

The primary taxes are:

• Real estate tax and garbage collection fee

Property taxes are 0.25% of the purchase price or registered value, whichever is greater. They can be paid a year in advance or quarterly to the municipality where the property is registered.  The garbage collection fee is USD $200 per year. Due date for the 1st quarter: March 31 of each year.

• Home luxury tax

The home luxury tax only applies to houses, condos or apartments with a construction value exceeding a certain amount. This amount is adjusted each year, and is currently ₡137.000.000,00 in 2022, or USD $240,000. Due date: January 15 each year. 

Those liable for this tax shall fill out the form called Formulario Único de Inscripción, Declaración y Pago Impuesto Solidario para el Fortalecimiento de Programas de Vivienda, Law #8683, every three years and pay the tax annually. The next assessment shall be made and submitted in 2025.

• Annual corporate tax

Payment of an annual corporate tax is required under Law 9428: Tax over legal entities. A fixed fee is payable for inactive corporations and a progressive rate for active corporations, depending on their gross income. The amounts range from USD $120 for inactive corporations to up to USD $380 for active corporations. The amounts are adjusted each year. The due date for this tax is January 31 each year.

• Capital gains tax

Law 9635 created a capital gains tax of 15%, which applies to all investment income and real estate. 

A capital gain arises from the difference between the value of an asset at the time of purchase and the asset’s value at the time of sale. If there is a gain (positive value), this amount is subject to a 15% tax. 

((Purchase price + value of investments and improvements made) — sales value) X 15%
= capital gain tax payable

The law provides three exceptions regarding payment of the 15% of capital gains tax:

• A one-time exemption for property owners who owned property before the law came into effect on July 1, 2019. For this one-time exemption, the seller will pay 2.25% on the gross sale price:
  Selling price X 2.25% = capital gains tax payable

• The sale of the primary residence/home is, and will always remain, exempt from capital gains. For these purposes, according to the law, the “primary residence” is the property whose primary purpose is to serve as the “shelter, protection and home, in which the owners reside.”

• However, if the property is owned by a foreign corporation and/or person who does not have a domicile in Costa Rica, known as a “non-domiciled person,” the law requires that the BUYER hold back 2.5% of the purchase and sale price of the property to ensure that any capital gains tax is covered and paid.
  Selling price X 2.5% = holdback for capital gains tax payable

Costa Rican corporations (either SA or SRL) duly registered at the National Registry are considered “domiciled” in Costa Rica as long as their legal domicile (domicilio social) or place of business (domicilio fiscal) is within Costa Rica.

The sale of commercial or investment real estate will be subject to pay the capital gains and submit the proper tax form to comply with the law, and file the proper tax form D-162. This form must be filed and paid by the seller before the first 15 natural calendar days of the month after the purchase was executed.

Selling corporations registered in the Régimen Tradicional Renta yearly income system (D101) will be subject to 30%.

What obligations am I required to comply with?

  
The primary obligations are:

• Tax filings

Inactive corporations

The definition of an inactive corporation is: “…those companies incorporated in the country that do not have lucrative, income producing, activity of a Costa Rican source.” This includes all commercial companies, branches of foreign companies and individual limited liability companies. 

As per the resolution (N° DGT-R-02-2021), the inactive corporations must file two forms (D-140  and D-101) yearly.

• File form D-140, Declaración de Inscripción en el Registro Único Tributario, via the Virtual Tax Administration (ATV) available on the website www.hacienda.go.cr. This form covers information such as who is the legal representative, address data, contact information, etc.

• File form D-101, Declaración Jurada del Impuesto sobre la Renta, also available via ATV. This form is a declaration of assets, liabilities, and shared capital.

Active corporations

The corporate income tax rate is 30% for companies with a gross income over ₡112.070.000,00.

However, the law establishes special regulations for small companies whose gross income does not exceed ₡112.070.000,00. For this category, the following rates apply: 

• 5% on the first ₡5.286.000,00 of annual net income
• 10% on the excess of ₡5.286.000,00 and up to ₡7.930.000,00 of annual net income
• 15% on the excess of ₡7.930.000,00 and up to ₡10.573.000 of annual net income
• 20% on the excess of ₡ 10.573.000,00 of annual net income

Please note that the amounts are annually updated.

Rental activity for real estate

According to Law #9635, Ley de Fortalecimiento de las Finanzas Públicas, the income tax periodicity and calculation method changed for rental activity companies. Traditionally, the income tax was calculated on the company’s profit (income minus expenses incurred within the fiscal year). The income taxes were filed by the taxpayer yearly through a D-101 form.

Now, under Law #9635, this income tax should be filed on a monthly basis through a D-125 form. 

The law allows 15% of expenses from the rental income without proof, so the tax base is 85% from the rental income. The tax rate is 15% on that 85%. 

 On a monthly basis, it’s necessary to file and pay Value Added Tax (VAT) — 13% of the rental income paid by the renter — and income tax using the D-125 form (15% of the 85% rental income amount). For example: 

1. Renter pays $1,130
2. VAT: $130
3. Expenses allowed by law: $150
4. Tax base: $850
5. Capital income tax: $127.50

The only way to retain the traditional system of paying income tax on a yearly basis (D-101) is by having an employee on the payroll and duly registered in CCSS and INS. This can be evaluated in each case due to the labor liabilities.

Employees must be registered with Caja Costarricense de Seguro Social (CCSS) and Instituto Nacional de Seguros (INS) — the latter if Workers Compensation Insurance applies. For that, it is worth mentioning the following:

1. The associated payroll taxes rate is 27% on the gross salary.
2. The Workers Comp amount depends on the job, but on average is 2%.
3. The Christmas Bonus is mandatory on a yearly basis, and it is a 1/12th of the total gross salaries.
4. Two weeks of paid vacation are also mandatory.

A CR accountant’s help is needed for the filing of CR tax forms.

• Mandatory Shareholders Registry with the Central Bank of Costa Rica: 

The Law 9416 and its regulations state that each corporation must proceed with the mandatory disclosure, submitting the requested records to the Central Bank of Costa Rica (BCCR):

1. Articles of incorporation or 
2. Trust agreement 

The first filing was for the year 2019.

Starting in 2021, the mandatory disclosure submission is within the month of April, as well as when any corporate ownership transfer represents 15% or more of the capital stock. If the CR corporation(s) ownership is under or held by a foreign corporation or a trust, according to the law, it will be required to provide the following documentation to comply with the disclosure: 

The documents must be a certificated copy and must be duly apostilled. Please consider that the certified and apostille documents/certifications cannot have been issued for more than 60 days.
 

•  Resident Agent and Legal Domicile of CR Corporation
  
  As per Costa Rican law, Costa Rican corporations whose legal representatives do not have a legal and permanent domicile in Costa Rica require a resident agent. That must be a Costa Rican  attorney and notary public to receive any notices related to the corporation. Also, the legal domicile of the Costa Rican corporation must be clear, well-identified, and within Costa Rica. 

Many real estate purchases are bought as investment rental properties as well. Please refer to these Howler articles: Rental Properties: Taxes and Formal Duties and Mandatory Registration of Rental Properties for Non-Traditional Tourist Accommodations. 

It is important to note that these FAQs are not the entire picture of buying or selling real estate in Costa Rica. As mentioned above, legal representation is important to ensure all laws of the country are followed and your transaction is handled properly.

We are available for your real estate questions.  Please feel free to contact us at info@gmattorneyscr.com

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