Moving to Costa Rica is an exciting time, and the country is very welcoming to foreigners.  

Expats can apply for residency in Costa Rica, in one of three categories: fixed annuity (rentista), investor (inversionista), retiree (pensionado).

Our October 2021 Howler article discussed digital nomads living in CR, and the recently approved law providing for them to obtain temporary residency. This month we will talk about some of the common questions that more permanent expats have.

•  What are the basics of purchasing a property or a home?

• Perform due diligence (legal and technical searches)

Before any purchase, due diligence may be performed by the buyer’s attorney, along with a surveyor, checking that all the property’s paperwork is in order and ensuring that there are no outstanding charges or taxes and no encumbrances or liens on the property. 

• Pay taxes

1. 1. 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. The due date for the 1st quarter: March 31 of each year.

1. Home luxury tax

The home luxury tax only applies to houses, condos, or apartments over a specific construction value (₡133,000,000 in 2021, USD $240,000 — this amount is adjusted yearly). The due date is January 15 of each year.

1. Annual corporate tax

There will be a fixed fee 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 USD $380 for active corporations (the amounts are adjusted each year). This tax is due annually on January 31.

1. Capital gains tax

There are numerous important factors determining how capital gains tax works in Costa Rica. Please consult with your attorney.

• Form a corporation for the purchase

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’s “domicilio fiscal” is within Costa Rica.  Corporations offer the advantages of liability protection, flexibility and greater ease in handling estate/probate matters.

NOTE:  Just like in the expat’s country of origin, purchasing property or a home in Costa Rica is a complex process and should not be undertaken without consulting an attorney in addition to working with a real estate agent. The issues covered above are only meant to be a quick basic overview.

• What are the tax implications if I rent out a property?

• Mandatory use of the electronic invoice system for all taxpayers, including real estate rentals, became effective starting September 1, 2018. Non-compliance is subject to a penalty and fines. Income tax on rental properties is now filed monthly.

1. 1. 1. 15% of expenses from the rental income is the maximum deduction.
      2. The tax base will be 85% of the rental income.
      3. The tax rate is 15% of the tax base (85% of rental income).

NOTE:  Residential rentals will be taxed with 13% VAT if the rent amount exceeds 1.5 the average Costa Rica base salary income (around USD 1,085). Any commercial leases are subject to the VAT regardless of the amount of the monthly rent. Monthly, the owners will be withholding, filing, and paying the value added tax (VAT), 13% of the rental income paid by the renter. Also, monthly, the owners must file and pay income tax.

1. 1.  What about VAT for healthcare and education?

• Healthcare-related

1. 1. 1. The VAT rate is 4% for private healthcare fees specific to doctors, hospitals and clinics approved by the Ministry of Health. Also, depending on your payment method (cash or credit card), that tax is handled differently.

1. If you pay for your doctor’s visit with a credit card, that 4% tax will be charged and subsequently reimbursed to you. If you pay with cash, the 4% will not be refunded to you, and any aesthetic procedures will be taxed at 13%.

• Education-related

1. Any school costs (public or private) — as long as the public education ministry (MEP) or national council of private university higher education (CONENSUP) has approved the school — will be tax-exempt. If those government agencies do not authorize the school, a 13% tax applies.
    
2. After-school activities are taxed at 2% or 13%, depending on the specific activity. This applies to public and private schools, and it includes sports activities. This applies to anything you are paying directly to the school, as these activities are considered services.

There are many considerations when relocating to another country, and it’s best to be informed of the laws. We are at your service at info@gmattorneyscr.com

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