Legal Ease: New Capital Gains Tax in Costa Rica. Costa Rica’s Law #9635 created a capital gains tax of 15 percent, which applies to all investment income and real estate. The new law became effective on July 1, 2019.

Capital gains taxes can be a very complicated subject. In this article, we will try to streamline the information you need to understand this tax law.

Only gains, not losses

Capital gains taxes are collected on the capital income you GAIN from the sale of real estate or an investment. For example, investment in a restaurant would include assets such as equipment.

If you sell real estate or an investment at a LOSS, no tax is collected.

Your primary residence
is exempt from capital gains tax.

What is capital income?

Capital income refers to gaining equity or movable capital.

• Gaining equity includes income from leases, subleases and creation/assignment of rights.

                     Gross income – deductible expenses = taxable capital income

• Movable capital is income in cash or in kind from the transfer of funds to third parties.

                     Total paid for movable capital with no deductions (not allowed) = taxable capital income

What if I sell my home?

If you are a resident of Costa Rica and own property, the property you live in is considered your primary home/residence (at right). It is exempt from capital gains tax.

The primary home can be registered in the seller’s personal name or a Costa Rican corporation. In the latter case, you must prove that it is the shareholder’s primary home instead!

If the property is owned by a foreigner who does not live in Costa Rica as a domiciled person (see sidebar), the BUYER is legally required to hold back 2.5 percent of the purchase and sale price to ensure that any capital gains tax is covered.

Exemption and deductible expenses

A one-time exemption applies to the sale of real estate property owned before the capital gains tax law was implemented on July 1, 2019. For this one-time exemption, the seller will pay 2.25 percent on the purchase and sale price.

Regarding expense deductions, sellers are allowed to deduct 15 percent from the gross income of the sale, without providing proof of the expenses, and with no possibility of taking another deduction for those expenses.

Important notes

• If you own two or more properties in Costa Rica, as of July 1, 2019, you will pay a capital gains tax on the sale of your property unless it is your primary residence.
• Payment of the capital gains tax is due by the 15th of the month after a sale closing.
• The seller is responsible for paying the capital gains taxes.

Like most tax laws, Costa Rica’s new capital gains tax law involves many more details than this article can cover.  It is very important to consult with an attorney to fully understand your specific circumstances.

Primary Residence

This is the property in Costa Rica with the primary purpose of being the shelter, protection and home for the owner, and where the owner resides.

Domiciled Person

For tax purposes, this refers to a foreign person who is spending more than 183 days in Costa Rica.

If the person goes in and out of Costa Rica periodically, that would not necessarily eliminate the status, but would have to be confirmed by the Tax Office to avoid any issue.

Costa Rican corporations (either SA or SRL) registered at the National Registry are considered to be domiciled in Costa Rica, if their legal domicile or place of business is within Costa Rica.

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