[BUYING AND SELLING REAL ESTATE IN COSTA RICA]
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related to the filing process, allowing online electronic filing and making the process more efficient. Taxes on Real Property The local Municipality collects taxes on the ownership of Real Property with jurisdiction over the area in which the property is located. There is an annual tax of 0.25% of the property value declared before the Municipality, and, in most cases, payment is collected quarterly on a calendar year. Owners are responsible for paying this tax, and noncompliance could result in fines, interest, and possible encumbrances upon the property by the local Municipality, leading to possible foreclosure of the property in severe cases. Every five years, owners must file a property tax declaration in front of the local Municipality, declaring land and construction values for property taxes. Also, when transferring real property, the Tax Administration and the Public Registry charge a series of taxes and duties that must be paid to process and register the deed, as follows: Transfer Tax: 1.5% of the highest of: a) fiscal value; b) purchase price. Registration Fees : 0.9% of the highest of: a) fiscal value; b) purchase price. The indicated taxes and fees represent 2.4% of the property’s fiscal value or purchase price (highest of), and they must be paid before the deed is submitted to the Property Registry. Since Notaries are private parties authorized to perform public functions and vested with public faith, their fees are set by the Costa Rican Bar Association in conjunction with the legislative power through specific legislation, which is updated periodically. Currently, Notary fees for the drafting, issuing, and submitting for registration a deed for the sale of a real estate property are set at approximately 1% of the sales price. The notary fees generate a 13% Value Added Tax to be paid by the client.
Transfers of real estate by individuals are not subject to income tax. However, suppose an individual sells a property directly linked to a lucrative activity carried on by this individual. In that case, the sale proceeds might be considered taxable income. The applicable principle is that the law excludes capital gains from gross income unless the gains are derived from goods or rights that are part of the taxpayer´s lucrative activity or when the gains come from ordinary business activity. The transfer of real estate is not subject to Value Added Tax because it is a transaction subject to the transfer tax (1.5% of the sale price) according to Law No. 6999, Real Estate Transfer Tax Law, of September 3, 1985, and its reforms and the Law No. 7088, Tax Readjustment and Resolution 18th Central American Tariff and Customs Council, of November 30, 1987, and its reforms. Nevertheless, services associated with the transfer of real estate, such as notary fees, brokers fees, etc., are subject to a 13% Value Added Tax. Some properties are subject to a tax commonly known as the “luxury home tax.” Every three years, homeowners must perform a luxury home tax valuation or assessment to determine if their house, condominium, or apartment in Costa Rica is subject to the Luxury Home Tax. The Tax Administration would publish the new valuation parameters and criteria required to calculate this tax at least 45 days before the year-end. If the new parameters are not published according to the above set dates, the values and amounts for the previous year will apply. The amount of the tax will depend on the valuation or assessment of the home. The tariff parameters may start with 0.25% up to 0.55% of the home value per the home valuation or assessment. Starting July 1st, 2019, Costa Rica has new tax rules related to capital gains. Capital gains
ILN Real Estate Group – Buying and Selling Real Estate Series
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