2018 Costa Rican Tax Update
As you may or may not have known this past April the Costa Rican legislature had to take an important decision at their government elections; whether they took the right or wrong decision is up to them and it won’t be the topic of this blog. On the contrary, what will be talking about is something that relates to us and our money: taxes, taxes and more taxes.
As we all know Costa Rica is no longer the fiscal paradise it used to be in the 90’s and the last government approved important laws in order to fight fraud, terrorism, arms sales, and money laundering and regulate the different aspects of its economy and finance.
This new government makes no exception and this past April 11th they approved the Public Finances Strengthening Law (Ley de Fortalezamiento de las Finanzas Publicas). What will be changing?
Before April all the sales of goods and few services paid a 13% rate of what it was known as the Sales Tax, end of story. With this new law the Sales Tax has been changed with the VAT (Value added tax) and it will be paid by ALL services as well as all non-essential goods. The general rate is still 13% but there is a differentiated rate for certain services (for example health and educational start at 4%) as well as other services that will increase over the next years such as the construction industry, among others.
Another important aspect concerns the rental market as all the commercial leases and residential leases over $800 rent/month will be taxed with the 13% VAT.
The story changes for the capital gains on Real Estate sales as well: historically, one-time, non “habitual” Sale of real estate capital gains (difference between the reported fiscal value and the price of sale) were NOT considered as taxable income and therefore exempt. With the new system all the capital gains will be taxed with a 15% income tax rate without any exemption. Furthermore, withholding will apply.
The new changes will have some consequences for the Real Estate industry:
-The increase in cost of services will transfer over to the price of real estate (escrow, commissions, legal fees, appraisers, surveyors etc…)
-All the new developments will need to consider an increase in construction services cost due to VAT (architects, engineers, environmental consultants, construction services etc…)
-The interest payments on Private Loans will also be subject to 13% VAT
-Capital Gains tax might also trigger higher prices to compensate
-Lease rent payments will be subject to VAT
No worries, taxes won’t ever be worse than in your country and life will still be much easier under a palm tree with a fresh Margarita looking at the sunset, Pura Vida!
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Laurel and Tony,
The both of you were fantastic with us throughout the property search and purchase process. As we had mentioned, two other attempts to find thorough, attentive, responsive agents to work with in Tamarindo were failures. I expect that we are more work to deal with than many others as we asked a lot of thorough and analytical questions and expected responses to all of them. You two never failed to deliver. The organization and execution of our condo shopping trip in January was excellent and the fact that you two devoted 2 full days to us, around our schedule, to get this deal done was key to our success. The selection of properties that Laurel planned out, including a few places above and below our target zone helped us to refine our interests. We truly appreciated your interest in our success. This could easily have been very stressful for us, and yet, it wasn’t. Thank you very much.
As a side note, when we walked into the Coldwell Banker office randomly with no appointment in November had we not found your office staff patient and accommodating from the start we would have simply walked on to the next agency. Your staff deserves special mention for getting us interested in the agency to begin with.
We will give you some advance notice before we make our first trip down so that we can plan to get together for lunch or dinner. We are tentatively planning on somewhere in the last 2 weeks of May, as soon as our son gets out of school for the summer.
While my computer is still running here, I'd like to take the opportunity to thank you for your help during our stay.
When we first came to your office, we were in dire straights and in desperate need of assistance. Andrea was extremely compassionate, spoke with candor, and had a "can do attitude" that was of immense help.
In addition, Andrea has put us in contact with Steve, with whom we are working, preparing to view a little property that might be just what we are looking for at this particular time.
In addition, having gotten to know Andrea personally as well as professionally has been our great pleasure. I wanted to let you know what a tremendous asset she is to your company. She is a great treasure -- a one in a million.
We had so much fun at Buena Vista. Thanks for arranging that with Memo.
I also want to say many thanks for all that you have done. We have enjoyed Costa Rica and I have found you so helpful with everything and a pleasure to deal with that it was a very stress free vacation. When I do come back here hopefully you will still be doing what what you do.
Our last couple of days will be spent enjoying the sunshine and eating at great restaurants. Sincerely,
We are- UNHAPPILY- home safe. Would much rather be back in Tamarindo. THANK YOU FOR EVERYTHING you did to make our stay a joy ! We look very much forward to seeing you on our next trip to Costa Rica. PURA VIDA !