In the Real Estate business, we are responsible for giving our customers accurate information when it comes to property taxes in Costa Rica. Which is why Cresco Legal has colaborated with this blog that will guide give you a better understanding when investing in Guanacaste Real Estate.
Before buying a property in Costa Rica, the first question that comes to the mind of the potential buyers is:
“How much Costa Rica property taxes will I pay in relation to my property?”
As will be explained in detail below, there are two main taxes related to owning a Property in Costa Rica: one is paid to the local Municipality and the other one is paid to the Ministry of Finance, Central Government.
Regarding the first tax mentioned above, in Costa Rica, all properties throughout the national territory must pay to the respective Municipality (where they are located) an amount equal to 0.25% of the total Declared Value at the Municipality.
Meanwhile, the second tax mentioned only applies to those residential properties whose total construction value exceeds ₡148,000,000.00 CR Colones (approximately USD$269,400.00 according to the current exchange rate). This tax consists of a percentage paid to the Ministry of Finance and the amount is calculated based on the bracket where the property value is located, as explained below.
If the owner of the property uses it as a vacation rental asset, runs a business or is a commercial property, additional taxes may apply.
To help you understand in a basic manner how Property Taxes are charged in Costa Rica, CRESCO LEGAL has prepared the following guide which summarizes the types of taxes that must be taken into consideration when buying and owning property and its related obligations. Please do not consider this document as a legal opinion or advice since each case needs to be analyzed individually.
CRESCO LEGAL is a boutique law firm specialized in real estate, foreign investment, commercial law, immigration and estate planning. Its Partners have more than 20 years of experience providing the best legal advice to foreigners and foreign entities wanting to investment in Costa Rica with the safest and most efficient methods and procedures that the law provides.
Real Estate Declaration
In accordance with Costa Rican Real Estate Law, every five years, property owners are required to update the local government on the condition and value of their property. If this declaration is not made within the established time, the owner may face penalties and the municipality may choose to determine the value of his property under its technical criteria.
Prior to the closing date, as part of the Due Diligence, the Law Firm assisting you should confirm that the potential Seller is current with this declaration, in order to avoid any future penalties that may be charged against the property.
Now, even if the potential Seller is up to date with the Real Estate Declaration, also known as the Value Declaration or Five-year Declaration, upon the registration of the conveyance deed, a new filing will be needed.
Usually, immediately after the Closing, the law firm assisting you during your transaction will offer you the option to file the new Real Estate Declaration, updating both the owner and the value, based on the Purchase Price.
Municipal Costa Rica Property Taxes
The good news is that property taxes in Costa Rica are much lower than in North America; the yearly tax payment in Costa Rica for all properties, regardless their value, is a fixed 0.25% of the property´s tax value at the Municipality, plus some smaller charges for other Municipal services such as waste collection and roads maintenance.
These taxes can be paid annually in January, for which some municipalities offer a discount if they are paid in full at once; or they can be paid in quarters (March, June, September, and December)
Starting January of the following year after the purchase of the property and based on the declaration filed immediately after the closing, the updated declared value will be used to calculated the annual tax.
As a matter of example, if a property is declared at $300,000.00, the annual amount of taxes to be paid is approximately $750. If this property is purchased for $500,000.00 in 2023, starting in 2024 the real estate tax will be 0.25% of $500,000.00, being $1250.
Solidarity Tax for the Reinforcement of the Housing Programs (ISO)
Since 2009, Costa Rica established the Solidarity Tax for the Strengthening of Housing Programs on high value housing, also known as Luxury Tax. The purpose of this tax is to build housing for people living in poverty.
This tax is not standard for all properties but for those that have a residential building that exceeds the taxable parameter defined by the authorities every year, which is currently for the year 2022 the amount of ₡148,000,000 (colones, currency of Costa Rica), which is approximately US$269,400.00 – based upon current exchange rate, and above that value. The taxable parameter is different from a market value and considers other variables as defined by the Tax Office of Costa Rica calculating database.
This tax is progressive, based on the value of the property, contained in the declaration submitted by the owner following the assessment rules defined by the Ministry of Finance starting at 0.25% and increasing to 0.55%, on the excess in each value range.
The Solidarity Tax declaration must be made every three years; being the case that the last declaration was made in 2022, the next declaration will be in 2025.
Unlike Municipal Property Taxes, the Solidarity Tax must be paid in full during the first two weeks of January.
Progressive chart for the year 2023 provided by the Tax Office of Costa Rica
If a property that falls within the aforementioned brackets is purchased and its former owner is not registered as a Solidarity Taxpayer, it is legally advisable to have a specific appraisal done for the parameters and purposes of the Solidarity Tax for the Strengthening of Housing Programs (known as ISO); and if applicable based on its result; the new owner must be registered at the Costa Rican Tax Office as an ISO taxpayer.