The new tax on luxury homes has become law. Since our first article about this new tax back in November 2008 which was officially published in La Gaceta, there have been no changes to the original bill approved by the congress, so let’s recap…

This tax had been discussed for a long time now and seems to be the only one that is going to be approved out of all the proposed changes in the tax bill, at least by this Administration.

Costa Rica Luxury Property Taxes – How it’s going to work?

Once it is published in La Gaceta and officially becomes law, this may happens within the next week or so, all the owners, individuals or corporations, of houses, apartments, condominiums and every building used for housing purposes even if they are within the Maritime Zone, will have to file a sworn statement reporting the market value of the property within the following 3 months from publishing, excluding the value of the land only the building and common areas such as pool, gym, tennis court, etc

In order to figure out the market value the Costa Rican Treasury has designed a guide called Unit Base Values by Constructive Typology Manual, which includes the guidelines to be used in order to report the appropriate value of the building; the initial market value should be up graded every 3 years using the guidelines on the current Manual at that point.

If there are any improvements to the building from the first report then the value of the building should be updated and the calculation basis will change for the following tax year.

Once the first value report is filed the owner will have a one more month to pay the tax using the following ranges at a current exchange rate of 570.41 colones per US dollar:

There is no luxury property tax applicable until a home (less the value of the land) has a value of US$175,312.49 so this means that if you own a house which market value is $250,000.00 your new tax would be $625.00, (250,000*0.0025)

This would then be added to the regular property tax of 0.25% on a US$250,000 home which is US$625 for a grand total of US$1,250.00 per annum. Please note that this is a very simplistic example which probably calculates the absolute maximum that you might pay and one must complete the Costa Rica tax guide instructions to arrive at the correct taxable amount.

Should you file the first report?

Every owner of a property who is not sure of the market value should follow the guidelines stated in the above mentioned Manual, in order to make sure that the market value doesn’t reach the $175,312.49 starting point and follow this due diligence every 3 years or if an improvement took place.

Collateral Effect.

Besides this tax I strongly recommend also to budget an increase on your quarterly property taxes, since the information contained on the report that you are going to first file with the Costa Rican Treasury is going to be forwarded to the local Municipality in order to upgrade the value of the property on their records, therefore the tax may change for future periods.

What if I do not file?

If you do not file the tax return then the Tax Administration will, by default, set a price for your property and calculate the tax based on that value. On other hand, the fine for not filing the tax return will be 10 times the amount of the unpaid tax plus 3% interest.

It’s important to highlight that owners of lots that have no buildings on them would pay regular property taxes but should not be concerned about this luxury tax or the report at all, until they decide to build.

So keep in mind that you have to start doing your homework regarding this tax before January 16 each year, so it worth to start taking measures as soon as possible.

Costa Rica Property Taxes Program

You can download the Spanish language program to help calculate your property taxes from the Ministerio de Hacienda website here.

The manual to help you install it can be downloaded here.

The manual to help you use the program can be downloaded here.

Written by Randall Zamora who is the President and CEO of CostaRicaABC.com, former CFO and Head of Accounting Department of multinational companies like Four Seasons Resort Costa Rica, active member of the Interamerican Accounting Association, Pro Bono Local Partner of The World Bank and contributor to their yearly publication “Doing Business Report.”

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Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.