The law in Costa Rica recognizes 12 different types of income as non taxable revenue…

Among them the profits obtained by the sale of a property or real estate, whether these are vehicles, boats, properties, houses or buildings.

Nevertheless, the law is also very clear regarding the specific given conditions that must be met so that the non taxable income principle applies.

For example, a person that bought a house years ago in San José, now wants to sell it and go to live in Guanacaste; the house in San José has a $50,000.00 book value and the final sale price is $85,000.00 and the house in Guanacaste has a value of $90,000, at the end the person will gain $25,000, however, this individual will NOT have to pay any taxes on that profit, since it was generated by a sole transaction that is allowing this person to have a new residency place.

Another case: Say an individual or corporation that owns a house in Playa Hermosa and that utilizes it once a year, and the rest of the time the house is rented so the maintenance costs bills can be paid. This person decides to sell the house to buy a larger one, this person makes a profit of $50,000 out of that transaction, this profit is NOT taxable in Costa Rica either.

It is important to point out that this person has an habitual and public commercial activity such is house renting, for which he should pay taxes only for the profits generated by renting the house, if there are any, he will NOT pay taxes on the profits of the sale that took place one single time.

In a different situation we found a person that in December bought a property and sold it in February, making a $15,000 profit. Late in March, he bought a property which he then built and sold the house in early August and makes a $28,000 profit. Then in late August he bought a home and sold it in September making a $20,000 profit.

It would be obvious here that this person is dedicated to this activity and where that’s the case, that income, whether it is through an individual or a corporation, would pay taxes.

All the previous situations apply equally for individuals or corporations, resident or not resident in Costa Rica. The conditions under which the Government bases the principle of tax the incomes from sales of houses is if the person or the corporation in a predominant and main form, sells houses and that executes this activity in a public and frequent way the most of the time.

Any individual or corporation that builds or buy houses to be sold later, should keep proper accounting records, that allows to track and make deductible all the involved costs and expenses for the appropriate development of the activity, such as construction materials, equipment depreciation, any sales commissions, salaries, lawyers’ fees, etc; and should also to observe all the corresponding regulations regarding taxes any another contributor.

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.