The Law Strengthening the Tax Administration Procedures (Fortalecimiento de la Gestion Tributaria) Law # 9069 has been approved and in effect since September 28, 2012.

This law increases certain taxes and gives the Tax Administration more powers; it will increase the fines and penalties against taxpayers and impose new forms of assessing and collecting tax obligations.

1. Real Estate Transfer Taxes.

A significant change that will affect real estate transactions is the modification of the current law on the transfer taxes of real property. Under the current system the transfer of real estate triggers a 1.5% transfer tax on the value of the transaction.

Real Estate developers in Costa Rica began avoiding the real estate transfer tax by titling the real estate in the name of a Costa Rican corporation and then selling the shares of the corporation to the prospective buyer instead of transferring the underlying real estate. The new law will abolish that practice by creating the concept of “indirect transfer” in determining a taxable event.

Under the indirect transfer method any business transaction that results in the transfer of the dominion and control of the corporate entity that owns the real estate will be subject to the transfer tax. The transfer tax will be due and payable no later than 15 days after the taxable event is triggered. After that penalties and interest will begin to accrue.

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Another modification is that the basis of the transfer tax may not be less then the highest value registered for that property under the Property Tax Law. The reason for this is that it became customary in Costa Rica to pay the tax based upon the recorded “fiscal” value of the property which in most cases is well below the actual market value of the property. Under this criterion the taxpayer will have to determine the local municipal property tax valuation and no longer rely on the “fiscal” value that appears on the title report.

2. Imputed Income

Another significant procedural change in existing law is the modification of Article 116 of the Tax Procedural Code. This article will be modified to allow the Tax Administration a broader set of criteria to verify and establish the tax obligation of a taxpayer. The Tax Administration will be able to consider all of the following in determining the tax basis for a taxpayer:

(a) The financial and accounting records of any kind that will prove the transactions that have been carried out.

(b) In the absence of documentation the Administration may use any kind of evidence that will assist it in assessing the tax obligation and specifically may rely on the following evidence: The amount of capital invested, the volume of transactions, the income from previous tax years, the goods or products available, the number of sales or purchases made, the average return or yield for similar type of business enterprises, the wages paid to employees, the rentals that have been paid, the personal living expenses of the taxpayer and his family, the amount of assets owned by the taxpayer as well as any other elements which the Administration may receive or request from third parties.

3. Tax Liens

The Tax Administration will also have more power to place a tax lien on property of the taxpayer. Articles 194 and 195 of the Tax Procedural code have bee modified by this law to allow the tax administration to place a lien on property owned by the taxpayer as precautionary measure prior to filing any formal suit or demand in order to preserve the assets for collection.

The Administration can formalize the tax lien by obtaining an order of Administrative Embargo on any kind of asset owned by the taxpayer and recording the lien with all public or private entities necessary to preserve the assets.

4. Customs Law

Another area where Law # 9069 will have an impact is when importing products into Costa Rica. The Customs Law governs the import of goods into Costa Rica. The law increases the financial penalties significantly and imposes criminal penalties as well.

Under the proposed law contraband will carry a prison sentence of 5 to 10 years in addition to the monetary penalties. Likewise defrauding or deceiving the Customs Administration will carry a monetary penalty equal to 2 times the amount of the taxes evaded. If the amount defrauded exceeds the sum of 50,000 Central American pesos which is a uniform currency valuation then the sanction carries a 5 to 10 year prison sentence.

In order to prevent the under reporting of the value of imports shipped into Costa Rica the new law creates a whole section on “Customs Valuation of Imported Goods.” It will expand the directory of importers requiring mandatory registration and expand the current database of the value of imported goods into Costa Rica in order to cross reference import declarations with the valuation database established by the Customs Department.

The Customs Department will create a directory of importers and will also create databases to establish the value of goods imported into Costa Rica. Under this law the Customs Department is provided more tools to audit importers to verify the import declarations for products imported into Costa Rica.

This law was a priority for the government and it was approved fairly quickly, by Costa Rican standards.

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Written and copyright by Attorney at Law – Roger A. Petersen. Roger has been an attorney since 1992 and is a member of both the Costa Rican and Florida Bar. He practices law in San José, Costa Rica and is the author of the best-selling book The Legal Guide To Costa Rica which you can order from Barnes & Noble here or from Amazon.com here. Attorney Petersen’s website can be found at Petersen & Philps Law Offices.




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