In Costa Rica, a lot of people have been manipulating the values of their properties in order to try and save on transfer and property taxes.

For example, buying a condo in Costa Rica for $125,000.00 and declaring in the deed a purchase value of $50,000.00, then, the last value was often used as the base to pay the transfer taxes and later on the yearly property tax.

It seems that the Treasury of Costa Rica wants to put a stop to this, and based on the real facts of the real estate business in Costa Rica, wants to change the rules of the game, and these rules may be included in the new tax bill.

The New Property Tax Rules Proposed in Costa Rica.

Basically, any house owner, whether this be residence or vacation house, would have to file a tax return every three years declaring the real market value of the property (s), exception made to those houses classified as “Social Interest”, which means houses built or bought with help from some Social or Government Program.

Also, there would be a special section for improvements, so any additional investment like a new laundry room or bigger master room would be considered as an increase of the property market value, therefore, it would be part of the new property tax calculation basis.

Social areas such as pools, BBQ, gardens, guest houses, gyms, etc, will be part of the property market value as well.

The New Costa Rica Property Tax Rates:

• Houses with Market Value under US$193,000 will be exempted
• Houses with Market Value from US$193,000 up to $ 1,448,000 will pay 0.25%
• Houses with Market Value from US$1,448,000 up to $ 2,413,000 will pay 0.35%
• Houses with Market Value from US$2,413,000 up to $ 3,378,500 will pay 0.45%
• Houses with Market Value more than US$3,378,500 will pay 0.55%

Picture this: If you own a house with a market value of $225,000.00 you will have to pay $800 of yearly property tax (225,000-193,000*0.025). Now, if you built a new pool and the cost for that is $20,000.00, then you will need to file a new tax return and the updated value of your property will be $245,000.00, therefore, your new yearly property tax will be $1,300.00 (245,000-193,000*0.025).

Keep in mind that, by the book, the market value is the result of adding the value of the house and the land. Is also important to highlight that you can not write off the tax from your income tax, either the property tax paid to the Municipalidades.

How To Calculate the Market value of your Costa Rica Home?

The Treasury will publish a handbook that will instruct you how to calculate the market value of your house based on different aspects like location, years built, features, etc.

What Happens If I Do No File My Costa Rica Tax Return or Declare A Lowest Value?

For homowners with market values under $193,000 and that do not file the tax return as is required – a fine of $193 will apply

For those with houses valued more than $193,000 and do not file the tax return – a fine of five times the amount of the tax that should be paid, i.e., if the owner of a house with market value of $225,000.00 does not file the tax return, then should pay $4,000 fine (225,000-193,000*0.025*5).

Also if the declared market value is 10% or more below the real market value, according to the handbook, then the owner will have to pay the equivalent tax, plus five times that tax as penalty.

Is highly recommended that the Costa Rica condo owners, review their deeds and double check that the social areas assigned to their properties are equal to the other owners, otherwise some will pay more than others.

Please note that at this stage these are proposals or suggestions only to be included with the new fiscal plan which is also undergoing serious negotiations. Neither the new property taxes nor the new fiscal plan has been confirmed and probably will not be for quite some time.

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.