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The Highly Questionable, Possibly Illegal, Possibly Unconstitutional
COSTA RICA LUXURY TAX!!!!!!!
I have lived for over 16 years full time in Costa Rica with 15 years of permanent residency. I understand how things work here and also how things don’t work here. Laws are written by politicians with good intent but with very little understanding of how difficult or impossible it is to comply with them. Most laws passed in Costa Rica are eventually challenged in the Supreme Court and ruled unconstitutional. I would hope that this will happen in this case. The end result should be a better and fairer law and a means of helping the poor and the housing problems.
To start off with, I am not against the intent of this law, i.e. to help eliminate slums within Costa Rica. That being said, I am against a truly ridiculous method of trying to collect this tax using intimidation and threats against common everyday citizens and residents. I can’t believe that to date, nobody has challenged this questionable law and that there aren’t more people (especially Tico’s) in an uproar, screaming bloody murder over this misuse of power. We have large groups of friends in both Dominical and in San Jose. These friends are from all over the world and many are Ticos. At every gathering the only topic of conversation is this problem tax and the inability of all of us to figure out how to comply with it. Many people are very upset with it and even though they may want to comply, do not know how or cannot do so legally. The high degree of frustration is evident with everyone we speak to about this tax. The Costa Rican Government should only know the amount of pain they have caused so many people who want to do their part but can’t. As to the problems of this tax:
Even a blind person can see the inequities that are so blaring in this law:
1) Pay on line via computer! Although in this day and age, many people are computer literate, I find it highly questionable as to the legality of requiring people to own or use a computer to file a hard to understand tax form. Is it part of the Costa Rica Constitution to own a computer?
2) As a foreign resident, WITH OR WITHOUT A RESIDENT CEDULA, you cannot access the DIRECT TRIBU NET site. The only access can be by a Costa Rican using their cedula and its expiration date. Try it and if you can get online, please correct me and explain how you did it. In my years of experience with laws in general, I find it quite difficult to believe that you can be found guilty of not filing when you cannot access the site to do so. The Ministry of Hacienda knows about this problem but refuses to rectify it.
3) The law requires a person to submit to Tributacion, a Costa Rica Bank Account number with which the Government can automatically withdraw this tax from. I don’t know how many of you out there trust the Costa Rica Government, or any Government, with the ability to freely withdraw funds from your bank account. If you do, you may want to seek some psychiatric help! It should be up to the Government to give you their account to deposit funds to, not the way it is unconstitutionally proposed.
4) Many people are talking about hiring an Attorney, an Appraiser or a Title Company to assist them in this process. The law should not and does not require you to do this but suggests it and most people feel compelled to do so because they just don’t understand what to do. Most of the firms advertising their services do not understand the law and how to complete the forms. They are just looking for business, a business that will help them out for the next 10 years or more. I have seen several letters from various firms that show, by their own description of services, that they will most likely do a very poor job for you and should not be hired. When a law is so complicated that it almost forces people to spend between $400 and $1000 just to complete an appraisal and a form, this leads me to think the law is unconstitutional once again.
5) The initial tax and filing of forms is due on Dec. 31, 2009 with a 2nd tax due on January 15th. For those of you who live in Costa Rica, you understand what happens on holiday periods such as Christmas and Easter. In the case of Christmas this year, the Government offices will shut down on December 18th and reopen on January 4th 2010. When the Government shuts down, so do most Attorneys’, Accountant’s and Appraiser’s. So, in reality you don’t have until Dec. 31st to complete your filing, you have until Dec. 18th which by the way is a little over 1 week away. Also, once the Government offices reopen on the 4th, they will need at least one week to get up to speed and back to work again, especially on a reduced work force as usually is the case after long holiday periods. Once again, GOOD LUCK!!!!!
6) Are you an Appraiser? Have you gone through your years of schooling to be one? Do you understand how to measure your structures, the walls of your house, your outbuildings, fences, driveways and swimming pools? Can you determine the value of your land, determine slopes and grades? If you are very good at all of this you should have fewer problems than most people in completing this process. I have been involved in the real estate business for well over 30 years and I am having problems completing these forms. Once again, good luck to all of you that have the overwhelming experience you will need for this process.
7) Fines of 5 and 10 times the unpaid tax! How stupid is this! When penalties are usurious and unreasonable, they cannot be legal. Do you really believe they have the power to fine you 5 times the unpaid tax if you underestimate your property value by 10%? They can say this but enforcing it will be almost impossible. Again, are you an appraiser? Are you a computer expert? Can you comply with this law in the short time span given? The Government itself doesn’t even know how to collect taxes efficiently but they want to charge you a high penalty for you not being in compliance. How about the foreigner property owners who live out of the country and can’t comply for many of the above reasons. Are you going to tell me that they must pay a penalty of 10 times the unpaid tax? This is so ridiculous it is hard to believe.
8) What does the Government think this type of law is going to do to foreign investment? How many foreigners are going to invest knowing that they will have at least 10 years of double taxation? How many hotel and cabina owners will not be able to pay these excessive taxes due to lack of business and tourism? With this type of law, it will be difficult to sell any upper end condos, apartments or homes. Is this really what the Government is looking for?
In closing, I would suggest that the Costa Rica Government revisit this law and make it something that can be used simply by all taxpayers and or homeowners. Perhaps a simple flat tax on all Corporations or some other method could be a friendlier way of implementing this. The end result and the amount of money obtained could be the same or possibly better. I know and truly believe the Costa Rican Government will wake up to the fact that they passed a bad law and in the end will revise it to make it legal, constitutional and in the best interests of the people.
Bob Klenz
Dominical, Costa Rica.Very well written.
I would suggest you send a copy of this post to http://www.arcr.net and hopefully Ryan Piercy, who takes a stand on behalf of residents of Costa Rica, will present it to someone who may even read it. And of course, the [i]’Tico Times’, Insidecostarica and AMcostarica[/i]
It will affect more [i]’Ticos'[/i] than it will ex-pats.lone,
Great information and input. I had my CR attorney look into this matter, since we had just bought a retirement home in October. His services and an appraisers services cost me $400.00, which I was glad to pay; with the result being that I did not have to pay the luxury tax for three years, and I had the documentation if the CR government questioned my nonpayment. The confusion extended to us who bought a house in CR, and still live in the U.S.[quote=”costaricafinca”]Very well written.
I would suggest you send a copy of this post to http://www.arcr.net and hopefully Ryan Piercy, who takes a stand on behalf of residents of Costa Rica, will present it to someone who may even read it. And of course, the [i]’Tico Times’, Insidecostarica and AMcostarica[/i]
It will affect more [i]’Ticos'[/i] than it will ex-pats.[/quote]I agree that it will affect more Tico’s. Unfortunately most of them don’t seem to know or understand what is happening to them. As to the foreigners, several of them are running back and forth between their local bank and Hacienda trying to just register a bank account. They are making 3, 4 and 5 trips back an forth and even some of the banks don’t want to or can’t domicile an account.
My article was published today in AM Costa Rica and Inside Costa Rica. The Tico Times requested a shortened version which I declined to do since the article would lose its’ intent. I sent it to your ACRC email but haven’t heard back from them. If you know this person, possibly you could alert him to this. I also sent it to the LaNacion with a request to translate it but don’t know if they will publish or not. They had a full page article yesterday (Tuesday) very general, about the tax, nothing negative.
Somehow, this all has to help get some attention to this problem. Thanks again for your comments.
Bob KlenzI did post the link to the article on a forum associated with ARCR, to ‘Insidecostarica’, so he would be aware of it.
You cold send it, as a [i]’letter to the editor'[/i] to the Tico Times.Agreed 100%!
I’m all in favour of reasonable measures that might help alleviate the plight of some of the less fortunate people in Costa Rica but – if I understand how this works correctly – since the monies collected will benefit primarily Nicaraguans, I would have preferred that my taxes help Costa Ricans and, from what I hear from my Tico friends, they would prefer that too…
This measure can only increase the amount of anti-Nica sentiment in the country.
No offence meant to our Nicaraguan immigrants (legal or illegal) but if I want to donate money and help them I can do that in Nicaragua but, if I invest in Costa Rica real estate, those property taxes should benefit Costa Rica and the Ticos…
Lastly, the new tax is most definitely absurdly complicated.
Scott
A good response was added on ‘Amcostarica’ from an equally articulate resident in the Nicoya Peninsula, whom I know.
Tiocs won’t pay the luxuary tax. I bet they ignore it. Does anyone know any Ticos that are worried about it? That would be a facinating insight.
Has there been this kind of hysteria in La Nacion? I read a bit of Spanish and although I hardly read the site daily, I can’t remeber one article. Does anyone remeber an article about the Luxuary Tax in La Nacion?
i think yesterday there was an article, or at least in the last day or two. i was reading the papers at a dentist’s office so they had several but they were from this week. according to the table of calculations they had printed in the article i read, the value of my house doesn’t even come close to meeting the Luxury Tax standard, so i think i am doing nothing at this time.
This tax doesn’t affect us either, as of now.
And while I can’t speak for others that are required to pay it, paying the funds doesn’t seem to be the problem, but the penalties that may be incurred. The original posted said “[i]Fines of 5 and 10 times the unpaid tax! How stupid is this! When penalties are usurious and unreasonable, they cannot be legal. Do you really believe they have the power to fine you 5 times the unpaid tax if you underestimate your property value by 10%?
“[/i]
A friend posted a response in the online newspaper:[i]”It would also appear that lawyers and appraisers will be the ones to profit handsomely. They have descended upon foreigners like vultures at a roadkill, and from the numerous sales pitches I’ve read so far they don’t hesitate to put their own spin on the law, all of them quoting wildly different facts and figures requiring the taxpayer’s compliance.
Prices for their services also vary from the reasonable to outright gouging. We all know that Costa Rica needs tax revenue however the success of this law will be limited by its failure to furnish the taxpayer with a clear and user-friendly explanation of how to comply and by its preposterous fines”
The 5 percent and 10 percent fines are off the charts and are enough to scare even the wealthiest investors off in light of the fact that the law makes it almost inevitable that honest mistakes will be made.
[/i].
If the government of where ever you previously lived or owned property, would we pay up and done nothing?
I don’t think so….Eh? Penalties of five to ten times the unpaid tax are the order of the day for the U.S. Internal Revenue Service and, hate them as we may, they’ve been found to be constitutional over and over again. Why should it be different in Costa Rica?
No, not really…
US Federal Tax penalties are generally a low percentage of your unpaid taxes over time with most of them having a 20% to 25% of your unpaid tax as a maximum with the exception of Fraud, Tax Evasion etc.
This includes Failure to File, Failure to Pay and Accuracy Related issues much like we are discussing here.
Let’s do the math:
Owe $1,000 in the US to the IRS and don’t pay up over a certain period of time you can be assessed a maximum of 25% or $250 total. If you keep messing around then they start adding fun stuff like criminal penalties.
The IRS is no joke and will put a hurting on you but let’s look at the CR example now.
Owe $1,000 in Luxury Tax in CR and don’t pay or have accuracy related issues you can be assessed 5x or 10x or in this example $5,000 to $10,000.
So, as bad as the IRS is, there is a bit of a difference in the math.
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