Property taxes in Costa Rica are among the lowest in the world. Yes, even for beachfront properties! That, combined with the country’s many other tax benefits, makes Costa Rica an attractive destination for retirees and investors.
The typical tax on a $200,000 home in Costa Rica is just $500 per year. And that’s for the entire country and undoubtedly less than what many Americans pay in just their state or local property taxes.
Of course, there are other factors to consider when deciding whether or not to move to Costa Rica. But if you’re looking for a low-tax jurisdiction and rewarding real estate investment, this is definitely the place for you.
Generalities about property taxes in Costa Rica
The CostaRican government imposes four types of taxes on property: real estate tax, capital gains tax, luxury tax (if applicable) and transfer tax. The real estate tax is levied on the value of land and buildings. Capital gains tax is imposed on profits from the sale of property, luxury tax on qualifying properties above approximately $450,000, and transfer tax is levied on the sale of property. All four types of taxes are progressive, meaning that they increase as the value of the property increases.
Property taxes are calculated based on the value of your property, and the tax rate is set by the municipality. The property tax rate is 0.25% of the assessed value in the local Municipality. The Municipality requires the property to be reassessed every five years. For example, if your property is valued at $100,000, you would owe between $250 in property taxes per year.
Some municipal governments offer discounts or exemptions from property taxes for certain types of properties, such as those used for commercial or industrial purposes. You should check with your municipality to see if any discounts or exemptions apply to your property.
The above tax examples are for titled fee-simple property. Non-titled concession property has a different tax formula that can vary depending on the municipality of jurisdiction.
Throughout the country, the tax rate is 0.25% of the property’s value. If you decide to invest in property in Marina Flamingo, you can expect to pay the same tax rate of 0.25% of the appraised value of the property, only with the added bonus of luxury facilities and infinite ocean views.
The property tax is paid by the real estate property owner, usually through the local municipality. It is generally paid annually in two installments. The first installment is due by March 31, and the second by September 30. If the tax is not paid on time, interest and penalties will accrue. The municipality offers a discount for early payment of the tax, with the amount of the discount depending on the date of payment.
The municipality also offers a payment plan for taxpayers who cannot pay the full amount of the tax due on March 1. Under the payment plan, the taxpayer pays half of the tax due on March 1, and the other half is due on September 1. The taxes are used to fund public services in the area, such as trash collection, street lighting, and security. The tax also goes to maintaining public parks, roads, and beaches.
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The real estate transfer tax (impuesto sobre bienes raíces)
In Costa Rica, the real estate transfer tax is imposed on the sale or transfer of real estate. The tax is calculated as a percentage of the property’s sale price and is usually paid by the buyer, but the parties can agree differently. The current tax rate is 1.5%, paid to the municipality where the property is located.
There are also a few stamps involved in the property purchase process in Costa Rica. The National Registry Stamp is 0.5% percent of the purchase price. The stamp for the title deed is one percent, and an additional 0.5 percent for the certificate of ownership or rights over land or building (Certificado de Dominio).
The total cost of the stamps is 2.5% of the property value which adds to the closing costs. The buyer usually pays the tax, but it can be added to the property price contractually. The buyer is legally responsible for all costs associated with these taxes.
The property transfer tax is imposed on the transfer of ownership of all real estate types, including residential, commercial, and industrial property. The tax is levied on the sale of both new and used property and is payable at the time of the sale. The tax is not levied on the transfer of property between family members, on the sale of property that is subject to a mortgage, on the sale of property that is inherited, or on the sale of property that is held for investment purposes
The tax is imposed on all buyers of real estate in Costa Rica, regardless of their nationality. However, foreigners who purchase property in Costa Rica are exempt from the tax if they hold the property for more than five years. The Costa Rican government collects the tax and uses the money to finance the country’s public infrastructure and services. The tax is also used to fund the country’s social security system.
Capital gains tax in Costa Rica
As a foreigner, you are subject to Costa Rica’scapital gains taxes on selling property in Costa Rica. The tax is levied on the net sale price of the property after deducting the costs of acquisition and sale, such as broker’s fees, transfer taxes, and legal fees.
The capital gains tax rate in Costa Rica is 15% but may be reduced to 10% if the property is held for more than two years. Legal residents of Costa Rica are exempt from capital gains tax on the sale of their primary residence, regardless of how long they have owned it. They are also exempt from capital gains tax on the sale of other property, such as investment property, if they have owned it for more than five years.
If you are not a resident of Costa Rica, you are subject to capital gains tax on the sale of any property in Costa Rica, regardless of how long you have owned it. Capital gains tax is due at the time of sale. If you are selling property that is not your primary residence, you will need to obtain a certificate of compliance from the municipality in which the property is located in order to prove that you have paid the capital gains tax.
The capital gains tax is a final tax, which means that it cannot be offset by any other taxes you may owe. Capital gains tax can be a significant expense for those selling property in Costa Rica. However, it is important to note that this tax is only payable on the profit made from the sale. Therefore, if you sell your property at a loss, you will not be required to pay any capital gains tax.
Luxury property tax (impuesto solidario)
Luxury property tax, or Impuesto solidario, is an annual property tax in Costa Rica that applies to the house’s “construction” value, which entails a special appraiser to formulate the value for property over $215,000. This tax must be paid by titled property owners, concessionaires, and occupants of the shoreline area.
The applicable luxury tax is between 0.25% and 0.55% of the home’s “construction” value, translating into roughly $250 to $500 per $100,000 of your “declared” “construction” property value. The money collected from the luxury residence tax is used to fund the Strengthening of Housing Programs in Costa Rica and to subsidize low-income housing in Costa Rica.
The tax was first implemented in 2009 and has been controversial since then. Many believe that it unfairly targets the wealthy and that the money should be raised through other means. Others argue that the tax is necessary to help fund social programs that benefit everyone in the country.
Those against the tax argue that it will make Costa Rica less attractive to wealthy investors and ultimately hurt the economy. The truth is that it is still too early to tell how the luxury tax will impact Costa Rica. Only time will tell if it is a good or bad thing for the country.
Invest in one of the happiest countries in the world!
There are many reasons why Costa Rica should be on the radar of investors and foreign buyers. With a stable government and growing economy, this country is set to become one of the wealthiest countries in Latin America. No wonder it is often named the happiest country on the planet!
Whether you’re planning to invest in a vacation rental property as a source of income, retire in Costa Rica, or simply buy a home in an exotic place like Playa Flamingo or Tamarindo, our real estate agents at Costa Rica’s Christies are here to help you find the perfect property for you and navigate the country’s tax system.