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August 21, 2020

Costa Rica Rental Income Taxes

Costa Rica’s recent overhaul of its tax laws contains one important provision that affects anyone who benefits from rental income, including property owners who work with Special Places of Costa Rica.

Under the old rules, expenses such as maintenance were deducted from rental income, and taxes were paid on the difference. These taxes were based on net income at various percentages listed in tables published by the Directorate General of Taxation (Dirección General de Tributación).

Also, under the old system these taxes were paid only once a year.

The new system is arguably simpler but not necessarily easier. It assumes that in all cases, expenses total 15% of rental income, so it imposes taxes only on the remaining 85%. And it imposes a flat rate of 15% on that 85%, eliminating the various tax rates under the old system.

Some call this the 15/15 tax, because you deduct 15% of rental income and pay 15% on the rest.

When to pay Costa Rica rental income taxes

In addition, the new system requires filings and payments once a month rather than once a year. But it eliminates the need to file a traditional income tax return because there is no need to list expenses.

There’s one wrinkle to complicate matters just a bit more: whether the property owner has at least one employee (like a housekeeper or a watchman). Property owners with no employees must choose the new system, paying 15% on 85% of their income every month.

So here’s the wrinkle: Property owners with at least one employee can choose between the new system and the old system! Obviously, it’s a complicated calculation to determine which option is best, and it’s not a decision to be made without the advice of a good accountant or tax lawyer.

We at Special Places of Costa Rica have a team of accountants and lawyers to keep us abreast of rapidly changing tax laws, and we are able to put their expertise at your disposal. If you have any questions about your obligations to pay tax on rental income, please contact us at specialplaces@crvr.net.

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