Costa Rica Tax Guide
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What You Need to Know About Taxes & Other Legal Requirements in Costa Rica
As a real estate property or corporation owner in Costa Rica, you should be aware of the various taxes that need to be paid annually — after all, failure to pay these taxes would generate penalties and lead to a collection process.
To own property as an expat, you are generally required to set up a company to facilitate ownership — although it is possible to own property in Costa Rica personally. In any case, obtaining appropriate legal advice is essential to ensure that all the required filings are done correctly.
Types of Costa Rican Taxes
If you are already living here or thinking about moving to Costa Rica, we hope you will find the following collection of information useful as you explore the rules and subtleties of each of the taxes you might encounter:
Costa Rica Corporate Taxes
How Do Costa Rica Corporate Taxes Work?
Even inactive companies, meaning those not generating any revenue, must pay corporate taxes of about $120 a year. For active companies, the tax liability is based on their revenue.
The Costa Rican government calculates annual corporate taxes based on a percentage of the monthly base salary of a government employee, referred to below as a “base salary.” That amount is currently 450,200 colones (about $790).
Please note that it makes no difference how many employees your company may have. Many companies are set up with just three representatives and no employees. So the base salary of a government employee is nothing but a benchmark used to measure a company’s revenue (or lack thereof).
Luxury Taxes (Solidarity Taxes) in Costa Rica
Costa Rica has made recent changes in its complicated tax laws. One of these is a luxury tax — also called a solidarity tax — on high-value homes, established in 2009 and officially known as the Solidarity Tax for the Strengthening of Housing Programs. The stated purpose of luxury taxes in Costa Rica is to build homes for people living in poverty and to reduce the number of crudely-built shanties throughout the country.
Whether you must pay this tax depends on the value of your constructed home, along with other improvements such as ranchos, swimming pools, walls, sports fields, etc. The threshold at which the tax kicks in applies only to these types of construction and improvements, not to the land itself.
However, if you meet the threshold, you must add the land’s value to the construction value and pay the tax based on the entire amount.
How Do Costa Rica Luxury Taxes Work?
The threshold at which the luxury tax kicks in rises every year. In 202o, the threshold was 133,148,400 colones ($233,900) add the 2023 treshold for the value of the property itself — not the land underneath. If your home or condo is worth more than the threshold, you have to add up the value of the land, home, and improvements and pay the tax based on the total value of the property.
The tax ranges between 0.25% – 0.55% depending on the home’s value. Payment must be made by January 15th of each year, or penalties will be imposed. The Costa Rican government expects homeowners to have their homes assessed, determine the amount of tax due, and pay it on their own — although the government may check to verify that the correct amount has been paid.
Every three years, those affected must fill out a form called “Formulario Único de Inscripción, Declaración y Pago Impuesto Solidario para el Fortalecimiento de Programas de Vivienda, Ley 8683.” But the tax must be paid annually.
Special Places of Costa Rica takes care of all these complicated tax issues on your behalf. We are committed to providing full-service property management for all our owners. If you have any questions, feel free to contact us.
Costa Rica Rental Income Taxes
If you rent out a vacation home, condo, or apartment in Costa Rica, you will need to pay taxes on the rental income your property generates.
Instead of deducting your expenses and paying taxes on the difference, the government assumes that expenses total 15% of rental income in all cases, so it imposes taxes on the remaining 85%. The remaining 85% of rental income is taxed at a flat rate of 15%. Some call this the 15/15 tax because you deduct 15% of rental income and pay 15% on the rest.
The government requires filings and payments for rental income taxes once per month, but there is no need to calculate or list expenses — just revenue.
There is one caveat to rental income taxes in Costa Rica. If you have at least one employee (such as a housekeeper), you can choose to pay rental income taxes “the old way.” The old system taxes the owner on their net income using various percentages published by the Directorate General of Taxation after expenses are subtracted — and taxes are only paid once per year.
If you have an employee or two and want to decide which tax method will be most advantageous to you — the new system or the old system — seek 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 updated on rapidly changing tax laws and can put their expertise at your disposal. If you have any questions about your obligations to pay tax on rental income, please contact us.
Costa Rica Shareholder Declaration
Costa Rica recently passed a “Law to Combat Tax Fraud,” which requires every company in Costa Rica to file a declaration stating how many shareholders it has, what their stake in the company is, what types of stock are held, and many other details.
The reason for this requirement is to comply with international requirements for tax transparency — in part, to satisfy conditions to become a member of the Organization for Economic Cooperation and Development. The requirement is also intended to reduce tax evasion and combat money laundering.
The requirement applies to S.A. companies (“Sociedad Anónima”), LLCs (“Sociedad de Responsabilidad Limitada”), general and limited partnerships, branches of foreign corporations, trusts, and more.
Shareholder Declaration Requirements
You will need to include details about the company’s identification, type of stock, the total number of shares, names of shareholders and beneficiaries, and details of share ownership in the shareholder declaration.
An additional complication is that to complete the online-only shareholder registry form, you must first obtain a digital signature (“firma digital”) from an authorized Costa Rican bank. This is a USB device inserted into a computer with a digital card identifying the holder. And unfortunately, only Costa Rican nationals or foreigners with legal residency can obtain the digital signature.
The workaround? You can assign power of attorney to another party, including Special Places of Costa Rica, to use their digital signature to fill out the shareholder declaration for you. Though inconvenient, failure to make this declaration is punishable by costly penalties — starting around $2,000 and, in some cases, believe it or not, reaching nearly $79,000.
If you have a Costa Rican company and have not fulfilled this requirement, contact Special Places of Costa Rica to find out how we can make your life easier by helping you complete this declaration.
Costa Rica Property Taxes
You will likely be happy to learn that property taxes in Costa Rica are much lower than they are in the United States or Canada. And the rules are simple — the property tax is 0.25% of the purchase price of your property or the value assigned by the National Registry. So, if your property is worth $200,000, your property tax would be $500 a year.
It’s up to you, by the way, to have your property value assessed every five years. If you don’t, you may face penalties, and the municipality may choose to determine the value of your property.
Garbage Collection Fees
Fees for garbage collection are due at the same time as property taxes, and both are paid to your local municipality. The garbage fee is a fixed amount that is adjusted annually. The cost varies depending on the location of your property and whether it’s used for residential or commercial purposes.
Property taxes and garbage fees can be paid quarterly — at the end of March, June, September, and December — or they can all be paid at once for the entire year. As part of our full-service property management services, Special Places of Costa Rica can gladly take care of paying your property tax and garbage fees for you.
Costa Rica Digital Invoicing
The “factura electrónica” — electronic invoicing — is one of the more complicated and far-reaching fiscal reforms implemented in Costa Rica in the past couple of years. And it affects virtually everyone — including all of our property owners at Special Places of Costa Rica.
The stated purpose of the electronic invoice (or digital receipt) is to reduce tax fraud. This system was rolled out in conjunction with Costa Rica’s new value-added tax (VAT), or “impuesto al valor agregado (IVA),” which is 13%.
“Factura electrónica” can mean two different things — an electronic “bill” for goods sold or services rendered with the merchant still waiting for your payment, and also an electronic “receipt” for goods or services you’ve already paid for.
For example, if you own an income-producing property in Costa Rica and a contractor renovates your kitchen for $10,000, he may send you a “factura electrónica” (a bill) for $10,000, plus the 13% IVA, for a total of $11,300. The Costa Rican tax agency, Departamento de Hacienda, will automatically receive a copy. When the contractor receives your payment, he will owe 13% ($1,300) to the Hacienda.
Similarly, suppose you want an official receipt indicating that you have paid the bill. In that case, a “factura electrónica” (a receipt) will be issued. You can submit this receipt to the tax authorities to deduct the expense from your taxes.
The good news for property management clients of Special Places of Costa Rica is that we take care of all of these headaches for you, processing all the electronic invoicing for internet, electricity, water, repairs, necessary purchases, HOA fees, and more. All of these expenses should be deductible for our clients if handled properly, which is why we bill our clients a monthly fee to manage electronic invoicing.
If you have any questions on this issue, contact us here. We’re happy to help, and we’re committed to making your life as easy as possible in an increasingly complicated business environment.