In December of 2018, the Costa Rican government approved a new tax law that includes the addition of a capital gains tax in Costa Rica. According to the law, the new capital gains tax will be implemented on July 1, 2019. This tax will incur a 15% charge on the capital gains generated when selling a property in Costa Rica.
In the event someone had bought a property before July 1, 2019, there is a possibility of only incurring a one-time, reduced tax of 2.25% of the total sales price, instead of 15% on the capital gains. It is up to the seller to work out which is a better deal in this one-time scenario. In many cases, 2.25% will result in a lower payment.
Avoiding the Capital Gains Tax in the Short Term
If you sell before July 1, 2019, your sale will not incur a capital gains tax. In this scenario, the buyer will also eventually be able to apply for the 2.25% alternative if it was more beneficial financially speaking than the 15% capital gains tax.
Below are some key points to help you understand how the capital gains tax in Costa Rica may affect you:
- If you are a resident of Costa Rica and own property, the property you live in is considered your primary residence. You will not pay capital gains tax on your primary residence. You are only required to pay this tax on any additional properties you own in Costa Rica. The primary residence can be registered in the seller’s personal name or a corporation as long as it is very clearly proven that it is the shareholders’ primary residence. The law does not state how often someone can apply for this exemption. The primary residence exemption will likely continue to apply if you move properties.
- If you own a vacation home in Costa Rica but your primary residence is outside of Costa Rica, you will pay capital gains tax when selling your property in Costa Rica. In this instance, you will have to apply for a tax exemption in your home country on the sale of your Costa Rica property.
- If you own two or more properties in Costa Rica, as of July 1, 2019, you will pay a capital gains tax on the sale of your property unless it is your primary residence.
Our lawyers are advising that clients properly back up their land acquisition value by making sure their deed of purchase corresponds with the real purchase price. You will need to be able to back this up with official receipts of all costs and expenses incurred while making improvements to the property. This includes any remodeling, expansions, new constructions and so on. Your property costs will need to be formally approved as the “cost basis” so that the tax authorities only charge the 15% Capital Gains tax over the difference between a future total sale amount and the seller’s total cost basis.
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Thanks to Alberto Sáenz Roesch, from Invicta Legal Costa Rica, for supplying our office with the facts that went into this article.