Tips and general GUIDELINES to consider if you are planning to invest in COSTA RICA
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Costa Rica is an amazing country with a widely diverse culture, history, nature and it’s kindly people. Coming to the happiest place on Earth for sure will be your greatest adventure.
Costa Rica it’s such a gorgeous destination for vacationing but also for business.
Let’s move on into some important information we wan’t to share with you so you can close your deal successfully.
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What's required if the company holding the title is not running a business activity?
It is only required to file the inactive corporation report informing the total value of the assets held by the company. However if there's a business activity a D-195 income tax must be filed before March 15th every year. There are also yearly missellaneous fees and taxes to be paid so you are able to maintain the corporations and title in good standing.
How do I notice which and when payments are due?
E&T understands how confusing and complicated it is to understand the obligations of a new country.
Our Payments Account service is your best solution if you prefer to delegate monthly obligations related to maintenance, payroll , utilities, HOA, property taxes, insurance and any other payments.
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Tax Payment & Filling Information
Capital Gains Tax
Since 2019, with a rate of 15% capital gain tax applied to the gain. However, if the property was acquired before July 2019, there is good news. Congress added a provision to protect the owner in such situation. In which allows real estate owners to apply for special rate when they sell the real estate.
Instead of paying 15% of the net profits, the law allows them to apply for 2.25% of the gross sale price.
Registry Of Transparency And Final Beneficiaries (Also Known As Ufo Or Ultimate Beneficial Ownership Registry)
Ordinary reports are due in April of each year and it requires to report the ownership of the company up to physical person.
Corporate Tax
It's the annual tax on Legal Entities and must be paid no later than January each year.
The amount is between $100-$150 for inactive corporations.
And between $200-$250 depending on the company activity and yearly income.
Education And Culture Stamp Tax
Due on March each year. Costa Rican corporations or foreign corporations registered in the Costa Rican National Registry must pay a tax called "Timbre de Educación y Cultura" (Education and Culture stamps tax) and its amount is based on the registered social capital.
Luxury Tax
Due on January 31st. Properties valued above $260,000.00 must filed and pay this tax. It has sliding rate ranging between 0.25% and 0.55% based on the value of the constructions and a portion of the land in use. Every three years, taxpayers must present a D-179 form to update the value of the real estate.
Property Taxes
It's the tax on the real estate owed to the county where it is located. The tax rate is 0.25% of the property value registered in the Municipality. Filed every 5 years or anytime the property changes ownership, the land owner must submit a value declaration to the local government. Once it is approved by the Municipality, such value is used as tax base.
The tax is due quaterly: March, June, September and December.
However some Municipalities offer a discount if the whole year is paid in advance on January.
D-195 Form
Declaration of assets value, due on March 15th. We recommend you to keep good records of the property purchase and improvements so you can declare the correct amount every year.
D-140 Form
This form is filed at tax administration to register the corporation once it is setup or when there are changes in legal representation, business activity or domicile.
1. If you are in Costa Rica it can be done at Tax Administration office.
2. If you are not in Costa Rica, you must grant a Special Power of Attorney to someone to file it on your behalf.
Tax For Nontraditional Rentals
We understand you may buy a house, villa or condo with the intension of living there for some time and then rent it while you are away. You must consider the obligation of collecting the added value tax "VAT" plus the payment of the income tax on rentals.
If you feel identified with this point we invite you to review the following section dedicated to this matter.
Obligations For Owners Of Rental Properties
We prepared the following explanation with assistance of our CPA and experienced team. According to the Law 9635, the activity of renting houses is automatically taxed as Returns on Real Estate, therefore a new type of form has to be prepared.
There are Two Ways to Pay the Taxes:
Capital Gain on the real estate income
Of the total rental income, you can automatically deduct 15% of expenses and on the remaining 85%, pay 15% tax. This is the same as 12.75% of the effective rate on the total of the incomes received (Form D-125).
Regular Income Tax filed once a year
In order to keep regular income tax filing and avoid the way before mentioned, the law established a requirement to have at least one employee registered in the CCSS (Caja Costarricense de Seguro Social) which is the socialized medical bureau with all worker benefits. To apply, the taxpayer must complete a formal request to the Tax Adminisitration of Costa Rica and wait for them to approve it (Form D-101).
Please Consider the Following Obligations:
Billing System
Once the company is active, a billing system must be in place to create electronic invoices for every rental received.
D-104-2 Sales Tax Form
Due on the 15th of each month, every invoice for the rental will collect 13% sales tax on the rental and must be filed monthly to the Tax Administration.
D-125 Form Capital Gain On Real Estate Rentals
Due on the 15th of each month, if you do not qualify for regular income tax, then this is D-125 Form must be filed and paid.
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