Rental tax guidelines: Important information you should know

Rental tax guidelines - Important information - Costa Rica

If you have a house and/or condominium for rent in Costa Rica, it is important to take into consideration the new regulations. 

For that reason, we have prepared an explanation with the assistance of our CPA. However, we recommend that you hire an accountant to assist you with the tax obligations, if these apply to you.

Tax obligations when renting a house

According to Law 9635, the activity of renting houses is automatically taxed, as Returns on Real Estate “Rentas de capital inmobiliario”, therefore a new type of form has to be filed.

There are two ways to pay the tax:

Capital Gain on the real estate income (rent):

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:

To keep regular income tax filing and avoid the previous one, the law has 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 (Christmas bonus, vacation pay, notice, etc), To apply for this, the Taxpayer must file a formal request to the Tax Administration of Costa Rica and wait for them to approve it. (FormD-101).

Steps to follow to comply with the law in Costa Rica

Now, to pay taxes correctly, the steps to follow are as follows:

D140 Form:

The corporation must file this form to register the company with the Tax Administration.

  • If you are in Costa Rica it can be done at tax administration office, in person.
  • If you are not in Costa Rica, you must grant a Special Power of attorney to someone to file on your behalf.

Billing System:

Once the company is active, a billing system must be in place to create electronic invoices for every rental received.

D104-2 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. The amount to be paid is the difference between the tax collected and the tax paid each month.

D125 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 D125 form D125 must be filed and paid.

D101Form, Regular income tax:

(Due every year. 2019 is now already and the next fiscal period will be due in December 2020). For regular Income tax, the taxpayer can write off all expenses related to the business activity and depreciation.

It is important to consider that once the shareholders agree to pay dividends out of the profits, they will have to pay Dividend Tax (15%) unless the shareholder is another company that is also commercially active and registered in Costa Rica for another business activity.

On the other hand, in August 2019, a new law was approved, and a new requirement will apply for rental activity which is registration with ICT (Costa Rican Tourism Institute).  However, as of today, the regulations for this requirement are not available.

Most of the requirements will be already complied with Tax registration, billing electronically, collecting, and paying sales tax. However, a few more related to Law 7600 to grant access to wheelchairs, security and good conditions for renters will also be part of the law regulations.  

***Please note that these are the regulations for Costa Rica. Depending on your nationality and/or residence, you may have to file additional forms. We urge you to contact your CPA and/or Tax attorney abroad to ensure you are complying with all of the forms and tax payments there as well. ***

Contact us if you require advice to comply with your tax obligations and avoid any conflict with the law. It will be a pleasure to serve you.

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