Capital Gains Tax: Costa Rica Real Estate

Capital Gains Tax: Costa Rica Real Estate

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Perhaps you have heard about the new Capital Gains’ tax & wondering how it will effect you, your home and/or your investment in Costa Rica real estate. RE/MAX Pura Vida strives to keep their clients & colleagues as informed as possible, that being said the New Tax Law called “Ley de Fortalecimiento de las Finanzas Públicas Number 9635” (hereinafter the Law) was approved in December 2018 and the new Capital Gains` Tax was in fact included on its Section 2. Read a little more about it below.

According to the Law, the obligations contained on Section 2, including the Capital Gains` Tax will begin applying on July the 1st, 2019. As the name clearly states, said tax will apply as a 15% charge over the capital gains generated by a seller when selling a property.

SPECIAL CASES: In the event someone had bought a property BEFORE July the 1st, 2019 said owner when selling such property in the future, will have the possibility of paying for one time only, a reduced 2,25% over the TOTAL sales price rather than the 15% over the Capital Gains. In many cases, said 2,25% will result in a lower payment. Each case shall be analyzed separately, as for obvious reasons in cases with very little capital gains the 15% may work better for the seller. Understanding this special case is essential while advising real estate property sellers, but may also be a good tool for you, or your clients, to speed up a transaction so that the closing happens before July the 1st 2019. A closing happening before July the 1st will allow the seller not to pay capital gains tax at all (as it wouldn’t be enforced yet) and at the same time will allow purchaser to eventually apply for the 2,25% alternative if it was more beneficial financially speaking than the 15% capital gains` regular charge due to the reasons explained above.

EXCEPTION: The Law expressly and clearly states that the sale of your primary residence will NOT pay any capital gains tax. The primary residence being sold could be registered under the seller`s personal name or even under the name of a corporation as long as it is very clearly proved that it was the shareholders` primary residence. The Law doesn’t include any limitation as to how frequently someone may apply for this exemption as other Countries have already done hence, by now, we don’t have to worry about timelines. In the future they may try to regulate this particular point.

FORMAL ACCOUNTING AND BACKUP OF COST BASIS AND INVESTMENT: Due to this new tax, it is VERY important to advise all of your clients to properly back up their land acquisition value (by means of the corresponding deed of purchase with the real purchase price, as the Costa Rican laws have always demanded anyways) and to properly back up with formal “facturas” (invoices/receipts) of all of their costs and expenses incurred in while making improvements, remodeling, expanding, making new constructions, etc. All of these will have to be formally proved 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.

We hope that the information contained in this article is useful for you, your business and your clients. Please feel free to share this information with anyone you consider could take advantage of it. Year 2019 is a year full of changes, new compliance requirements and new regulations being enforced, hence our idea is to keep you informed and updated so you focus on your business while we update you on regulation and compliance changes. RE/MAX Pura Vida strongly believes in long term business relations where both parties actually add value on a facultative symbiotic relation.

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