Changing Times in Costa Rica

I have lived in Costa Rica for six years and the changes have been amazing to me during that time, mostly positive.

One of the recent changes, which I will write about in this blog posting, could be viewed in either a positive or a negative way depending on how you tend to view the world. This recent change was implemented by the Ministerio de Hacienda of Costa Rica, our version of the U.S. I.R.S. The new tax is called the Impuestos Solidarios and it is a luxury tax being imposed on all owners of property that is appraised at 100 million colones (approx. $175,000 USD) or more.

The formula for this tax is posted on the Hacienda's website and it is as follows:

Hasta ¢100.000.000.00 Exento
Sobre el exceso de ¢100.000.000.00 hasta ¢750.000.000.00 0.25%
Sobre el exceso de ¢750.000.000.00 hasta ¢1.250.000.000.00 0.35%
Sobre el exceso de ¢1.250.000.000.00 hasta ¢1.750.000.000.00 0.45%
Más de ¢1.750.000.000.00 0.55%

So, if your home and property are worth 100,000,000 colones up to 750,000,000 colones, your annual luxury tax will be 0.25 percent of the value. This is in addition to the taxes you already pay to your local municipality. Let's say that you are at the minimum of approx. $175,000. Then your annual luxury tax will be around $450. But before you pay it, you must have an engineer come to do an appraisal of the property. This will cost you about $175-$200. After the inspection by the engineer, the engineer will input the data into a formula created for this type of appraisal and let you know what the value for tax purposes will be. If you are at or above the minimum, then you can have your accountant prepare the form in preparation of payment . There was the typical confusion about all of this and the deadline for payment has come and gone (it was last Friday, January 15, 2010), so many of you will already have completed your work but many of you will be learning of this for the first time.

After you get your valuation report from the engineer, you can take it to your accountant. The accountant will get it ready for payment, which you can do at any bank. Our accountant charges 30,000 colones, or approximately $54 USD for this service.

The purpose of this tax is so that the government of Costa Rica can begin tearing down slum neighborhoods to replace them with decent housing. So, it depends how you look at it--a positive, or a negative?

If your property comes in under the minimum, then you just keep your report as evidence of same. Most of you know that your property is obviously under the minimum and will not even need an engineer, but for example our home falls near the minimum according to formula, so we had to have the engineer come to our property for the appraisal. We actually came in just under the minimum. And any of you who know our property know that it is worth far more than that, even in today's market, so the formula that they use seems less stringent than I had expected. This tax, to me, seems to be targeted toward the luxury beach properties and we have been expecting something like that to happen for some years now.

This tax must be paid annually, but you do not need the engineer every year to do the appraisal. These appraisals are good for four years.

Last Friday, the Hacienda posted a letter on their website from the Director of Taxation and he warned in that letter that the government has been collecting data and training their personnel on how to implement this program. He also warned that taxpayers who ignore this tax can be fined up to ten times the amount owed. You can still find that letter on their homepage.

Some people in my area who own property have told me that they are not going to comply, no matter what. Of course, that is a personal decision that each homeowner must make.

I hope this helps you in your planning. And remember, if you think that this is a high tax, just consider what you have been paying in taxes in the U.S. and Canada.

Also, the municipal taxes here remain at 0.25%, no matter what the valuation.

Pura vida,

Laura Murray
Owner/Broker
RE/MAX Lake Partners
www.arenalbuyersrealty.com
www.lakearenal.blogspot.com
Lake Arenal, Costa Rica
Office: 506-2695-4511
Fax: 506-2695-4005
From the U.S. and Canada directly to our office in Costa Rica: (310)-929-7580