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Buying a luxury property in Costa Rica is a significant investment not just for the possibility of significant financial returns, but also for the desirable lifestyle this country offers. The real estate market in Costa Rica is experiencing remarkable growth with investments ranging from luxurious oceanfront residences to more accessible projects in other up-and-coming regions. This flourishing market is expanding into lesser-explored areas, catalyzing development and infrastructure improvements across various parts of the country.
Costa Rica is rising in the ranks of top global tourist destinations thanks to its extraordinary natural beauty and reputation for ecotourism. At the same time, a stable economy and ever-expanding real estate market attracts the attention of investors from around the world.
More and more buyers are deciding to invest in real estate here, and for good reasons. This small Central American country is the oldest democracy in Latin America and an outstanding development success story. Its economy has operated steadily for over a quarter of a century, and the country has made significant progress in its standard of living, with a 60% increase in GDP per capita over the last two decades. This has positioned Costa Rica as the third most popular destination in the Americas for U.S. citizens interested in purchasing property.
Luxury Living Costa Rica | Forbes Global Properties, together with Sergio Amador, a partner at the law firm Alta Costa Rica and local director of corporate law and real estate practice, have prepared this article on the importance of understanding Costa Rica’s tax implications for real estate transactions.
Before considering and purchasing any property in Costa Rica, it is essential to understand the taxes that may impact real estate transactions. Knowing these fiscal details from the beginning is crucial to avoiding setbacks during the purchase process.
Four Key Considerations.
Capital Gains Tax, Transfer Tax, Withholding on Foreign Remittances and Stamps are the main tax obligations to consider when purchasing a property in Costa Rica.
“One of the most significant taxes is the Capital Gains Tax, which applies to profits from the sale of properties. The current rate is 15% on the gains obtained. However, if the property was acquired before July 1, 2019, the seller can opt to pay 2.25% of the sale price instead of 15%, but this is only allowed on the first transaction,” explained Sergio Amador.
In addition, there is an important exception: if the property being sold is the seller’s primary residence, the transaction is exempt from capital gains tax, provided it can be proven that it was their main residence.
For non-residents, the buyer must withhold 2.5% of the purchase price as an advance payment on this tax.
“Another tax to consider is the Transfer Tax, which is generated every time a property is transferred in Costa Rica. This tax is calculated as 1.5% of the actual transaction value or the fiscal value of the property, whichever is greater,” the expert noted.
According to Amador, it’s also essential to consider the Withholding Tax when international transactions are involved. This means that if a foreign broker is involved in the transaction, it is mandatory to withhold 15% of the commission paid to the broker which will be sent as a remittance abroad.
“In addition to the Transfer Tax, the direct transfer of properties generates certain stamps and fiscal charges that add approximately 0.9% to the actual transaction value. While it may seem like a minor cost, it’s important to consider this when calculating the total transaction expenses,” he stated.
Due Diligence: Ensuring the Property is Up-to-Date on Taxes.
In addition to the information on taxes payable upon property acquisition, experts recommend conducting Due Diligence before completing the purchase to ensure the property of interest is up-to-date on additional taxes.
“One of the taxes that we need to check beforehand is the Luxury Home Tax which applies to properties with a construction value exceeding $300,000 USD. This tax is paid annually before January 15,” he advised.
Additionally, all properties in Costa Rica are subject to the Real Estate Tax, which corresponds to 0.25% of the registered property value. This tax is paid quarterly at the relevant municipality.
In summary, it’s essential to keep these taxes in mind when purchasing luxury properties in Costa Rica to better plan your investment and avoid surprises during the process. Although this tax landscape may seem complex, having the right guidance will enable you to complete a successful real estate transaction.
If you are interested in learning more about this topic, feel free to consult our luxury team here.
If you have any questions or need more information, please contact us to assist you with your purchase.
