As some of you might know, there is a high probability that their will be major tax reform in Costa Rica. This is a summary of some of the significant items that will affect you and how you do business in Costa Rica.
Moving from a Sales Tax Based System to a Value Added Tax (VAT) system
Currently most goods that are purchased are subject to a 13% tax. Most services have been exempted from charging a sales tax. Under the proposed new law, ALL services, with some very limited exceptions, would be subject to a VAT of 13%. This means that services you use, such as property managers, attorneys, architects and construction services, doctors and others will be subject to a tax. Real estate commissions and related services charges would be subject to this VAT as well.
Taxes on rental income would be subject to this VAT. Look for renewed activity with Airbnb and VRBO/Homeaway to implement collection.
Tax credits would be available for certain offsets.
Moving to a Capital Gains Tax Regime
As of present, there is no capital gains tax in Costa Rica. Under the new reforms, there would be a 15% on real estate transactions that involved investment properties or other properties not considered your primary residence. Primary residences would be exempt from the capital gains tax. Thus, when selling you investment or rental property, you would be subject to capital gains taxes. The basis of the assets is not so simple either – as it will be based on your property declarations to the municipality that your property is located in. For those who declared low values in the past to avoid transfer taxes, you will be subject to a much lower basis and thus upon a sale to a much higher gain.
Optional Income Tax on Rental Real Estate
Rentals of real estate which are subject to the normal income tax rates of 10% to 30% will have an option, if they qualify, to just be taxed at a 15% income tax rate.
This is generally applicable if the rental real estate has no employees. Once adopted, you must use this method for at least five years.
Although not part of the tax reform bill, all companies, with some limited exceptions are now required to adopt an electronic involving system that are directly linked to the tax authority. This means that you or your company must be registered with the tax authority and register with a approved service provider to issue electronic invoices. Early adoption is permitted with deadlines to implement between September and November of 2018, depending on your last digit of your cedula number.
These are some of the significant changes that are coming. Contact us to discuss your particular situation at firstname.lastname@example.org. Better planning means better results.
This article carries no official authority, and its contents should not be acted upon without professional advice. For more information about this topic, please contact our office.