Properties and homes that are only used for the enjoyment of the owners and guests that are not held out as a rental property may be subject to an additional tax on the value of the property – Impuestos de Lujo or luxury tax.
The luxury tax is based on the declared value of the property. The value includes the construction cost. The tax declaration must be made every three years with the tax authority (not the local municipality). Taxes are due annually and are computed based on the declared value. If the declared value of the property is less than 129.000.000 colones or about $240,000, then the property is not subject to the tax and no declaration would be needed.
The following table shows the value and tax rate of the luxury tax
| Value in Colones | Value in Dollars (Estimated) | Tax Rate |
|---|---|---|
| Less than 129.000.000 | Less than $240,000 | 0.00% |
| 0-323.000.000 | $0-$577,000 | 0.25% |
| 323.000.001-647.000.000 | $577,001-$1,155.000 | 0.30% |
| 647.000.001-970.000.000 | $1,155.001-$1,732,000 | 0.35% |
| 970.000.001-1.295.000.000 | $1,732,001-$2,312.000 | 0.40% |
| 1.295.000.001-1.617.000.000 | $2.312.001-$2,888,000 | 0.45% |
| 1.617.000.001-1.943.000.000 | $2,888,001-$3,470,000 | 0.50% |
| 1.943.000.000+ | Over $3,470,001 | 0.55% |
As such, for those of you who that have property values over 129.000.000, they must make a declaration to the tax authority and pay the tax annually.
Lets review the penalties for non-compliance for tax reporting and related matters.
| Civil Penalty (Source) | Amounts in Colones | Amounts in Dollars (estimated) |
|---|---|---|
| The failure to register with the tax authority | 1.293.000 | $2,300 |
| The failure to file a luxury tax return timely | 215.500 per month | $385 per month |
| Interest on unpaid obligations | 1% per month up to 20% of unpaid obligation | |
| Not maintaining accounting books and proper records under commercial and tax codes | 431.000 | $770 |
| Failure to present books and records when requested by tax authority | 862.000 to 1.293.000 per occurrence | $1,525 to $2,300 |
It should also be noted that the tax authority has recently started to become more aggressive in its collection tactics. The municipality and the tax authority are coordinating data. Thus, if the property fiscal value at the municipality is greater than 129.000.000 they are informing the tax authority. We have already seen the tax authority start actions against properties/companies for failure to file. This issue has come up when properties are placed on the market for sale and caught during the due diligence period by the buyer. The tax authority has the power to seize assets both at bank accounts and/or place annotation on real property. The annotation on real property is an effectively a lien which would be required to be satisfied in the event of a transfer of the property (i.e. a sale).
As the tax authority has become more sophisticated and aggressive and with the high likelihood of a new tax law for both sales and income tax being adopted this year, it is imperative that your clients become complaint going into the next fiscal year. This is the time to make the changes necessary, to avoid bigger headaches and issues that arise from continued non-compliance.
Our firm stands ready to assist those who have an interest in becoming compliant and charting a new path. Please contact us at robert@richcoastaccounting.com with specific questions to your situation. All conversations are confidential.
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.