Costa Rica’s New Luxury Tax

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There is a new law that has now quietly come into force in Costa Rica.  It is being called the “Luxury House Tax” or a facsimile thereof.

I now have it on good authority that there is mass confusion about this law by the few that have even heard of it. I am one amongst the throng of the confused, but I will here report what I know and will continue to post as I get new information.

There appear to be many that have not heard of the law, but whether a person doesn’t know about the law or simply chooses to do nothing about the law, word is that there will be some rather harsh consequences.  How ‘bout them apples?

This is a new tax and it is only for constructed properties – houses, not for raw land.   Houses built on both titled and maritime zone property are affected.

House owners must declare the value of their house, and then pay the tax between January 1 and January 15th.  The law went into affect October 1, 2009 so the amount in this first time slot will be from October 1, 2009 to January 1, 2010.

If the value of your house is below $170,000 (give or take – this amount will vary depending on the exchange rate), you are exempt.

I have included a table of the current tax-to-value table. At the writing the colon is hovering right around 580 per dollar but you can take the figures below and use the conversion thing by clicking here.

Colon Value From Colon Value To Tax
From 1 to 100,000,000 0.0%
From 100,000,000 to 250,000,000 0.25%
From 250,000,000 to 500,000,000 0.30%
From 500,000,000 to 750,000,000 0.35%
From 750,000,000 to 1,000,000,000 0.40%
From 1,000,000,000 to 1,250,000,000 0.45%
From 1,250,000,000 to 1,500,000,000 0.50%
From 1,500,000,000 to 1,750,000,000 0.55%

There is an example pdf form on the Costa Rica government’s web site. If you’d like to see it for who knows what reason: click here (link no longer active). It’ll open in a new window and load a pdf document that is an example of what the final version will look like shortly.

15 thoughts on “Costa Rica’s New Luxury Tax”

  1. How many of these "Gringo Tax" do you suppose it will take before the Gringo's say the hell with it and go to another country which will treat them with fairness? I'm thinking it's time to start packing bags!

  2. Ben, what do you know about IRS form 5471 and how it applies to those that own cr land in a SA?
    As for leaving CR, well those taxes are still minuscule compared to what some of us pay in the US.
    Also, don't think about Panama as they have a really scary law proposed…copied from an email from the Bocas Breeze

    "Everyone living in Panama needs to be aware of the new law #71 that is being proposed. Please find below a translation of a review that was done by a prominent Panamanian attorney that addresses the major elements of the new law. This has been reviewed by Bocas del Toro Realty's team of attorneys and it is accurate. Read it and weep – it is a travesty and in effect tosses property rights to the wind. If this passes it will have tremendous negative impact on Panama and cause hundreds of thousands of locals and foreigners across the country to lose their rights. Read the information and do the best you can to let people know about this. Chester Kroeger is helping raise money to send people to Panama to protest at the National Assembly to be held THIS Monday, Tuesday and Wednesday(!) Please contact him to see how you can help."

  3. Hello RCH99 – I was kinda hoping you wouldn't ask that question :o)

    For us expats and migrators to Costa Rica, this law is just starting to cause some disturbances in our otherwise undisturbed lives here (smile).

    Here's the guts of the law in question:
    "Every U.S. person must furnish information annually with respect to any foreign corporation which that person controls. Additionally, every U.S. citizen or resident must file an information return if he or she becomes a 10 percent shareholder in a foreign corporation during the year, and/or if he or she becomes an officer or director of a foreign corporation in which a U.S. person is a 10 percent shareholder. The form the IRS has prescribed for such returns is Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign "

    I think that many have decided that the law is just too unruly to pay any attention to. I suspect that this isn't the best conclusion, but we're in the process of looking into it. The fact is that the law could very likely impact every expat living in Costa Rica. I'd venture to say that nearly all expats living here in Costa Rica have at least one corporation or S. A. which is the acronym for Sociedad Anonima. If this law is taken at face value, there needs to be a form 5471 filled out for each corporation owned. Many expats that I know own several S. A.s.

    There is good reason to take this question seriously as there appear to be some rather dire penalties:
    "Every U.S. person must furnish information annually with respect to any foreign corporation which that person controls. Additionally, every U.S. citizen or resident must file an information return if he or she becomes a 10 percent shareholder in a foreign corporation during the year, and/or if he or she becomes an officer or director of a foreign corporation in which a U.S. person is a 10 percent shareholder. The form the IRS has prescribed for such returns is Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign "

    We are working on getting a good understanding of this RCH99. I'll post what I find here. Please let me know what you find as well.

    Pretty interesting stuff about Panama. I think that we may need to find a new planet.

  5. Our Lawyer is charging $200.00 USD to file our tax. I believe that since our house is older we will owe nothing.

    The government has a questionaire which asks a series of things like the square meters of you lot and the square meters of the house. And other things like the age of the home the length of the fence and or the number of gates, etc. We just spent the a couple of hours filling out the form.

  6. Our Lawyer is charging $200.00 USD to file our tax. I believe that since our house is older we will owe nothing.

    The government has a questionaire which asks a series of things like the square meters of you lot and the square meters of the house. And other things like the age of the home the length of the fence and or the number of gates, etc. We just spent the a couple of hours filling out the form.

  9. As a former potential buyer in CR, the law is having a chilling effect. We just withdrew our offer on a $1M plus home and this was the primary reason. Not so much the current cost but (1) taxes always increase and (2) it signals a change in the government's approach to foreign investors

    • Yes it signals a change. A much needed change. With land taxes so low, no one paying income tax, how can anyone complain about roads or sidewalks being in poor condition if they exist at all.

      This luxury tax is such a small amount on the most expensive property, if you combine the luxury tax with the property tax (0.25%), maybe just maybe….. You’ll still be under 1% total both combined!

      And remember. About change. This is not a p[olicy targeting foreigners it is a much needed change in global policy and many Costa Ricans are wealthy and do indeed have nice home. Very expensive nice homes.

      Not to mention every Tico and Gringo with money and a nice home evading real property values with false declared values being registered to save money on the ridiculously small amount required be payed in the first place.

      Basically… Costa Rica has to ding everyone at customs with import taxes because they can’t seem to organize themselves to be able to collect the little that they require be paid by law.

      If we don’t buck up, and we are talking such small amounts compared to USA standards of taxation, we can’t complain about roads sidewalks and the lack thereof.

      HCR

  10. As a former potential buyer in CR, the law is having a chilling effect. We just withdrew our offer on a $1M plus home and this was the primary reason. Not so much the current cost but (1) taxes always increase and (2) it signals a change in the government's approach to foreign investors

  11. I`d like to know what is the latest on this luxury tax as of march 2010. Any truth to growning vegies and plants count as exculsions???? Also my home is 22 yrs old. I`ve owned it since 2002. Tom

  12. I`d like to know what is the latest on this luxury tax as of march 2010. Any truth to growning vegies and plants count as exculsions???? Also my home is 22 yrs old. I`ve owned it since 2002. Tom

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