All About Capital Gain Tax In Costa Rica

The regulation approved in 2019 with the law #9635 updated the conditions that affect the income related to the capital gains, the calculation methods change depending the conditions of the sale of the asset as we explain below.

About the Capital Gain Tax in Costa Rica

The capital is taxed in Costa Rica when a profit is generated during the sale of an asset, the difference between the acquisition and the sale value will represent the amount to be taxed by the Costa Rican government. The capital income is divided on the following categories:

Capital Income For Rentals

It is understood as capital income, those from the lease, sublease, as well as the constitution or
assignment of rights or faculties of use or enjoyment of real estate.
Legal Basis Subparagraph a) numeral 1. Article 27b Law 9635

This tax is declared and paid monthly, within the first fifteen calendar days of the following month, or moment in which the generating event occurs. Unless it occurs periodically several times a year, where you can submit a quarterly or annual statement for which the Tax Administration must regulate.

The capital income tax for rental properties is declared and paid monthly along the VAT tax monthly declaration, this unless, the taxpayer decides to declare it as traditional Income Tax, the hotels and bigger operations normally choose for traditional income tax since their profit margins are limited to the expenses they file against the income, this type of income tax is declared and paid annually, to be subject of this calculation method the tax payer should meet the following conditions, prior to the
beginning of the fiscal period, beginning with the fiscal period of 2020:

  • Having an employee registered with the Costa Rican Social Security Fund.
  • The asset is registered in the accounting.
  • Expressly communicate to the Tax Administration your decision to declare in the Income Tax.
  • The condition elected will remain for a minimum of 5 years under this condition.

Movable Capital Income

It is understood by income of movable capital: Income originated in money or in kind obtained by the transfer to third parties of own funds, including the repurchase and reporting of securities in different modalities. Those originating from leases and subleases as well as the constitution or assignment of rights or faculties of use or enjoyment of movable property, as well as key rights, royalties and other intellectual and intangible property rights. The benefit plans to which the beneficiaries of the mandatory pension scheme, the labor capitalization fund and the beneficiaries of the voluntary pension plans are accepted. The distributions of disposable income, in the form of dividends, social participations, as well as surplus distribution of cooperatives and solidarity associations and all kinds of benefits similar to dividends.
Legal Basis Subparagraph a) numeral 2. Article 27b Law 9635

Capital Assets

A capital asset corresponds to goods or rights that are not intended for sale within the usual activity of the taxpayer.
Legal Basis Section a) Article 29 Regulation of the Income Tax Law.

Subjects of the Capital Income Tax and Capital Gain Tax?

Taxpayers of capital income and capital gains and losses are taxpayers, all natural persons, legal entities, collective entities, without legal personality and investment funds contemplated in the Securities Market Law, as well as any other similar legal figure that captures resources from the stock market during the corresponding fiscal period.
Legal Basis Article 28 of Law 9635

Taxable Income and Rates

Taxable income is the difference between gross income or income less deductible expense: In case of the capital income for rentals or non traditional income tax, it is the total amount of the consideration, less 15% of the gross income without any proof and without any other deduction. In non-financial investment funds (Law No. 7732), it is gross income, less 20% of this without any proof and without any other deduction. If you have the vouchers that support the deductible expenses, the gross income is subtracted.

Real Estate Capital Gains

The income generated by the sale of real estate is also taxed with capital gain, for this case there could be two different scenarios:

  • When a property owner sales his real estate for more than the original purchase price he acquired the property, there is a need for declaring and paying capital gain tax, as the regulation estates, if for the physical or juridical person it corresponds to the first sale ever registered, the owner will acquire the right of calculating the tax by applying a 2.25% over the sale price of the property.
  • The second way is determined by calculating the difference between the origial acquisition value and the new sale price, that difference is taxed with a 15% capital gain tax.

The analysis of those two different scenarios will determine what is the best option for the seller, before proceeding, make sure to request your attorney for the calculation of both scenarios in order to know what is the best option for you to save money.

Transfer of Real Estate For Non Domiciliated Corporations or Physical Person

When a property is transfered from a ¨non domiciliated¨ person or corporation, the buyer will retain a 2.5% of the sale price.

Transfer Tax

For all the tittle transfers on real estate, there is a tax of 1.5% of the valuation according the national registry.

Tax Rate Chart

Source: Tax Administration Of Costa Rica

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