By
CONGRATULATIONS!
You are among the few investors who decided to take a step forward and invest in a beautiful, fast-growing, and internationally recognized tourist destination, Costa Rica, and that was a wise decision.
Investing in rental properties can be a great way to generate income in Costa Rica. However, it's important to understand the tax implications of owning and renting out property. In this e-book, we will discuss the various taxes levied on rental properties in Costa Rica, including income tax, property tax, and value-added tax (VAT). We will also discuss filing taxes for rental properties in Costa Rica.
What Now?
Although, Costa Rica is indeed a very attractive tourism and investment destination, ranked 74 by the World Bank in 2022 when it comes to ease of doing business, tells you that dealing with taxes, banking and business in general can be overwhelming if you don’t have the right guidance, hence, we wanted to share this e-book for you to have a better scope of what needs to be done in general.
Taxes are an essential part of any country's economy, and Costa Rica is no exception. In Costa Rica, taxes are levied on income, goods, and services. In this ebook, we will discuss the various taxes that are levied in Costa Rica, including income tax, value-added tax (VAT), and property tax. We will also discuss how to file taxes in Costa Rica.
From the Beginning…
More likely, when you first incorporate in Costa Rica, you may want to do so as Sociedad de Responsabilidad Limitada, abbreviated as S.R.L., which is equal to a Limited Liability Corporation, the main reasons to proceed like this are:
a.There is no Board of Directors, hence one person can run the entity as Manager
b.Other Managers or Sub Managers can be appointed with specific levels of signature authority.
c.As a disregarded entity, you can benefit from avoiding double taxation and assets protection in your country of origin; you may want to double-check this feature with your Tax Consultant in your home country.
d.There are no limitations for S.R.L. to operate fully in Costa Rica
e.Both types of entities have to file every year an informative type of Return known as Registry of Final Beneficiaries (RTBF)
Where to put the money
Once your investment starts to grow, you need a bank account in Costa Rica in order to have those funds directed there, or even if you need to make regular payments such as maintenance, cleaning, HOA Fees, etc., it is highly recommendable to have a bank account to be funded and make the payments locally, that will save you a lot when it comes to bank charges. You may also want to consider opening a Trust Account, with a fully licensed provider; by doing so, you can transfer funds there and have the provider manage payments on your behalf.
Please bear in mind that due to Anti Money Laundry Local Laws, opening a bank account in Costa Rica may require your presence in Costa Rica, lots of forms, and some backup information to prove that the source of funds is legal, the good news is that this is a one-time task, and moving forward you only need to file with your bank financial statements annually
To open a bank account, normally you are going to need the following documents:
a.Copy of your Passport
b.CPA Certified Forecasted Cashflow
c.Certificate of Good Standing and Shareholders produced by an Attorney
d.Lots of patience! Based on the above, you want to choose a bank that will furnish you with:
1.International Wire Capabilities at a decent cost 2.Local Transfer Features
3.Online Banking Platform
4.Debit Card linked to your local bank account
How about taxes?
That is the funny part! When it comes to Rental Properties, it is all about giving the proper accounting format on a monthly basis for both the revenues and expenses. You will be not only in full compliance but also will be able to minimize the impact of the taxes on your investment.
As follows, you will find a summary of Rental Properties Related Taxes:
Now, if you don’t plan to rent your property out, and although the Tax Filing Requirements are reduced to the minimum, the recommendation is also to keep track of your expenses; keep in mind that if you do so, you will be able to capitalize those expenses and reduce the Taxable Gain (Capital Gain Tax) if you decide to sell your property in the future, so the following will be the summary of Taxes to deal with:
Capital Gain Tax you said?
Correct, the Capital Gain Tax (CGT) was first introduced in Costa Rica in July 2019, so if you sell the property with a gain (Original Cost+Expenses-Sales Price), there will be a 15% liability, on the net gain.
That is why keeping track of your expenses is so important to increase the book value of your property and reduce the CGT’s liability.
A final word
In conclusion, taxes are an important part of Costa Rica's economy. Understanding the various taxes levied in Costa Rica and how to file taxes can help individuals and businesses stay compliant and save money. By following the tax-saving tips outlined in this e-book, individuals and businesses can reduce their tax burden and make the most of their money.
Thanks a lot for your time reading our ebook, and we hope you found this information helpful
CostaRicaABC.com, was founded in 2005 as a Boutique Accounting Firm by Randall A. Zamora Hidalgo, Member of the Costa Rican Chartered Accountants Board, former Head of Accounting Department and CFO of multinational companies such as Four Seasons Resort Costa Rica; Pro Bono Local Partner of The World Bank; active member of the Interamerican Accounting Association. We
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