Who pays taxes in Costa Rica
by Ivo Henfling for the Easy Times
You are investigating the purchase of Costa Rica real estate, but before you move to Costa Rica, you would of course like to know what is waiting for you tax-wise. If you move to Costa Rica or buy real estate in Costa Rica, do you need to pay taxes or not?
Capital gain taxes
Let’s start with the best news: Costa Rica doesn’t have any capital gain taxes, which makes it a great investment environment. When you retire to Costa Rica, no matter which country you come from, you probably pay taxes on your retirement income already.
This exempts you from paying income tax in Costa Rica. Yes, retirees in Costa Rica do NOT pay any taxes on their foreign retirement income.
Allow me to tell you a bit about the tax system in Costa Rica. The Costarican government needs of course income to pay their employees, build roads and run their state business so they get their money from taxing all imported articles. That means all cars, jewelry, clothing liquor and many food products are taxed, some higher than others and are therefore more expensive here than in other countries. The household you might bring with you when you move to Costa Rica will be taxed, though very low as used goods. Depending on how you dress, many of us go to the States at least once a year for shopping.
In other countries, you pay state tax or sales tax, VAT or whatever you might call it. In Costa Rica, we pay 13% sales tax on most everything, products and services, except for what we call “canasta básica” which is the basic necessities to be able to live on, like rice, beans, butter, milk, etc. Count of having to pay sales tax on everything on all your shopping.
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Only if you run a business or work as an employee, you pay income tax. If you have a business, you pay income tax depending on your sales and you will be able to deduct certain costs for your business to function. If you work as an employee (if you have a working permit), your employer will deduct a certain percentage of taxes, depending on how much you earn. We don’t have the deductibles you might know from your home country, like on studies, how many children you have or your mortgage.
Real estate tax and luxury tax
Property taxes are ridiculously low in Costa Rica. You will pay 0.25% property tax on the value appraised and registered by the city, which is always a lot lower than the real value. A $200,000 property might be registered by the city for $50K and will therefore pay $125/annually. You do NOT receive a notification from the city to tell you that have to pay. So you either pay your real estate tax every quarter or you get the amount for the whole year in February. When you purchase Costa Rica real estate, you pay property taxes at closing.
We have a Luxury Home Tax, only for luxury homes, used to eradicate the shacks of the poor. For all necessary information on this tax, on our website, we have an eBook to calculate the value of your house in Costa Rica, for filling out the luxury home tax forms, taking into account all the guidelines that are given my the Ministry of Tax.
As of April 1st, 2012 all corporations in Costa Rica wil lhave to pay an annual tax. How much tax should you pay?
The taxes are based on a basic salary of a government employee, which is now 180,330
Colones [US$ 357]. This salary changes every year, so the amounts below are for this year. Besides, for the year 2012, the due date will be April 1st, so you’ll have an incomplete year.
• Active corporations (those that are used to run a business or own assets) pay 50% of the basic salary, which will be 135,000 Colones [$267] if the minimum salary doesn’t change before April.
• Not active corporations (those that are not being used) pay 25% of the basic salary, which will be 67,500 Colones [$134] if the minimum salary doesn’t change before April.
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The tax collector
The tax collector, Ministerio de Hacienda, is not very good at collecting; there is huge tax evasion on all levels. That’s the reason they are always trying to come up with new taxes, just like most governments do. Proposals like another tax on gas to build new roads, a tax on power bills to create fire departments in smaller towns and many others, but the money ends generally up in the wrong places, because of budget shortages they have everywhere. Costa Rica is 40 years behind on their tax system, which hurts the growth of the country.
It’s the reason there is never money to build new bridges, maintain roads, have up to date equipment to work with and training of their employees.
As you can see, you are pretty much free from paying ANY taxes at all in Costa Rica and you can choose pretty much your own lifestyle, get away from the bad weather and enjoy the retirement you are dreaming of NOW.
Ivo Henfling is a Costa Rica realtor who has the necessary knowledge to guide you through the process of buying a home in Costa Rica.
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