Before 2019, there was no tax on capital gains in Costa Rica (except for property developers). On July 1 of that year, a tax was implemented – but not to the extent you might fear.
There are a lot of ins and outs to the new(ish) law, but let’s start with a blanket statement: There is no capital gains tax for primary residences in Costa Rica. In other words, no matter how great your capital gains, if you sell your primary residence, you will not owe capital gains tax.
If you do owe capital gains tax on real estate or a business, you’ll pay a tax rate anywhere from 2.25% of your sales price to 15% or 30% of capital gains. It all depends on your original date of purchase, your asset’s economic activity, and whether it’s a residential or commercial property (if we’re talking about real estate).
(Note: Click through for help calculating your Costa Rican property tax.)
And, if that sounds at all complicated – and what tax law, anywhere in the world, isn’t somewhat complicated? – then you’ll understand why we always recommend you speak with a trusted tax attorney or related professional. This post is accurate at the time of publication, but laws change. (Just ask pre-2019 tax law…) Processes, paperwork, and procedures are constantly updated. So please, have a specialized professional on your side.
Now, with all that said, here’s what you need to know about the 2019 tax law on capital gains in Costa Rica and how it could apply to you:
How Does Costa Rica Define Capital Gains?
In many countries, including the United States, capital gains tax applies to an investment (ex. real estate) that has appreciated. Capital gains are incurred when you cash out – for example, when you sell real estate for more than you purchased it. In the U.S., capital gains and their resulting tax liability apply to almost every type of investment.
In Costa Rica, capital gains are handled differently. To an extent, at least. To begin, you should know that capital gains in Costa Rica do not always apply to earnings from real estate, banking, or even business.
We’ll get into it in greater detail, below, but the short of it is that while the Costa Rican definition of capital gains is the same as anywhere else – in other words, an increase in value of a capital asset – Costa Rica typically does not tax personal capital gains. Instead, tax law focuses mostly on business and investment.
Does Capital Gains Apply to Everyone (Expats, Non-Residents, Residents, Corporations, Etc.?)
Yes. Anyone, including corporations and non-residents, can owe the capital gains tax in Costa Rica. The key is in knowing if the tax applies to your capital gains situation.
Are There Exceptions or Exemptions to Capital Gains in Costa Rica?
Yes. Or to be more specific, it’s all a matter of perception. If you’ve only ever known Costa Rica’s capital gains law, then the answer would be “no.” But if you’re familiar with capital gains taxes in other countries, then Costa Rica will likely seem like an exception.
No Capital Gains on a Primary Residence
Because here’s the big caveat: Capital gains in Costa Rica, with regard to real estate (where the average person is most likely to experience capital gains), apply only to real estate that is not your main residence. In other words, if you sell your primary residence for more than you purchased it – no matter how high your capital gains – you will not owe capital gain tax to Costa Rica.
For a home to qualify as your primary residence, you must be able to prove that you have lived there for 183+ days per year.
One-Time Exception for Properties Purchased Prior to July 1, 2019
Another exception to the current law applies to properties purchased prior to July 1, 2019, when the current capital gains law was put into place.
If you purchase an investment home or non-primary residential property prior to July 1, 2019, upon its sale, you may opt to pay either the 15% capital gains tax OR a flat 2.25% of the sales price.
In other words, if you purchased your property for $250,000 over a decade ago and now sell it for $500,000, you could opt for the flat 2.25% ($11,250) of $500,000 vs. the full capital gains of 15% ($27,000) on your $250,000 capital gains. Be sure to consult with a real estate and/or tax attorney before making any major financial decisions!
Taxable Amounts Under ¢100,000
If capital gains from a residential property are to be taxed at less than ¢100,000, then they will not be taxed.
Business Activity as the Normal Course of Business
This is a very specific exception that doesn’t apply to many, but the capital gains tax in Costa Rica does not apply to normal business activity. For example, if your earnings come from a real estate investment company, then you will not pay capital gains tax on your sales; instead, income tax will apply to your company profits.
Again, as this is a very specific case and laws are always changing, be sure to consult with a business or tax attorney before making any major financial decisions!
When and Why Would You Have to Pay Capital Gains in Costa Rica?
Per the new 2019 tax law, there are several scenarios in which capital gains in Costa Rica apply. As we are primarily concerned with capital gains as it applies to real estate, we’ll focus on these cases.
Non-Primary Residential Property
If you purchase a residential property that is not your primary residence – note that, to be considered your primary residence, you must reside there for 183+ days per year – then a 15% capital gains tax will apply upon sale.
Note above, the one-time exception for properties purchased prior to July 1, 2019.
Businesses (Including Vacation Rentals)
For businesses, capital gains in Costa Rica are taxed at a rate of 30%. Importantly, this rate applies to any income-producing asset, including a second home that you offer as a vacation rental.
Property Held in a Financial Investment Fund
For real estate held in the name of a financial investment fund, a 20% capital gains tax will apply.
How to Determine Your Capital Gains
We’ll kick off this section by saying that capital gains tax calculation, paperwork, and payment is rarely a DIY kind of thing. Almost everyone, including Costa Ricans, go through a tax lawyer or similar professional. We highly recommend seeking professional help with your capital gains tax obligations.
Costa Rica’s fiscal authority, known as the Ministerio de Hacienda, or simply Hacienda, is the authority on all things capital gains. Therefore, you start here: Determine your property’s registered acquisition value, according to Hacienda. Note that current tax laws state that this value must be updated per the INEC consumer price index, as well as municipal taxes, any investments, and improvements to the property.
From there, there are forms to fill out and regulations to follow. The most important is the D-162 Form, “Declaración de ganancias y pérdidas de capital” (Declaration of Capital Gains and Losses), must be used. It is available via Hacienda’s ATV Taxpayer Online Portal.
Again, we highly recommend seeking professional services, as current laws, regulations, and procedures are constantly evolving.
Does Costa Rica Recognize Capital Loss?
Yes. Costa Rica defines capital loss is the opposite of capital gains – that is, when assets decrease between the purchase and sale of an asset (ex. real estate).
Note that for real estate, the transfer value will include the full sale price and the acquisition value, which is calculated as the sum of the acquisition AND the cost of any investments or improvements made to the property.
From there, according to Hacienda, acquisition value (and, hence, capital loss) is calculated as:
V = Value of the acquisition, investment, or improvement
D1, D2, D3, Dn = Variation of the INEC Consumer Price Index (IPC, for its acronym in Spanish) for all corresponding months. This period begins in the Month/Year in which the acquisition, investment, or improvement was made.
Dreaming of a Home in Costa Rica?
We know about a lot more than just your Costa Rica capital gains tax! At Blue Water Properties, we’re bilingual, bicultural, and seriously experienced. And we put you first.
So, whether you want a little bit of help figuring out your property tax obligations or are looking a little broader – from raising a family in Costa Rica to investing in a business, we’re here to help.
Go ahead. Imagine building your dream home, condo, vacation home, or investment property – what is most important to you? Are you a part-time or full-time owner? What’s your timeframe? Where does your budget fall?
Please, get in touch. We’re sticklers for responding within 24 hours. Yes, even if you’re reading this post into the wee hours; we’ll have more information to you on that dream, within the day! And we look forward to it!
At Blue Water Properties of Costa Rica, we’re proud to offer some of the best Costa Rica real estate. We have both condos and homes, land, and businesses for sale.