Transfer Taxes for the Purchase of Real Estate
A recurrent query we receive is about taxes involved in the purchase of properties, and even though the answer is pretty simple, each tax has its own complexity. Basically, we are talking about the VAT, Government
A recurrent query we receive is about taxes involved in the purchase of properties, and even though the answer is pretty simple, each tax has its own complexity.
Basically, we are talking about the VAT, Government taxes, and Capital gains or losses.
a) Value added tax.
VAT applies to all goods and services provided. This includes retailers of any tangible or intangible good as well as all types of service providers, despite if they are natural or legal persons.
If you were not aware, you pay this tax every time you go to the grocery store, when you order food, when you hire a handyman or hire legal services. All goods and services are taxed with the VAT in Costa Rica, and real estate does not escape from this.
The percentage of VAT corresponds to 13% over the price. For instance, if you buy a good or service for $100, you will pay USD 113.
Basically, you will be paying a VAT to the notary assisting with the transfer (for the service provided).
Who pays it?
As a general rule, this tax is covered by the buyer. However, when it comes to Real Estate, you can negotiate it with the seller.
Who submits it?
VAT is retained by the retailer or service provider, so you only pay the tax on the transaction, and, in this case, the notary will submit the tax return.
What about the selling of the property?
It is important to recall that since a form of Income Tax is paid through “Capital Gains” (explained below), the selling of the property itself does not pay VAT.
b) Government taxes:
Other minor tax stamps need to be fulfilled by the notary in charge of the transfer, such as:
- Bar Association Stamp.
- Registry stamp.
- Fiscal stamp.
- Municipal stamp.
- National Registry.
- Land stamp.
- Transfer tax.
The VAT and Government fees expenses should look like this:
Again, even though the buyer usually covers these, expenses can be negotiated with the seller when it comes to real estate. It is not exclusive to see parties agreeing to go 50/50 on costs.
c) Capital Gains.
Let’s start with the good news: Households do not pay Capital gains. Nevertheless, the obligation to submit the tax return declaration remains for this scenario.
In other words, you submit the Capital Gains form, but there is no need to pay Hacienda.
For those properties that are not traditional homes, the rules about the amount to be paid can vary depending on its characteristics as follows:
- Active goods: those considered to have a profitable activity (rent, agriculture, coffee planting, etc.) will pay a 30% tax over profit.
- Passive good: those properties with no relation to a profitable activity. The tax return can be filed in two ways:
- Pay a 15% tax over profit; or
- 2,25% of selling price: this option can only be paid only once, if you are planning to sell a property who’s has already applied for this benefit in the past, a 30% or 15% will be applicable depending on the type of good per the previous options described above.
Who pays it?
This tax is covered by the seller, who is the one having the gain or loss.
Who submits it?
By general rule, Capital gains or losses are submitted by the seller. However, an exception can be made with its submission when the seller (person or corporation) does not have a valid address in Costa Rica.
It is extremely important to review the conditions of Capital Gains prior to the closing date in order to determine who will submit the tax return declaration.
You can find additional info about this tax in the following link: The ABC on Capital Gains and Losses applied to Real Estate.