Declaring the value of your property, and what happens if you don’t
One of the most common misconceptions when buying a property in Costa Rica is believing that once the property has been purchased, the only thing to worry about is paying for utilities on the house
One of the most common misconceptions when buying a property in Costa Rica is believing that once the property has been purchased, the only thing to worry about is paying for utilities on the house and any corresponding taxes on the property. However, like many things in Real Estate Law, the devil is in the details.
In accordance with the Costa Rican property tax Law, the owner of the property must pay a tax to the government, either every quarter or every year. The payment of this tax is based on the latest declaration of the property, which in most cases is done via a form presented to the corresponding administrate entity (usually the Municipality) in which the owner indicates the value of the property which is the building(s) and the land itself.
This declaration is very important, especially for those who wish to immigrate to Costa Rica under the investor residency category, as the property value in this category needs to have the minimum amount required under Costa Rican law to apply for ($150,000 USD as of the date of this article).
It is very important for our clients to remember that this declaration needs to be updated every five years, as the value of the property (meaning the structures on the property and the land itself) can change over the years.
The owner of the property must file a form called the “Declaración de formulario de Bienes Inmuebles” to the corresponding municipality. If this is not completed properly or in a timely manner, the owner could run the risk of paying fines for the delay, or worse, the value of the property would be automatically determined by the Municipality, which could lead to an arbitrary overvalution, forcing the owner to pay a higher tax bill.
For example: your property was valued by a profesional inspector in 2016 and subsequently declared for$160,000 USD. However, in the next 5 years a new declaration was not filed and the Municipality assessed a new valuation for you (what a gift!) with an elevated price of $200,000 USD in 2022.
This means that the property taxes you pay will have increased substantially (The exact amount would depend on the Municipality and the current rate they are using). Additionally, if the value of the property exceeds the amount of $200,000, then the luxury tax would have apply, meaning there would be a higher amount to pay in total. Keep in mind that to fight the valuation assessed by the municipality, you will need to pay for an appraiser, file the appraisal and wait, during which time taxes are still due.
If you are purchasing or already own a property in Costa Rica, we advise that you become aware of whether the property has had a value declaration filed and if so, when. Your knowledge is power. Outlier Legal’s Due Diligence Process includes this step for all closings to ensure that we protect your investment and avoid any unnecessary surprises.
For all information relating to Real Estate transactions in Costa Rica, contact Outlier today.