Costa Rica Luxury Tax on Houses Valued over 245k USD: What You Need to Know
If you own a home in Costa Rica, you should know about the “Solidarity Tax,” also called the “Costa Rica Luxury Tax.” This Tax was put in place by law no. 8683 on November 19, 2008. It applies to all properties used as homes, whether used daily, occasionally, or just for fun. This Tax aims to give people in extreme poverty decent places to live. Understanding how it works to avoid fines or long-term problems is essential.
Bracket Qualification for Luxury Tax
- Calculation of the Tax based on the value of the property and its construction
- Threshold for the tax to apply (₡133,000,000 or approximately US$245,000 in 2023)
- Mandatory declaration every three years and annual payment
- Importance of the property’s recorded value with the municipality
- Updating the property value every five years through a declaration form
- Specific information required by the municipality for the declaration
- Justification for the property’s non-subjectivity to the luxury tax
Getting the Tax Break
The Tax is based on the value of a property’s building and land, and it only applies if the building’s value is more than the limit set by the law, which as of March 2023 is 133,000,000 (about $245,000 USD). If the value of the building is higher than this limit, the value of the land must also be added to determine the final amount taxable for the luxury tax.
To comply with the tax requirements, a mandatory declaration must be filed every three years and submitted to the Costa Rican Internal Revenue. Although the word is required every three years, the Tax must be paid annually. The value used to calculate the Tax is recorded before the corresponding municipality. If the recorded value is below the established threshold, the property is not subject to this Tax.
The Value of a Property
Article 16 of the Tax Property Law number 7509 says that every five years, the value of a property must be updated with the local government. This is done by filling out a form. The real estate tax, which must be paid to the city or town every year, will be based on the declared value.
Making the Real Estate Declaration
Filling out the real estate declaration is very important because it will determine how much property tax to charge. It will also be used to show the Ministry of Finance why the property doesn’t have to pay this luxury tax, or if it does, it will be used to figure out how much the owner has to pay.
If the real estate declaration has not been filed with the municipality, the value in the Public Registry of the Property will be used as a starting point. This is called the “fiscal value,” It is often thought of as the “market value,” but it doesn’t usually show how much the property is worth.
To ensure you’re filling out the real estate declaration correctly and avoid any problems, it’s best to have a home inspection done by a licensed engineer who can figure out the property’s actual value. If the house is still worth a lot and you have no choice but to pay the Tax, we can help you avoid fines and problems in the long run.
Consequences of Not Filing a Declaration
- The municipality’s use of the fiscal value from the Public Registry of the Property
- Differences between fiscal value and the property’s actual value
- Recommendations to ensure accurate declaration and avoid concerns
In short, the “Solidarity Tax” or “Tax on Luxury Houses” in Costa Rica applies to homes worth more than 133,000,000 used for living. To avoid fines or other problems, it’s essential to follow the filing rules and keep the municipality up to date on the property’s value. Please contact us for assistance if you have any concerns or questions about this Tax.
-Written by Glenn Tellier (Founder of CRIE and Grupo Gap).
Frequently Asked Questions
What is the purpose of the luxury tax in Costa Rica?
The purpose of the luxury tax, or the solidarity tax, is to finance and provide dignified homes to people living in extreme poverty.
Who is required to pay the luxury tax on 200k houses in Costa Rica?
The luxury tax is paid by those who own properties valued above a certain threshold, which as of 2022, is a construction value of ₡133,000,000 (approximately US$207,600).
How often is the luxury tax declaration required to be filed?
The luxury tax declaration must be filed every three years, but the Tax must be paid annually.
What happens if the construction value is higher than the threshold mentioned above?
If the construction value exceeds the threshold, the taxpayer must add the land’s value to calculate the final taxable amount for the luxury tax.
How can I avoid paying the luxury tax in Costa Rica?
If the recorded value of your property is below the threshold, then your property is not subject to the luxury tax. You can also ensure that your property’s value is correctly updated with the municipality every five years.
What happens if I do not file a real estate declaration before the municipality?
Suppose you did not file a real estate declaration before the municipality. In that case, the municipality will take the value in the Public Registry of the Property as the base, known as the fiscal value.
What information is required to be included in the real estate declaration?
The municipality will need specific information about the property, like what materials the house is made of. They will also want to know if extra features, like pools, BBQ ranches, or other infrastructures, should be included in the construction value.
How can I ensure I report the correct value of my property and not worry about the luxury tax?
A home inspection should be done by a licensed engineer who can figure out the actual value of the property in a professional way. You can get help to avoid fines and long processes if the house is still worth a lot and you have no choice but to pay the Tax.
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