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Understanding Costa Rica’s New Tax Legislation for Landlords

What you need to know: Costa Rica’s new tax legislation for landlords.

In recent years, Costa Rica has become an increasingly popular destination for tourists and expats. As a result, the demand for rental properties has risen significantly, and many property owners have decided to become landlords. However, with this new status comes new responsibilities, and landlords must understand their obligations under the new tax law. In this article, we’ll review the critical points that every landlord in Costa Rica should know.

What is the New Tax Law?

The new tax law in Costa Rica, Ley de Fortalecimiento de las Finanzas Públicas or Law of Strengthening Public Finances, was passed in December 2018 and took effect on July 1, 2019. The law introduced a series of measures to increase tax revenue and reduce the country’s budget deficit. One of the most significant changes was the introduction of a new tax on rental income.

Who is Affected by the New Tax Law?

The new tax on rental income applies to all individuals or companies that own rental properties in Costa Rica. This includes both resident and non-resident landlords. The tax is based on the monthly rental income and applies to short-term and long-term rentals.

How Much is the Tax on Rental Income?

The tax on rental income is based on a sliding scale and varies depending on the amount of monthly rental payment. Landlords who earn less than 817,000 colones per month (approximately $1,300) are exempt from the tax. For those who make between 817,000 and 1,227,000 colones per month (approximately $2,000), the tax rate is 10%. For landlords who earn more than 1,227,000 colones per month, the tax rate increases to 15%.

How is the Tax Calculated and Paid?

Landlords must register with the tax authority, known as the Dirección General de Tributación or DGT, and submit monthly tax returns. The tax is calculated based on the monthly rental income minus any expenses related to the rental property, such as maintenance, repairs, and property management fees. The tax must be paid by the 15th of each month.

What are the Penalties for Non-Compliance?

Landlords who fail to comply with the new tax law may face penalties and fines. The DGT can audit rental income records and impose penalties for non-payment or underpayment of taxes. In addition, landlords who fail to register with the DGT may face fines of up to 2% of their annual rental income.

Conclusion

In conclusion, becoming a landlord in Costa Rica comes with new responsibilities under the new tax law. It’s essential to understand your obligations as a landlord and comply with the law to avoid penalties and fines. Registering with the DGT, submitting monthly tax returns, and paying the appropriate taxes on time ensures that your rental property complies with the law.

We hope this article has been informative and helpful in understanding the obligations of landlords in Costa Rica under the new tax law. If you have any questions or concerns, we recommend consulting a qualified tax professional to ensure you comply.

-Co-written by Johanna Alvarez (Immigration expert) and Glenn Tellier (Founder of CRIE and Grupo Gap).

[email protected]

 

Frequently Asked Questions

Do I have to pay taxes on my rental income in Costa Rica?

Yes, all landlords in Costa Rica are required to pay taxes on their rental income under the new tax law.

What is the tax rate on rental income in Costa Rica?

The tax rate on rental income in Costa Rica varies depending on the amount of monthly rental income, ranging from 0% to 15%.

What happens if I don’t register with the DGT?

Landlords who fail to register with the DGT may face fines of up to 2% of their annual rental income.

What expenses can I deduct from my rental income?

Landlords can deduct expenses related to the rental property, such as maintenance, repairs, and property management fees, from their rental income when calculating their taxes.

Should I pay taxes on short-term rentals in Costa Rica?

The new tax law applies to both short-term and long-term rentals in Costa Rica.

How do I calculate the tax I owe on my rental income?

The tax owed on rental income is calculated based on the monthly rental income minus any allowable expenses related to the rental property, such as maintenance, repairs, and property management fees.

When is the tax on rental income due?

The tax on rental income must be paid by the 15th of each month.

Can I hire a tax professional to help with my rental income taxes in Costa Rica?

Yes, it is highly recommended that landlords consult with a qualified tax professional to ensure compliance with the new tax law and to minimize the risk of penalties and fines.

 

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