Costa Rica Closing Costs – On what basis are the property closing costs calculated?
You have asked me to comment on the recent post in your Discussion Forum discussing the calculation of property closing costs. Specifically the question raised is on what basis are the property closing costs calculated.
I have addressed this same issue in my book, The Legal Guide to Costa Rica, for many years. Specifically the section in my book is titled the “The Two Tiered Value System”.
For many years real estate Buyers developed a custom of under reporting the true actual sales price of the property they would purchase so that they could in turn reduce the amount of property transfer taxes and registration fees which are legally mandated to pay by law…
Now when we talk about property closing costs these are divided into two four separate items and for the sake of clarity lets break it down. The first item is the Property Transfer Tax. This is paid directly to the Costa Rican government and the amount due is 1.5% of “the value that the parties declare for the transaction in the public deed that is the basis for the business transaction.
The Department of Tax Revenue has the authority to adjust the declared value using prior information, appraisals, banking information, true market value for the area, similar sales prices for other properties in the area, the price indexes established by the Central Bank, the mortgage amount consigned in the document if applicable, and other factors that it may determine relevant” Article 7 Ley 6999 A [Ley de Impuestos de Bienes Inmuebles]
The second item is the National Registry Registration Fee which is 0.5% of the value declared by the parties on the property transfer deed (same standard as in the Tax Law indicated above) and these are paid to the National Registry.
The third item is made of documentary stamps also paid to the Treasury as follows (a) Fiscal Stamp, (b) National Archives Stamp, (c) Costa Rican Bar Association Stamp, (d) National Registry Stamp, (e) Agrarian Stamp, and (f) Municipal Stamp. Some of the amounts are fixed others area a percentage of the value declared on the deed.
The final item which is part of the property closing costs is the fee that is paid to the Notary Public that handles and records the transaction. Those fees are established by Executive Decree No. 32493 issued by the President and the Ministry of Justice in 2005.
Article 1 of that Decree states “This schedule is of mandatory compliance by the professionals it regulates, for the general public and public officials of any kind and no acts, agreements, or dispositions from public or private entities may oppose it and interfere with the opportunity of payment or the assessment of costs in legal proceedings.”
Article 70 of the Decree sets forth the minimum fees that may be charged based upon the actual real value of the transaction. “For legal acts or contracts that are authorized the professional shall charge the minimum fee established in the decree according to its amount, real value or total estimation and without prejudice to additional fee amounts that may be established in this fee schedule.” The Decree establishes the following minimum sliding scale.
Costa Rica Closing Costs:
- Of the first 10 million Colones @ 2%
- Excess of 10 to 15 million Colones @ 1.5%
- Excess of 15-30 million Colones @ 1.3%
- Excess of 30 million Colones @ 1.0%
As you can see from both the Property Transfer Tax Law and the Notary Fee Executive Decree neither refers to a “fiscal value or “registry value” as the basis for calculating the transfer taxes as was alluded to in the forum.
Those concepts in my opinion are out dated for the following reason. Many years ago the tax basis for properties in Costa Rica was set at the National level by the Department of Revenue (Tributación Directa — Ministerio de Hacienda).
As such the term “valor fiscal” was by custom adopted into the system and carried into the recording system. However, since 1995 The Property Tax Law (Ley de Impuestos de Bienes Inmuebles) transferred jurisdiction of property valuations to the individual Municipal governments where the property is located and it is they who establish the property valuation.
However, due to our government inefficiency there is still a lag time between the information contained in the Registry (National) and the one in the Municipal government (Local). As such, if the Municipal Government has a set an appraisal value on property X for example at $100,000 and that value is the recorded Municipal value yet that information is not reflected in the National Property Registry and instead it reflects a “valor fiscal” of $5,000 but the Seller is selling the property for $200,000 what should happen?
If you want to adhere 100% to the law of Costa Rica then it would be your legal obligation to record the sale for the actual sales price and pay all closing costs according to the sales price. Now if you report the $200,000 (sales price) transaction for $5,000 the Buyer and the Seller are defrauding the Costa Rican government.
When I wrote The Legal Guide to Costa Rica in 1997 there was very little information in English about Costa Rican legal transactions and the reason for that book was exactly to provide information to the general public so they would be well informed.
Today there are literally thousands of articles, web sites, blogs, books, pamphlets discussing Costa Rican real estate transactions and the real estate closing process and even Costa Rican closing costs calculators are posted on the Internet.
Also, it is very simple to ask the Real Estate Closing Attorney for an upfront quote breaking down the closing costs. We have done this for years. If the person does not feel that the quote is within the guidelines authorized by Costa Rican Law then they have the option of hiring another Attorney, after all with more than 15,000 in Costa Rica there are plenty to choose from.
Since all these Attorneys are governed by the same Mandatory Minimum Fee Schedule (Decreto Ejecutivo No. 32493) the quotes should all be exactly the same. If they are not then Article 12 states that “The violation of the dispositions set forth in the fee schedule by professionals shall be sanctioned by the Board of Directors of the Bar Association.”
As such I do take issue with the statement made that: “Gringos are always duped by attorneys that charge according to the actual value,” since the ones that adhere to actual sales value are actually the ones compliant with Costa Rican Law and Bar Association Guidelines.
The more appropriate statement should be that the Costa Rican Treasury and the Costa Rican People are being duped by some foreign Buyers that lie about the actual sales price of the property they purchase in violation of Costa Rica law. That would be a statement of fact.
Written by Attorney at Law – Roger A. Petersen. Roger has been an attorney since 1992 and is a member of both the Costa Rican and Florida Bar. He practices law in San José, Costa Rica and is the author of the best-selling book ‘The Legal Guide To Costa Rica.’
Costa Rica Attorney Video Interviews. To help educate and protect you with your real estate investments in Costa Rica, you can enjoy the following interviews with Attorney Roger Petersen and Attorney Rick Philps online at:
- Costa Rica Real Estate – Foreigners OK To Buy with FREE online video interview.
- Costa Rica Legal Guide – On sale for US$34.95 including shipping. FREE online video interview with Attorney Roger Petersen.
- Costa Rica Corporations – Why Pay More For Less? With FREE online video with Attorney Rick Philps
- Costa Rica Residency Categories Explained – With FREE online video interview with Attorney Rick Philps
- Costa Rica Property Taxes – When Scott officially complained that his property tax bill was too low… FREE online video interview with Attorney Roger Petersen.
- Buying or Building Real Estate in Costa Rica? Here is What You Need To Know? Part I with FREE online video interview with Attorney Roger Petersen.
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