As a result of those attorneys that had been recommending to their clients to put ridiculously low purchases prices on the deed in order to save on transferring and property taxes, it seems that both local government (Municipalidad) and the Costa Rican Treasury Department (Hacienda) have had enough of that practice and finally decided to take action regarding this issue.
The basis for the calculation of the property and transferring taxes that all the property owners must pay in Costa Rica, residents or no residents; individuals or corporations, is based on the value that you report on the deed, therefore and as a product of the recommendation mentioned above, there was no match between those reported values and the listing prices that everybody, including government, have access to.
Currently, the Hacienda and the Municipalidades are jointly working on re-surveying properties and giving new and accurate values to the properties, both entities are really interested on this issue since both are losing money because of this treatment: Hacienda loses money on transferring taxes and the Municipalidad loses money that it should have received through property taxes, this is not something they plan on doing in the future, they are acting on this now most commonly in the coastal areas.
How did this happen?
Quite often, during the closing process the million dollar question is asked: What price should we put in the deed? And the answer is amazingly the same, in a split second the attorney answers, “any!”, meaning that if you are buying a property for $250,000.00 probably the value in the deed will be even 250,000.00 colones which is about $508!
Costa Rica real estate is very cheap in certain areas but it’s not that cheap!
The buyer might think that this was great legal advice from the attorney but the truth of the matter is that lying about the valuation of your property will bring negative consequences in the long run.
For some strange reason, those attorneys never thought that Hacienda and Municipalidad would ever pay attention to the billboards, web sites, real state magazines, etc, which quoted prices and would therefore never find out the real market values of the properties.
Lying About Your Valuation – The consequences:
There are several testimonials of property owners that have seen their Costa Rica property tax bills skyrocket 20 times higher compared to what they used to pay before the Hacienda Inspector showed up and did an appraisal.
In this situation, it is not enough to show a copy of the deed or any prior tax paid, the only solution is a hearing before the council and to start an appeal process, so you can imagine all the additional legal costs, not to mention how this might affect the resale value of the property when the adjusted valuation shows a dramatic increase in property taxes.
The Costa Rica Property Tax Solution:
If you are in the closing process or just about to close the deal, do a quick research at the local Municipalidad and you will see that they have a list of prices of the different areas by square meter, land and construction and try to stick as much as possible to that figure.
On other hand, if you already own a property, you can voluntarily file a report and declare a new value, also the closest that you can to the listing price at the local Municipalidad, by doing this you will pay fair taxes that will help to develop the community and will keep the Hacienda and the Municipalidad away for a while, and at least every five years double check the values to make sure that you still accurate.
Finally, keep in mind that there is bill that will probably be approved at the Congress that will tax “luxury homes” (defined as being over US$193,000), so it is a good idea to do your homework and get ready for this as well, the research at the Municipalidad will help you out.
Costa Rica Property Taxes Video Interview: To watch this short video, please click on the small white triangular Play button in the middle of the screen below and allow a few seconds for the video to begin.
These videos were filmed in the Santa Ana Country Club, a luxury condo project where they are still building tennis courts and another swimming pool so please forgive us because at times you will hear some construction machinery in the background.
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Written by Randall Zamora who is the President and CEO of CostaRicaABC.com, former CFO and Head of Accounting Department of multinational companies like Four Seasons Resort Costa Rica, active member of the Interamerican Accounting Association, Pro Bono Local Partner of The World Bank and contributor to their yearly publication “Doing Business Report.”
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