Understanding Capital Gains Tax for Foreign Property Sellers in Costa Rica

Selling property in Costa Rica as a foreign individual involves understanding the country’s capital gains tax regulations. This guide provides a detailed overview tailored for non-resident sellers without Costa Rican residency (DIMEX), a national ID (cédula), or a local corporation.

Capital Gains Tax Overview

Costa Rica imposes a 15% tax on the net capital gain from property sales. Alternatively, for properties acquired before July 1, 2019, sellers can opt for a 2.25% flat tax on the gross sales price.

Calculating Net Capital Gain

To determine the net capital gain:

Net Capital Gain=Selling Price−(Acquisition Cost+Allowable Deductions)

Allowable Deductions

Acquisition Cost: The original purchase price, as recorded in the National Public Registry. If purchased in U.S. dollars, convert this amount to Costa Rican colones (CRC) using the official exchange rate at the time of purchase.
Acquisition-Related Expenses:
Transfer Tax and stamps: Typically 2.75-2.8% of the property’s registered value at purchase.
Notary Fees and registration fees: Fees paid for drafting and registering the transfer deed and costs associated with formalizing ownership in the public registry, usually 1.25%-1.5%.
Capital Improvements: Documented enhancements that increase the property’s value, such as structural modifications or major renovations. These must be supported by official electronic invoices (facturas electrónicas) from VAT-registered professionals.
Sales-Related Expenses:
Real Estate Commissions: Fees paid to licensed Costa Rican realtors.
Legal Fees: Costs for drafting the sales contract by VAT-registered attorneys.
Marketing Expenses: Advertising and promotional costs paid to registered service providers.

Example Calculation

Consider a foreign individual selling a property for $500,000, originally purchased for $300,000 five years prior, with documented renovations costing $50,000 and additional deductible expenses totaling $10,000:

Alternatively, if opting for the 2.25% flat tax (applicable only to properties acquired before July 1, 2019):

$500,000×2.25%=$11,250

Withholding Obligations

For non-resident sellers without DIMEX or a local corporation, the buyer must withhold 2.5% of the gross sales price as an advance capital gains tax payment. In this example:

$500,000×2.5%=$12,500

This amount is remitted to the Costa Rican Tax Authority (Ministerio de Hacienda). The seller can file for an adjustment if the actual tax liability differs.

Filing Requirements

To claim deductions and pay 15% on the net gain, sellers must:

Register with the Costa Rican Tax Authority.
File a D-162 capital gains tax return with supporting documentation.
Without filing, the 2.5% withholding is considered the final tax payment.

Conclusion

Navigating capital gains tax in Costa Rica requires meticulous documentation and compliance. Foreign sellers should consult with legal and tax professionals to ensure accurate tax calculations and adherence to local regulations.

For personalized assistance with property transactions in Costa Rica, contact us.