Land and Municipal Taxes

TAX OBLIGATIONS USUALLY NEGLECTED BY FOREIGNERS IN COSTA RICA

Land and Corporate taxes are usually (and we would add naively) neglected by foreigners owning property or companies in the country and could possibly put such properties and companies at risk.  As follows, several thouhgts on the matter:

Land Tax

Used to much more developed tax collection systems in their countries of origin, many foreigners who purchase land in Costa Rica assume that they will receive a notice from the tax authorities when their land tax payments are due.  This is certainly incorrect.

In Costa Rica, land taxes are administered and collected by local governments corresponding to the county where the land is located, which are denominated “Municipalities”, and these moneys are directly used to the benefit of such entities and of the specific county.  These taxes are paid at a rate of 0.25% of the value of the property as declared and accepted by the Municipality.

When land taxes are due, all property owners in each county must approach the respective Municipality, provide them with the property number (“folio real”) and the name and identification of its owner.  If the transfer upon which the current owner acquired the property was not reported to such entity, documents evidencing it must be presented prior to payment so records are updated.

Land taxes are due each quarter, however, prepayment of the full year is possible, and if the funds are available, very advisable, so advantage can be taken of substantial discounts for early payment given by most Municipalities, besides practical reasons such as not forgetting when next payments are due and not having to manage such payments from a distance.

If a land owner fails to pay his taxes, and even though he has never received a notice requesting payment, his property is subject to foreclosure procedures so the Municipality can collect.  That is why it is so important to keep payments and records with the Municipality up to date.

When distance is an issue, many Municipalities allow for calculations of amounts due to be processed by telephone consultation, and payment to be made through a deposit in the Municipality’s account with a local bank, followed by sending the deposit slip to such entity by fax, which in turn would be followed by a faxed receipt for land tax payment from the Municipality.  Even this mechanism, which at least simplifies the procedure, may be challenging, especially for the proper crediting of the funds and the pre-requirement of registration of the current owner with the Municipality.

Furthermore, the law requires for the properties to be appraised every five years and for a sworn statement to be made by the owner before the Municipality for those purposes.  After the sworn declaration is made, the value of the property is calculated and determined by the Municipality, according to several variables such as the number of meters of street frontage, location, total area of the property, and if it applies, total area of construction, among others.  If this legally mandatory sworn statement on valuation of the property is not filed when it is due, the owner is subject to often arbitrary appraisals by the Municipality, as opposed to a higher possibility of negotiating the determination of a fair value if the requirement is met voluntarily.

Other charges are often collected by the Municipalities on properties in their jurisdiction, referred to generally as municipal taxes, covering, among others, local roads, garbage recollection and maintenance of public lighting.

Corporate Taxes

Local corporations do not always need to file income tax statements at the end of each fiscal year (in Costa Rica, September 30).  Consulting with a local accountant and attorney would be a good way to start in order to determine if such declarations and possible income tax payments are required.

Nevertheless, whether a company declares and pays income tax or not, and applicable to all Costa Rican corporations, a special tax called “timbre de educación y cultura” must be paid in the month of March of each year.  This tax tends to be relatively low (the maximum is nine thousand colones) and must be paid either directly at the offices of the Tax Authorities or in most of local banks.

Like in the case of land taxes, one will not receive a notice that the “educación y cultura” tax is due, having to actively fill-up a special form and make payments with any of the above indicated authorized collectors in order to comply with the law.  If payment is not made, penalties, which increase with the passage of time, apply, and the corporation will not be in good standing.

Using Third Parties To Handle These Payments

When distance is an issue, and especially when the tax payer is not in Costa Rica and/or has difficulties with the language, a third party with knowledge of these processes can be retained to assist, meet any requirements that need to be met and pay.  Our firm can help you with this.

The speed and easiness with which we will be able to get the property owner and/or the corporation in good standing will directly depend on how many of the steps that were indicated above have been met in the past.

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