Buying Property in Costa Rica? Here’s What You Need to Know About Taxes

Costa Rica has become one of the most sought-after destinations for real estate investment, attracting buyers from around the world looking for a tropical escape, a retirement haven, or a profitable investment. With its stable economy, favorable tax policies, and stunning natural beauty, it’s easy to see why many choose to purchase property here. However, before making a purchase, it is essential to understand the tax obligations that come with property ownership in Costa Rica. These include the property transfer tax, annual municipal property tax, luxury home tax, capital gains tax, and other costs that may apply to specific types of properties or owners. Knowing what to expect and how to plan for these expenses will help buyers budget accordingly and avoid unexpected financial burdens.

Understanding the Property Transfer Tax and Fees

One of the first taxes buyers will encounter when purchasing property in Costa Rica is the property transfer tax. This tax is set at 1.5% of the registered value of the property and is paid to the government at the time of purchase. The registered value is typically lower than the actual market value of the property, but it is important to verify this amount before completing the transaction. The property transfer tax is a one-time payment and is generally included in the closing costs.

In addition to the property transfer tax, buyers must also account for legal and administrative fees related to the purchase. Legal fees typically range between 1% and 2% of the purchase price, depending on the complexity of the transaction. These fees cover the services of a real estate attorney, which is required in Costa Rica to ensure the proper transfer of ownership and to handle all necessary legal paperwork.

Another cost to consider is the National Registry fee, which is approximately 0.5% of the registered property value. This fee covers the cost of registering the new ownership with the Costa Rican National Registry, ensuring that the property is legally recorded under the buyer’s name. While these fees may seem minor compared to the overall investment, they are essential for ensuring a smooth and legally sound transaction.

Annual Property Tax Obligations

Costa Rica has a relatively low annual property tax rate of 0.25%, which is based on the registered value of the property. This tax is collected by the local municipality where the property is located and is used to fund public services such as road maintenance, waste management, and local infrastructure projects.

Property owners have the option to pay this tax quarterly or annually, with some municipalities offering small discounts for those who pay the full annual amount in advance. Since the registered property value may be lower than the market value, the actual amount owed for property tax is often very affordable compared to other countries. However, property owners should ensure that their registered value is accurate and updated every five years, as required by law. If the municipality reassesses the property at a significantly higher value, owners may see an increase in their tax obligations. In such cases, it is possible to appeal the valuation by providing an independent property appraisal to the municipality.

Luxury Home Tax (Impuesto Solidario para el Fortalecimiento de Programas de Vivienda)

For properties that exceed a certain value, an additional tax known as the luxury home tax may apply. This tax is designed to help fund affordable housing projects in Costa Rica and is calculated based on the construction value of the property rather than the land itself.

For 2024, the threshold for the luxury home tax is ₡152 million (approximately $285,000 USD). If the construction value of a property exceeds this amount, an additional tax ranging from 0.25% to 0.55% will be applied. The specific rate depends on the total value of the construction, with higher-valued properties falling into the upper tax brackets.

This tax applies to houses, condominiums, and any built structures on the property, including guesthouses, pools, and recreational facilities. Because of this, even properties with a relatively modest home but high-end amenities may be subject to the luxury home tax. Property owners should work with a professional appraiser to determine if their property qualifies and ensure accurate valuation.

Capital Gains Tax for Future Sales

If a property owner decides to sell their property in the future, they may be subject to capital gains tax, which was introduced in Costa Rica in 2019. The standard capital gains tax rate is 15% on the profit made from the sale of the property. However, there are certain exemptions and alternative tax rates depending on when the property was purchased and its use.

If the property is the seller’s primary residence, they are exempt from capital gains tax, meaning they will not be taxed on any profit made from the sale. This exemption applies only to individuals, not corporations or investors holding multiple properties.

For properties purchased before July 1, 2019, sellers are eligible for a one-time reduced tax rate of 2.25% on the total sale price rather than 15% on the profit. This can be a significant advantage for long-term property owners who purchased before the new tax law took effect.

Taxes for Foreign Buyers and Corporate Ownership Structures

Foreign buyers often ask whether they will face additional taxes compared to Costa Rican citizens. The good news is that Costa Rica does not impose extra property taxes on foreign buyers. Property taxes and transfer taxes remain the same for both locals and foreigners, making the country an attractive investment destination.

Many foreign buyers choose to purchase property through a Costa Rican corporation (S.A. or S.R.L.), which offers benefits such as liability protection, easier transfer of ownership, and potential tax advantages. However, properties owned through corporations are subject to an annual corporate tax, which varies depending on whether the corporation is classified as active or inactive. Active corporations, which generate income, must file annual tax returns and pay higher corporate tax rates, while inactive corporations, which simply hold property, are subject to a lower flat tax.

Other Municipal Fees and Costs

In addition to property tax, municipalities may charge additional fees for local services. These can include garbage collection, street maintenance, security services (for gated communities), and other community-related expenses. The cost of these services varies by location, so it is important for buyers to inquire about these fees before purchasing a property.

Strategies for Managing and Reducing Property Taxes

There are several ways for property owners to manage and potentially reduce their tax obligations in Costa Rica. Ensuring that the declared property value is accurate can prevent overpayment of property tax. If a municipality overvalues a property, owners can request a reassessment and provide an independent appraisal to support their claim.

Some municipalities offer discounts for early tax payments, so paying the full annual property tax at the beginning of the year can lead to small savings. Property owners should also check if their property qualifies for tax exemptions, such as agricultural land classification, primary residence status, or environmental conservation designations.

Hiring a real estate attorney or accountant can be beneficial for navigating the tax system, ensuring compliance, and identifying potential savings opportunities. Staying informed about changes in tax laws and municipal policies can also help property owners avoid unexpected tax increases.

Final Thoughts

Buying property in Costa Rica offers many advantages, including relatively low property taxes, a favorable investment climate, and legal protections for foreign buyers. However, understanding tax obligations is essential to making a financially sound decision. From the property transfer tax at the time of purchase to annual municipal property taxes, luxury home tax, and capital gains tax, being well-prepared ensures a smooth ownership experience. By staying informed, consulting with professionals, and taking advantage of available tax-saving strategies, property buyers can enjoy their investment while minimizing tax burdens. Whether purchasing a vacation home, retirement property, or rental investment, proper tax planning will help ensure a successful and stress-free real estate experience in Costa Rica.