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Costa Rica Taxes Indirect Property Transfers

Costa Rica Indirect Transfer Tax

Costa Rica taxes indirect property transfers.  The Costa Rican Legislature passed the law titled Ley de Fortalecimiento de la Gestión Tributaria, Ley No. 9069. This law modifies the existing law on real estate transfer taxes (Ley de Impuesto Sobre el Traspaso de Bienes Inmuebles Ley No. 6999).

The Costa Rica Property Transfer Tax Law provides that all transfers of property recorded in the National Registry are subject to a 1.5% transfer tax.In addition to the transfer tax when property is transferred and recorded in the National Registry it also triggered registration fees and documentary stamps, which added to the transaction costs as well.For many years now buyers and sellers of real estate have been evading the Property Transfer Tax Law by transferring the shares of stock of the corporation that owns the underlying real estate.By selling the shares of the corporation the parties to a real estate transaction did not have to file a real estate sales deed in the National Registry and thus the sale did not trigger the applicable taxes.The Costa Rica Department of Revenue was able to challenge some of these “indirect real estate transfers” but mostly for larger developments.Pursuing individual transfers became more difficult.

In order to stop the evasion of the property transfer tax by way of these indirect real estate transfers the new law is aimed at pursuing these indirect transfers.

First off the law redefines what a transfer is as follows:

Article. 2 Definition of a Transfer.

For purposes of this law a transfer shall be considered to be any legal transaction by which real property (real estate) is transferred either directly or indirectly.The legal nature of the transaction shall be considered in making the determination regardless of the name the parties have given to the transaction.

It is understood that an indirect transfer shall be deemed to exist when the transfer of the dominion and control of a corporation that owns real estate is carried out.

The bottom line is that they want to stop the evasion of the real estate transfer tax by transferring the shares of the corporation that owns the real estate.If you do so you will have to pay the property transfer tax and any fines and penalties established in the law.

The law stipulates that the tax must be paid within 15 business days following the date on which the transaction was carried out.The tax to be paid must be based on the actual value of the transaction, which must be in line with the market value and may not be less then the registered value established by any of the methods set forth in the Property Tax Law.

This is aimed at cracking down on the local custom of under reporting the value of the real estate transactions. The law requires that a copy of the sales deed be filed with the local Municipal government, which is in charge of establishing property valuations.

 

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