Everything You Wanted to Know About Costa Rican Property Taxes
By Lic. Roger Petersen, Attorney at Law
Most will agree that Costa Rican property taxes are low compared to their home country. How is the tax base established for a property that is the basis for the property tax ? In Costa Rica the Property Tax Law known as the Ley Sobre Impuestos de Bienes Inmuebles (Law 7509) is the law which regulates all matter related to property taxes.
The current property tax rate is 0.25% of the property value. That is 2.500 Colones for every 1,000,000 Colones of value if you pay on an annual basis or 625 Colones for every 1,000,000 if you pay every trimester. Most Municipal governments will collect the property tax on a trimester basis.
How is the Tax Basis Established
The law establishes the obligation of the property owner to fill out a “Property Declaration Form” (Declaración de Bienes Inmiebles) every five (5) years and turn into the Municipal government where the property is located. It is the property owner that declares the value of their property under this system. However, the Municipal government reserves the right to audit the declaration if it deems that the value stated are lower than their internal valuations in the area. Many Municipal governments (not all) maintain a property valuation database and expect you to establish values in your declaration that are within their valuations.
If a property owner does not turn in a property declaration form then the Municipal government has the authority to send an appraiser out to the property who will then carry out an appraisal. Once the appraisal and valuation is complete the Municipal government will serve you with the valuation which you may either accept or appeal.
In addition to the two valuation systems set forth above which are the voluntary declaration and the municipal appraisal there is one other way in which a Municipal government can increase the value of your property for tax purpose. This third method comes from the public property records information database of the National Registry. When you purchase a property or you mortgage a property the corresponding deed is recorded in the Property Section of the National Registry. The Municipal government has access to that information. As such if the values declared in any of those deeds is higher than the current valuation the Municipal government can automatically increase the value to the amount that was declared in either a sales deed or a mortgage deed.
Any Exemptions for Property Taxes ?
Yes. The law has two exemptions from the payment of property taxes that are authorized in the law. Article 4 of the law establishes and exemption for individuals (corporate entities not allowed) who only own one property to claim an exemption up an amount which is equivalent to 45 base salaries of a public employee. In 2009 the base salaray was 269,800 which means the exemption is for a property whose value is no greater than 12,141,000 Colones.
The other exemptions are related to the agricultural use of the property. Article 14 of the law provides a break for land that is dedicated to Agricultural or Agroindustrial use. In calculating the property valuation basis it will not take into account any improvements or constructions made to the property which are used for worker housing which is related to the agricultural activity. Likewise according to Article 49 of Law 7779 it exempts 40% of the property tax assessed to any agricultural property that is being used according to established soil conservation and management techniques. To get the exemption the property first has to be certified by the Ministry of Agriculture.
How are the Property Taxes Spent
I often hear the comments that Costa Rican road infrastructure is horrible and why aren’t the Municipal governments improving the roads. This is something we all wonder about. Well here is how the property taxes are broken down:
1% goes to pay the appraisal training that the National Revenue Department provides to the local Municipal governments.
3% goes to the National Property Registry
10% goes to the Board of Education for each regional Canton
10% is earmarked for Administrative expenses in collecting the tax.
76% which is the balance does directly to the Local Municipal government.
I hope the following has provided a starting for you in understanding the Costa Rican property tax system. Every local Municipal government has a Property Tax department (Departamento de Bienes Inmuebles) and you can contact them directly if you have specific questions. You can check in the link section of CostaRicaLaw.com to find a link to your municipal government.
You can see a sample property declaration form below.
This article is written by Attorney Roger Petersen of Attorney Property Services in San José, Costa Rica. No portion of this article may be copied or reproduced in any manner without the express consent of the author.