Everything You Wanted to Know About Costa Rica Property Taxes
In Costa Rica property taxes are generally low compared to many other countries around the world. How is the tax base valuation established to determine the property tax that is due ? In Costa Rica the Property Tax Law known as the Ley Sobre Impuestos de Bienes Inmuebles (Law 7509) is the law which regulates all matters related to property taxes. Property taxes are local government matters administered by the local Municipal government where the property is located.
The current property tax rate is 0.25% of the property value. Most Municipal governments will collect the property tax on a trimester basis.
How is the Tax Basis Established
The property owner must file a “Property Declaration Form” (Declaración de Bienes Inmuebles) every five (5) years and turn into the Municipal government where the property is located. Although the owner completes the form declaring the value it is reviewed by the Municipal government to ensure that the values declared fall within the parameters that they have established. It may audit a filing if it deems that the value state is lower then the values establish in their valuation manuals. Many Municipal governments (not all) maintain a property valuation database and expect you to establish values in your declaration that are within their valuation parameters.
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. See a sample municipal property tax declaration form at the end of this article.
For those that do not file the local municipal government may impose the valuation and then charge you a fine which could be equal to the amount of the new appraisal and the amount you were paying for property taxes.
In addition to the voluntary declaration and the municipal appraisal discussed above 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 2017 the base salary is 424,200 which means the exemption is for a property whose value is no greater than 19,089,000 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 that property owners pay to the local government 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 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.