How is rental income taxed in Costa Rica
The Costa Rica legislature is currently discussing the approval of a new tax reform law which will affect the tax rates for those individuals or entities that receive rental income. As a result of the media coverage I have been receiving numerous inquiries on how the law will impact rental income properties in Costa Rica. To address those issues let’s take a look at how rental income is currently taxed in Costa Rica and what changes you can expect should the proposed law be approved in the Legislature.
The Costa Rican Income Tax Law
Every individual or entity that receives income from a Costa Rican source, including rental income must declare and pay income taxes on that revenue. The first requirement is that the landlord register themselves as a taxpayer in the Taxpayer Registry of the Department of Revenue (Registro Único de Contribuyentes de la Dirección General de Tributación).
Failure to register as a taxpayer when obligated to do so can result in a fine of 215,500 Colones per month up to 1,293,000 Colones. (Article 78)
Once registered then you have the obligation to file your income tax return and pay any income tax that is due. Costa Rica taxes your income according to the follow sliding scales.
(a) For Individuals
Up to 3,549,000 per year [US$6,227] Exempt
From 3,549,000 ($6,227) to 5,299,000 ($9,296) = 10%
From 5,299,000 ($9,296) to 8,840,000 ($15,508) = 15%
From 8,840,000 ($15,508) to 17,716,000 ($31,080) = 20%
Greater than 17,716,000 ($31,080) = 30%
(b) For Corporate Entities with Gross Income of
Up to 53,113,000 per year ($93,180) = 10%
Up to 106,835,000 ($187,429) = 20%
More than 106,835,000 ($187,429) = 30%
The Costa Rican Sales Tax Law and Vacation Rentals
The Costa Rican Sales Tax Law (Impuesto de Ventas) is currently applied to a selective set of goods and services specifically identified in the tax code. In 2016 the Department of Revenue included vacation rentals in the list of services that must pay a 13% sales tax. The law specifically indicates that any owners of vacation rentals which it has defined as rentals under the term of one month must pay the sales tax.
The Fiscal Reform Project Under Debate
For the last year or so the Costa Rican legislature has been debating legislative bill number 20.580 known as the Law to Strengthen Public Finances (PROYECTO DE LEY LEY DE FORTALECIMIENTO DE LAS FINANZAS PÚBLICAS)
The proposal in this law is to create a VAT (Value Added Tax) which would be applicable to most goods and services with some exemptions. The proposal will also create a 15% capital gains tax and a tax on rental income of 15%. Be advised that this proposed law has not yet passed and I will post any changes that come into effect on this site.
The Electronic Invoice Requirement
The tax department has also implemented and made mandatory a directive that all taxpayers register and issue electronic invoices. This includes owners of real estate that lease out their property. They must issue the tenant electronic invoices. By November 1st of 2018 every taxpayer must be registered on the electronic invoicing database of the Department of Revenue.
Taxpayers whose personal or corporate identification number ends in 1,2 or 3 must register by September 1st. Those with 4,5, or 6 by October 1st and 0,7,8, or 9 by November 1st.
So get in touch with your Accountant to ensure that you will be in compliance with the new requirements currently in the pipeline.