|
Capital
gains now a fact!
By
Garland M. Baker
Exclusive to A.M. Costa Rica
As of today, selling assets like
real estate will be more expensive
in Costa Rica.
For years, people have enjoyed a
capital gains free country. Many
who bought property over the
years, did so without too much
question because they hoped to
make a big profit someday on
appreciation in value with no
local capital gains tax to pay.
Those days are over. Law 9635,
called the “Fortalecimiento de las
Finanzas Públicas” or just the
“Plan Fiscal,” the fiscal plan in
English, became law Dec. 4. Many
parts of the legislation were on
hold until today, July 1. One of
those parts was the imposition of
a capital gains tax on the sale of
assets.
Last Thursday the tax department
published its final revision to
the regulations of the law. Here
is an outline of the essential
facts concerning capital gains:
The new capital gains tax is 15
percent of the profit of a
transaction. For assets acquired
before today, people have the
option to pay 2.25 percent if that
rate has a better tax
consequence. All assets
obtained after today are subject
to the 15 percent tax. Legitimate
homeowners can exempt the home
they live in permanently. More
about the specifics of that
exemption further down.
The calculations can be a bit
confusing, so here is an example.
Many people have lost money on
real estate assets in Costa Rica
after the crash of 2007-2008. The
case here reflects a profit for
illustration purposes only.
John and Jane Expat bought a
property with a house on it 20
years ago for $50,000, and they
can prove they put roughly $25,000
in improvements into both the land
and the home. It is their second
household for vacations with a
primary residence is in the United
States.
If the couple sells it today for
$100,000 making a profit of
$25,000, John and Jane have a
capital gains tax choice. They can
pay 15 percent on the profit of
$25,000 for a tax of $3,750, or
they can elect to pay 2.25 percent
over the total sale price for a
tax of $2,250 for a savings of
$1,500.
This alternative is the
government’s idea of giving a
break to all those people who came
to Costa Rica and invested here
because it had no capital gains
taxes and other promises of fiscal
paradise benefits.
Many people who bought homes and
property in Costa Rica over the
years have not kept good records
regarding improvements and cannot
prove what they have spent to
reducing capital gain. This
circumstance is an excellent
reason to use the one-time,
reduced percentage option because
it is a no questions asked tax
rate.
Those who bought and stayed here
to live here can sell their
residence and pay no capital gains
taxes. The burden of proof is on
the taxpayer. Permanent tourists
would not qualify nor would people
who rent out their residence most
of the year and live somewhere
else but have permanent legal
residency in Costa Rica.
After today, no property
transaction will be registered in
the national registry if the
paperwork does not have a tax form
attached proving capital gains
taxes were paid. The form is
attached to the transfer deed
submitted by a notary to transfer
the property.
Law 9635, contains many reforms.
One notable change is that the
fiscal year used in the past of
Oct. 1 to Sept. 30, becomes a
calendar year. Here are some of
the other aspects to the capital
gain tax as clarified by the
regulations:
• Capital gains can offset capital
losses if they both happen in the
same month since both need to be
declared and paid the month they
happen.
• A refund is possible if capital
losses are more than capital gains
during the same fiscal year.
Refund requests must adhere to
some pretty strict rules, so a
good accountant should file the
forms.
• Capital losses can offset gains
for a period of three fiscal years
for credit, not cash. There is
fine print to obtain the offset,
so professional assistance is a
must.
In summary, the good old days are
over in Costa Rica for many
reasons. Taxes on capital gains
are a biggie, 15 percent of the
profit on the sales of most
assets. There is the one-time
special rate of 2.25 percent for
certain circumstances and an
exemption for homeowners.
Everything is going to be more
expensive today, moving forward.
The 13 percent sales tax of the
past on most products and very few
services becomes a 13 percent
value-added tax on almost
everything with very few
exceptions.
Unbelievably, tax officials have
still not made up their minds
regarding non-active companies. In
the regulations, they fudged and
wrote this statement, translated
into English and paraphrased by
Kevin Chavarria, certified public
accountant: “...non-active
companies must fulfill their
formal obligations. For this,
before the start of the next
fiscal year, the tax department
will divulge to the public by
publication in a nationally
circulated newspaper what they are
required to do.” Chavarria states
the next fiscal year officially
starts on Jan. 1.
Even though protesting continues,
the tax department is out in force
with speeches and advertising,
reminding everyone the government
won the battle and now the public
needs to pay up or suffer the
consequences. They let everyone
know last week they were
re-configuring their computer over
the weekend to start the new law
with a bang!
Editor's note: Garland M.
Baker is a 47-year resident and
naturalized citizen of Costa Rica.
His team solves problems for
expats. Reach him at info@crexpertise.net.
Baker has undertaken the research
leading to his articles in
conjunction with A.M. Costa Rica.
Find the collection at crexpertise.info.
A free reprint is available at the
end of each piece. Copyright 2019,
use without permission prohibited.
|
|
|
