By Allan Garro

Attorney at Law & Notary Public

Costa Rica has 84 Municipalities plus seven District Councils functioning as Municipalities. They usually provide different services in their jurisdiction such as potable water or garbage collection. They are also in charge of collecting the Property Tax, which constitutes one of their main sources of income along with commercial licenses.

Normally, they collect all due services every quarter of the year. When payment on time fails, Municipalities can apply interests and fines on due amounts, which can increase the debt substantially over time.

Talking about Territorial or Property Taxes, the yearly tax rate is equivalent to 0.25% of the property value registered in the municipality. Is there a way to save money for an individual owning property? The answer is yes.

The law says those individuals owning only one property in their name can apply for an exemption up to an amount equal to 45 base salaries or less, which is approximately US$45,000. If the property has a higher value, this amount can be deducted from the total and tax paid on the difference The time to request for this exemption is usually between the months of January and March every year.

If the property owned is classified as producing agricultural land it is possible to apply for a 40% yearly exemption from the Territorial Tax. However, operating the farm according to proper environmental procedures is essential.

Law 7779 establishes in Article 49. “Owners or possessors of agricultural lands that are used according to their capacity for use, and who also apply practices of management, conservation and recovery of soils, will be exempt from the payment of the property tax, in forty percent (40%) of what they are responsible for paying according to the valuation of the land”.

Some ways the Municipality can use to adjust the value of a property are:

a. When on a public transfer deed, the parties declare a transfer price higher than the recorded value.

b. When the owner of a property declares on the Luxury Home Tax form a higher value than the one recorded at the local Municipality.

c. When the construction of a better road takes place or when important new infrastructure benefits the value of the surrounding properties.

The Tax Ministry and the National Registry are now collaborating in providing Municipalities with information from their databases. 

All property owners are supposed to file a value declaration in front of the local Municipality at least once every five years. Failing on doing this allows the Municipality to perform an evaluation with their own staff, which usually tends to be high; as well as imposing a fine for not complying with this obligation.

Some well-organized Municipalities proceed delivering fliers or communications on each property requesting to proceed submitting the required declaration. Some other Municipalities are disorganized and lack proper procedures to inform property owners in their jurisdiction.

From time to time, Municipalities request Congress to approve a law that allows them to forgive past due interest and fines during a specific period of time. Each Municipality requires a specific law approved to be able to apply this benefit, and they can also offer discounts for yearly payment in advance.

It is important not to confuse property taxes with the luxury home tax which is collected by the Tax Authority or Hacienda and must be paid separately. Luxury home tax applies to homes with a construction value higher than 143 million colons.

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