Published Monday, June 7, 2021
By Garland M. Baker
Exclusive to A.M. Costa Rica
Expats have many questions about all the new rules and regulations in Costa Rica, but three stand out: 1.) “Why aren’t I being charged education and culture taxes if I have an inactive company when all companies need to pay them?” 2.) “What happened to the special tax return for inactive companies?” 3.) “How do I pay capital gains taxes on a property sale?”
It is true, Law 5923 of 1976 states all mercantile companies must pay El Timbre de Educación y Cultura (the education and culture stamp) each year. However, the law did not contemplate inactive companies not filing tax returns, and that is where the tax department gets their information to charge the tax. Many expats hold assets such as homes and automobiles in inactive companies.
The current situation means any company that was never in active status does not get billed for the tax. When a company is formed, it is created at the Registro Nacional. There has been a gap between that institution and the tax department for many years. Only until the passage of Law 9635 has the country begun its efforts to resolve the problem. To voluntarily pay the tax if one is not being billed is difficult and not worth the headache.
Law 9646 changed the amounts for the tax stamp to (all in Costa Rica Colons): 1.) 5,000 for companies with net equity not to exceed 500,000, 2.) 6,000 for companies over 500,000 to 2,000,000 and 3.) 12,000 for companies over 2,000,000 to 4,000,000. All companies over 4,000,000 net must pay 18,000.
In the past, no one with an inactive company had to file a tax return, thus, as stated above, the firm was not charged the education and culture tax. This changed with Law 9635 (legislation to strengthen public finances, called in Spanish the plan fiscal), which passed into law in 2018 and went into effect July 1, 2019.
First the government talked about a form called the D-135 but later changed its mind, and said everyone with an inactive company needs to file a special D-101 form. Officials set a deadline of March 15th for the filing, and then later postponed the filing date until an undetermined time in the future.
The big question is: what happened to the tax form? When do people need to file their return for their inactive companies?
The answer is: no one seems to know. Calls to tax professionals are met with silence. A search of the tax department’s website was unsuccessful. One accountant who did not want to be identified said, “I really do not think Hacienda cares about getting a tax return from inactive companies and do not think they are spending any resources on preparing it.”
Many legal and tax professionals jumped on the bandwagon denouncing any tax return for inactive companies when it was announced. They stated it only opened up problems for taxpayers and the tax department. There is no consensus what actually needs to be put on the form.
This author believes there will be a required filing but probably not until March 15, 2022.
What do people file with the tax department when they sell an asset for a gain or a loss?
They need to file a D-162 capital gains tax return through ATV, the Administración Tributaria Virtual, the country’s online digital tax system. The form is simple to fill out. A filer inputs the cost basis of the property and then the sales price, then elects the type of tax to pay. For those assets acquired before July 1, 2019, there are two options: 2.25% of the sales price, or 15% of the profit. For assets acquired after that date, the only option is 15% of the profit. If the sales price is less than the cost basis, no tax is due. Properties considered to be one's permanent residence are exempt from the tax.
Here is the kicker: There is no place on the D-162 form to check to apply the exemption if one qualifies for it. There is also nothing on the tax departments website either on how to apply for the exemption. So, what is one to do, just not file the form? That does not make much sense, but according to certified public accountant Kevin Chavarria, that is the proper procedure: “. . . if people do not have to pay the tax because they are exempt, they should not file the D-162, but be sure to have the notary registering the transaction put in the deed that they are transferring a property that is their primary residence and do not have to pay capital gains tax.”
Hacienda is actively pursuing those who do not file the capital gains form promptly after the sale of a property. Much of the time it seems the tax people try to make things more complicated than they need to be.
To sum things up: Companies not being charged for education and culture taxes were probably never active and thus not being charged the tax. To pay it voluntarily is difficult.
No one really knows what happened to the special tax form for inactive companies. This author believes it will probably be postponed until next year.
Filing capital gains tax forms and paying the tax is easy to do, but for those exempt from the tax, there is no easy way to apply for the exemption.
Editor’s note: Garland M. Baker solves problems for expats in Costa Rica. He is a 49-year resident and naturalized citizen. Reach him at email@example.com. Baker has undertaken the research leading to his articles with A.M. Costa Rica. Find the collection at crexpertise.net. A free reprint is available at the end of each piece. Copyright 2021. Use without permission prohibited
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