Costa Rica offers excellent real estate investment opportunities, but the process can be challenging without a business plan and knowledge of local tax regulations. As a foreign investor, consider how you wish to make the investment, through direct personal ownership, a foreign entity, or a company established in Costa Rica. The legal nature of your investment may affect the taxes applicable.
To comply with anti-money laundering laws, registering the source of funds used to purchase local assets is crucial. Register your investment with the Tax Administration System, ensuring that you track pre-operational expenses and accounting according to Costa Rican tax rules.
Real estate investments, such as developing and selling properties or operating lodging accommodations, incur taxes, including real estate transfer taxes, corporate taxes, capital gains taxes, and passive income taxes. Additional tax considerations include transfer pricing, Real Estate Solidarity Tax, Value Added Tax, and withholding taxes.
Seek professional advice before investing in Costa Rica to identify the best opportunities, develop a comprehensive plan for handling investment capital, taxes, and expenses, and optimize your investment’s corporate and operational structure for maximum efficiency.
Key Takeaways From Article
1. Understand the business plan: Before investing in real estate in Costa Rica, it is crucial to have a clear business plan in place. This includes considering the investment structure (individual, foreign entity, or new company) and the legal nature of the new entity, as these factors can affect tax treatment.
2. Register the origin of funds: To comply with regulations and prevent money laundering, it is necessary to register the origin of funds used to acquire real estate in Costa Rica. This information will also impact how capital investments are taxed when repaid.
3. Register with the Tax Administration: Before starting the real estate investment, it is important to register with the Tax Administration’s System according to the planned activities. This ensures compliance with tax obligations.
4. Keep accurate records: Regardless of the type of real estate investment, such as developing and selling lots or running Airbnbs, it is essential to maintain accurate records of costs and pre-operational expenses. These should be supported by invoices or other documents as per Costa Rican tax regulations.
5. Understand applicable taxes: Real estate investments are subject to the real estate transfer tax, which applies to the highest registered value of properties. Depending on the activities involved, investors may also be subject to corporate income tax, capital gains tax, or passive income tax. It is important to understand the specific taxes applicable to the investment.
6. Seek professional advice: Due to the complexity of tax obligations and regulations in Costa Rica, it is recommended to seek professional advice before investing in real estate. A good advisor can help structure the investment for optimal tax efficiency and ensure compliance with all tax requirements.