Real estate transfer tax comes into play when real estate changes hand between buyer and seller and a closing takes place to finalize the deal. The government is able to keep track of these transfers as the deed of the property must be changed to reflect the new owner. This deed, a transfer deed, incurs the transfer tax and is the method used by the Costa Rican government to track changes in ownership.
Though many online resources will list the inaccurate figure of 3 percent, the Costa Rican legislature voted in 1998 to reduce the applicable tax to real estate transfers from 3 percent down to 1.5 percent, a substantial savings and one that goes largely misprinted through online resources other than this one. The percentage is taken from the registered value for the property.
That registered value can differ depending on what your local government has done in the way of appraising property under its jurisdiction. Typically, you can estimate what your transfer tax will be before even putting your home on the market by multiplying your annual property tax (0.25 percent of the appraised value of the home) by 6 to get 1.5 percent of the appraised value of the property.
Of course, this is just a rough estimate the actual transfer cost will likely come from the agreed-to purchase price for the property, so long as it falls within an acceptable range for the local government’s purposes. In most capital transfer tax situations, the higher of the two amounts, the appraised value of the property as dictated by your local government or the agreed-to purchase price, is taken as the basis for the tax calculation.
This move is made to make sure that two parties don’t make an under-the-table deal to record a sale price that is artificially low to circumvent some transfer tax on the property. By using the appraisal value as a second source, these types of situations are removed from the system and the local government is sure to get at least an approximately fair tax payment for the transfer of the property.
There are some exceptions to the transfer tax as well that you should be aware of. The Costa Rican government does have a property value level established that says those pieces of real estate that fall under that valuation are exempt from transfer taxes. Additionally, a transfer that takes place as part of an inheritance is not taxable under Costa Rican tax law.
Cars are also subject to the capital transfer tax laws of Costa Rica and typically 2.5 percent over the government-recognized value of the car is used as the transfer tax payment in this case. Each year, the Costa Rican government puts out a document that gives values for each make and model car for the purposes of transfer tax calculation. You should consult the document to prepare for the transfer tax you might incur on a prospective purchase.
No matter what might be the subject of your purchase, Meléndez & Bonilla would love to help you ensure a smooth, safe transaction within Costa Rica for any of your assets. Please contact us directly via the Contact Us page to get a full evaluation of the tax and legal status of your particular transaction from a trusted name in Costa Rican law, Meléndez & Bonilla.