COSTA RICA TAXES AND RENTAL PROPERTY

Costa Rica taxes that were enacted into law over a year ago have started to be implemented. So if you own a property in Costa Rica and are renting it out when you are not using it, I hope by now you have been contacted by your property manager, CPA, lawyer or the person that is helping you manage your affairs here.

Let’s start with a little background history. For many years, people that purchased their Costa Rica vacation property realized that there is a very good rental market for condos and homes in the area. That’s especially true from December to April which is considered the high season. If properly marketed and well maintained, an owner can very easily cover all their expenses and put a nice profit in their pockets–a win, win right!

Well, here comes the tax man “Ministerio de Hacienda”, the Costa Rica equivalent of the United States Internal Revenue Service or the Canadian Revenue Canada. Many expats as well as local Ticos have never reported the earnings from their rentals. The Costa Rica taxes that were already in place covered this but, as always with taxes, people find a way around paying them. In Costa Rica it is almost like a sport trying to avoid paying taxes. Let’s face it–what country in the world does not want a piece of your profits or salary?? If you know of a place, let me know. I may move there, but I highly doubt it.

The administration for Costa Rica taxes has finally found a way to catch up with the thousands of rental properties and business that have not been paying any income taxes at all or even filing tax returns. Heed my warnings, please.

You may be thinking, “I do not operate a Costa Rica business, so what do I care?”. Well, do you own a Costa Rica property? If yes, the next questions are: Is the property held in a Costa Rica corporation or in your own personal name? Do you know if the corporation was registered as an active corporation? (meaning it does business and receives income) Or, was your corporation registered as inactive? These are all important questions you should be asking yourself so you don’t get into a mess with the tax authority. If you do not know the answer to these questions, I highly recommend you contact the attorney that helped set up your Costa Rica corporation to know for sure.

Starting the new fiscal year of 2019, which starts October 1, 2018, most Costa Rica corporations are required, by law, to issue a “factura electronica” (it is a legal registered receipt) for all funds received in the course of doing business or providing a service. As an example, if your pool guy has a legal company that is already paying taxes and he wants to get paid, he will have to give or send you an electronic invoice to get paid. This shows the income to the tax man. The same goes for when you are renting your property. You will need to give each renter a “factura electronica” for the money they paid for the rental time.

Now I maybe got you thinking “HA HA it is just the pool guy. Let him send me a receipt. I will pay it, but who is going to know?” The Tax Man will know!! The system is set up so that when a service provider wants to be paid, he sends a “factura electronica” (the key word here is electronic) or invoice.  Well, this same information is sent to the tax authority and they will be cross checking who got it, who sent it, and who is liable for taxes.
Are you renting your property? Then you have a Costa Rica business and need to follow the laws. I am not the tax police, not a CPA nor am I a legal advisor, but I do own a Costa Rica corporation that does make income. So I made darn sure that I contacted my CPA to make sure I am compliant with Costa Rica taxes.

Many good and responsible (those are two key words) property management firms are following the laws as they do not want to end up being responsible for a client’s tax liabilities. I know of one that actually fired a client because the client refused to follow the direction and still wanted to rent. I am sure this will start to push the really low-priced “Property Manager” out of business, and I feel sorry for the property owner that does not do the right thing.
My recommendation is you contact the person that is assisting you in Costa Rica with your rentals, before the tax man cometh. If you need a recommendation, I will be happy to offer. Just send an email to me at JosephEmanuelli@remax.net. Do leave a request for information or help on this blog comments section.

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