Municipal Real Estate Laws in Costa Rica

Municipal Real Estate Taxes

This article explains the current policies and levels of property taxes in Costa Rica. The tax is about .25% (1/4 of one percent) of the property's registered value. The article explains what the property owner must do and instances where the city can automatically update the property value.

MUNICIPAL REAL ESTATE TAXES
Law Nº7509 DE of 1995 (Bullet Points Version Jan/2010) © Lic. José Juan Sánchez

I). Real Estate Taxes:

The "Tax" is due to the county where the real estate property is located, on a yearly basis and payable as of 1st of January of every year at the local Municipality.

The Municipality Real Estate Tax department collects the Tax in arrears in one, two or four payments. The Tax is due on any real estate property either titled or not: a vacant lot, a house, a condominium, a building or an ocean front Construction under Concession system. Both the old owner and the new owner are jointly and severally responsible for the Tax payment. If the new owner pays the Tax, he or she has the right to demand the respective share from the old owner.

As of Oct 1st, 2009, a Luxury Household Unit tax is due to the National Revenue Administration only on those household units with a value above CRC100 million colones (usd172,000 approximately at an exchange rate of 581 CRC to 1USD - Please see paragraph IV below on this second tax).

II).The Tax is one-quarter of a point (¼ of 1 or 0.25%) of the property's "Registered Value".

Download The Municipal Property Tax Form

The property Registered Value is the result of the property appraisal and valuation entered into the records at the Municipality Real Estate Tax department: e.g. if the Registered Value is USD100,000 dollars, the yearly Tax is USD250 dollars. The Registered Value of the property originates from three alternative sources:

1 - Tax Payer Declaration:

a) Required Documentation:

Upon closing on property and registration of the title, the new owner has to fill out and file a Municipal Real Estate Tax declaration form, which contains the following data:

  • Proprietor’s identification, address, phone and fax. If the owner is an entity such as an LLC or Corporation (SA) specify the company name, legal domicile and registration number.
  • Legal address for notifications within the Municipality county. This may be the owner’s address or company legal domicile.
  • Property description: title registration number, cadastral survey number, nature, surface area (m2), boundaries, exact location.
  • Description of existing buildings on the property.
  • Value of the land and value of the construction: the current position of the Tax administration is to accept a land value of around 75% of the market value, formerly it was around 40%. The construction value often refers to the value registered in the construction permits and blue prints, which range from about USD400 to USD600 per square meter (m2).

Additional Documents the Declaration has to be submitted to the Tax department together with: copies of the property Title Deed or an Electronic Title Report from the Registro Publico´s official website, owner's ID, company's articles of incorporation, a Certificate of Company Good Standing (personería jurídica), and Cadastral Survey. The declaration can be sent by certified mail with prior coordination with the Tax department.

  • Property owners must file a Real Estate Declaration every five (5) years. Co Ownership units are declared individually as a separate property from the common tract, and the Tax is proportional to the Unit’s share in the common title. In lieu of Declaration the Tax department can perform a valuation by default.

2 - Automatic Appraisal:

The Municipality Tax department can modify the Registered Value automatically in the following cases:

  • Transaction: in case of a purchase and sale transaction disclosing on the Deed a higher value than the one in the public records.
  • Mortgage: when a mortgage or a mortgage bond is recorded on the title of the property.
  • Enhancement: when the property’s surface area increases as the result of an area enhancement or properties merger.
  • Construction: when a construction or addition is built upon the property, this information will be verified from the construction's permits and blue prints.
  • Fractioning: this is the case where the real estate property is segregated into several smaller lots or Co Ownership Units. Smaller properties have higher value per square meter than large parcels or farms.

3 - Valuation by Default:

The Tax department can adjust the Registered Value in the following cases:

  • Infrastructure: such as highways, roads, bridges or any other public infrastructure which results in a substantial improvement that benefits the property.
  • Damages: when a property suffers a damage not directly connected with the owner’s will or control: ex. landslides or natural erosion.
  • Technical Valuation: a general scale update of the properties´ Registered Values as the result of the criteria generated by the specialized unit, ONT (technical standardization unit), under the Federal Government’s Revenue Administration.
  • Absentee: if the property owner does not perform the declaration, the Municipality Tax department executes a Valuation by Default and establishes the new Registered Value for the property.

Notification: In case of an Automatic Appraisal or a Valuation by Default, the Municipality Real Estate Tax department must notify the property owner in writing, according to the Law of Judicial Notifications, Citations and Communications (Law Nº7637) and its addenda, in order to allow the owner the opportunity to challenge such resolution through the system. If the owner does not have a registered office or a designated address in the records, the owner shall be notified by Legal Notice in the official paper, La Gaceta, and a national newspaper, after such notification the owner is regarded in default. The Municipality can perform Automatic Appraisals or Valuations by Default once every five years.

III) Lack of Tax payment:

Lack of due and timely Tax payment shall carry interests in arrears according to the Revenue Administration and Proceedings Code. Such debts shall constitute an encumbrance upon the property and its title, in the form of a Legal Privileged Mortgage. The Municipality can execute both administrative and judicial proceedings in order to enforce the Tax and/or foreclose the property in arrears. The Municipality must publish a legal notice of collection in a national coverage newspaper and notify the property owner according to the Notification rules mentioned above. The general statute of limitation for the Taxes´ collection and enforcement is three (3) years, therefore the Municipality must enforce the payment within such period.

IV) Law Nº8683 / 2009 Luxury Household Unit Tax:

This tax applies as of Oct 1st, 2009 on any household unit: house, condo, apartment or even hotel suite, with a value equal or above CRC100 million colones (approximately USD172,000 depending on exchange rate), the tax is due from January 1st to 15th of every year, and it is collected and administered by the National Revenue Administration (the “Administration”) instead of the local Muni. On the website www.dgt.hacienda.go.cr , the Administration has two programs in order to appraise the Unit and land, calculate the tax, generate a tax return and even make an electronic payment if the Taxpayer has an account in liaison with the Administration. Also, there are paper forms D110 and D179 in order to make manual declarations and direct deposit to the Administration’s  account in any major Costa Rican bank. The Tax is calculated by way of comparing the Unit to nine house constructive profiles based on Architect and Engineers Federated Board 2007 unified construction's materials criteria. Each profile has about 8 to 12 construction and finishes items which serve as parameters for determining the Unit’s bracket. The assessment also includes swimming pools, carports, decks, walls and any accessories to the Unit. Once the data is fed into the program it will calculate the value including depreciation. If the result is CRC100 million, the Tax is triggered and the value of the lot must be added to the calculation. A similar tool exists to calculate the value of the lot. The program will then add both and generate a total value chart. With the value chart, the tax return is generated either electronically or on the D179. Some specific rules apply to Condominiums with common areas/facilities and multiple ownership estates. The tax is .25% of the assessed value up to CRC250 million, and then it adds up on the additional value brackets. The penalties for wrong or non-payment range from five to ten times the tax due plus interest. Both the Administration and the Muni have access to their respective data files, can make cross reference enforcement and as with the Muni tax, a mortgage, real estate transaction or construction permit can be used as the appraisal base if its value triggers the CRC100 million. Some law firms are encouraging clients to hire a professional appraisal consultant, which fees may be higher than the tax due itself. We believe this is an unnecessary burden required only in case of dispute or evident discrepancy with the Administration.

V)

Feel free to contact us for all your needs related to the Municipal Real Estate Tax declaration and payment. For a fee of USD350 dollars, we will prepare and file the Tax declaration and arrange to receive the tax funds from the proprietor and make an electronic payment to the Municipality Real Estate Tax department.

Download the Luxury Home Tax Form

Real Estate Tax Declaration Forms

This page contains two forms for use in declaring taxes on real estate in Costa Rica:

The Municipal Property Tax Form (2.4 Mb PDF File)

The Luxury Home Tax (2.5 Mb PDF File)