How to invest in Costa Rican real estate: from a tax perspective

Investing in Costa Rican real estate is a great opportunity. However, it may not be as simple as acquiring real estate and reselling, developing, or leasing it. This process can be quite difficult if the investor does not have a business plan and is unaware of applicable taxes and obligations.

Are you a foreigner looking to invest in Costa Rican real estate?

Two business plan considerations that every investor should take into account are: (i) By investing either directly as an individual, in a foreign entity, or in a new company established in Costa Rica. (ii) the legal nature of the new entity; These may result in different treatment with respect to some applicable taxes.

Also, local companies must register the source of funds for acquiring real estate. This is because it will ultimately directly impact how your capital investment will be taxed or not upon repayment. Traceability is also required. Laws to prevent money laundering.

Before starting to invest in real estate, investors must register in the system of the tax authorities depending on the activities they carry out in the country.

Regardless of the type of business investment, whether the plan is to develop or sell land or housing, or open a facility such as accommodation or Air BnB, expenses and pre-operating costs are recorded in the accounting books of a person or individuals. Must be recorded. Must be tangible and supported by invoices or other documentation according to Costa Rican tax law.

What taxes apply to real estate development?

Real estate investments are generally subject to real estate transfer taxes, which apply to the maximum registered price or value of the acquired property and ultimately to any sale the investor makes after the development is complete.

Once a property is acquired, investors should be aware that they will be required to pay a portion of the property tax to the municipality where the property is located. Depending on the activities carried out as part of a business investment, investors may be subject to corporate income tax, capital gains tax, or passive income tax.

One reason it is important to start investing in an orderly manner is because it allows investors to register pre-operational expenses and use them as future write-offs once the business is up and running. Alternatively, you can capitalize the cost of your real estate investment. All of these will affect your tax base depending on the type of business investment and applicable taxes.

Investors need to plan carefully for the required tax compliance, as each tax has different tax reporting and tax repayment cycles.

Possible additional taxes and financial obligations for real estate investors include transfer pricing, real estate solidarity tax, value-added tax, and capital gains, passive income, other income-generating activities, dividends, etc. Withholding tax on payments that may be made to. Non-resident.

Consider proper advice before investing in Costa Rica

Structuring your business from a commercial and financial perspective can help you identify the best opportunities for investment and more accurately plan for required capital expenditures, taxes, and expenses.

The success of business investments in Costa Rica depends on the precision of corporate and operating structures that enable optimal financial efficiency.