|May 28, 2019||No Comments|
Tricky Tax Changes Coming in July
There’s only one word for the tax changes coming to Costa Rica: tricky. In researching what to write about and how to inform our readers and clients, we found a number of variations on what will be coming for all of us. With that said, please keep in mind that everything we are telling you here comes with a disclaimer that it might not be settled yet or it varies from one source to another. To add to that, while the regulations MAY have been published, they seem to be subject to various government agency interpretations, so the truth will come out as we live with all this – and may change! (Tricky!)
What we do know for certain:
As of this July 2019 a significant change is being made to the taxes applied on all goods and services. This change has been mandated by Costa Rican law 9635 aka: Law for Strengthening Public Finances. Quite ironic since there is currently so much confusion on all of the small details. One could easily worry that after going through all this trouble, public finances might not actually be strengthened. But that is yet to be determined.
Bottom line: All goods AND SERVICES will be taxed at 13%This increase is being absorbed by the consumer. Many goods are already taxed at 13%, but few services. This tax is called a VAT or “Value Added” tax; also known as IVA tax or “Impuesto al Valor Agregado” tax. In SOME cases, the transition to the new increase will happen gradually. For instance, we have heard that for Engineers the increase will start at 4% and increase periodically to 13% over a few years – perhaps … we also heard that for engineers, it won’t start until 2020.
The fiscal year moves from ending in September to ending in December. The new period will begin in January 2020 going from January 1st through December 31st.
NOTE: The Hacienda is still determining what to do with the months of October through December for this year. We have also heard there will be 2 tax returns and that there will be monthly tax returns thereby making end of year returns obsolete!!
Hence, the trickiness begins …
What we’ve heard:
The following is a list of what we have heard which is tricky when it comes to taxes for things like: properties and corporations, capital gains, tax for renters and landlords, etc. While we are saying this is only information “we’ve heard”, be rest assured that the tax changes are coming on these items. We are just unsure of exact details. We have spoken to lawyers and other professional individuals who would normally be “in-the-know”; we have read other articles and done quite a bit of research and asking around. The common denominator is this: most of the information varies to some degree.
Leasing, renting, owning or selling your property.
Here’s where things get really tricky. Property rental taxes and increases vary depending on who you speak to. The following is the first thing we learned with regard to increase in property rent:
Taxes for Corporations:
Many home owners have purchased their houses in Costa Rica under the name of a corporation. If this is how you own your home, it is advisable that you review the value of the current capital as it relates to the assets held by that corporation (your property, car, bank account ?!) Most corporations have a nominal value listed – like 10,000 colones – the best advise is CONTACT YOUR LAWYER.
The most confusing part of this is that for years most people have been told to hold their property in a corporation for the purpose of long-distance management, ease of beneficiary distribution or limit of personal liability. While those positive aspects MAY to some degree still exist they are very likely going to be diminished if in fact INACTIVE corporations are going to be required to become ACTIVE corporations and report every month and, likely, be taxed as corporations, in addition to property taxes, on the full value of their assets. Notice we say “likely” … this is because this is one of those items which varies from resource to resource.
What do you have to do?
Here are some links for reference to a couple of publications that have had relevant articles and MAY have some further details. Perhaps the following links will provide some other level of clarity for this very tricky tax situation coming in July:
If you need our assistance with figuring out what next steps might be for you either as a property owner, landlord or a renter, contact us and we will try to steer you in the right direction.