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Johnhw2

Luxury property tax

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I recently heard, in a book I read, about a tax on higher value properties in Costa Rica. The book indicated there was an additional 1/4% per year property tax due on the improvements (property value less land value) if the improvement value exceeded roughly $200k (US$). This tax is to fund lower income housing and is in place for 10 years only per the book.

 

I have not seen this mentioned in the forum posts I searched. Is this tax in place? I saw a post about tax evasion but it didnt make wheether this tax is in place or not clear to me. Thanks in advance for the advice on this.

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I have no input on your exact question but along the same lines, in speaking to an architect he talked us out of closets and a bath tub saying we would get nailed a fair bit more on taxes. Seems odd things are considered luxury, not sure what else might be.

 

Phil

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The first post comes closer to what I remember reading, in that the luxury taxes will be on properties that cost more than a certain dollar amount overall, and had nothing to do with tub and closets............I would surmise that your architect just didn't want to be bothered with things that are not standard in Tico housing.

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This topic has been very quiet...but, now the Law has passed (Oct 1, 2009) and "Insidecostarica.com" has reported some 12,000 homeowners will be affected with the luxury tax on homes at 0.25% to 0.55%. I recall this would be on homes valued at greater than $170,000 (may not have this number correct). Would appreciate if anyone has the "value number" and how the percentage would be applied. Specifically, how does the Govt identify or asses the value of real property ?

Edited by eskasue

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This topic has been very quiet...but, now the Law has passed (Oct 1, 2009) and "Insidecostarica.com" has reported some 12,000 homeowners will be affected with the luxury tax on homes at 0.25% to 0.55%. I recall this would be on homes valued at greater than $170,000 (may not have this number correct). Would appreciate if anyone has the "value number" and how the percentage would be applied. Specifically, how does the Govt identify or asses the value of real property ?

Sue,

 

I posted the taxing rate schedule today on the Forums at:

 

http://forums.arcr.net/index.php?/topic/4898-beach-front-maritime-law/page__view__findpost__p__30308

 

As to how the govt assesses the value of property, I suspect it has to do with who you (the owner) are and who is doing the assessing. (Don't mean that to be funny; it's just the Tico way, alas.)

 

Cheers!

 

Paul M.

==

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Sue,

 

I posted the taxing rate schedule today on the Forums at:

 

http://forums.arcr.net/index.php?/topic/4898-beach-front-maritime-law/page__view__findpost__p__30308

 

As to how the govt assesses the value of property, I suspect it has to do with who you (the owner) are and who is doing the assessing. (Don't mean that to be funny; it's just the Tico way, alas.)

 

Cheers!

I assume that it makes no difference if the property is in a corporation or directly owned by an individual. Correct me if that appears incorrect or isnt know yet.

==

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www.amcostarica.com has 2 articles today, October 12th, about the luxury tax. I still have alot of ?'s after reading both articles and i'm confused because the 2nd article implies that the value of your land is included in your tax liability. It will probably , like most things here , be utterly confusing for everyone with obscure and illogical formulas and instructions. I'm sure that it will be challenging and challenged.

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This topic has been very quiet...but, now the Law has passed (Oct 1, 2009) and "Insidecostarica.com" has reported some 12,000 homeowners will be affected with the luxury tax on homes at 0.25% to 0.55%. I recall this would be on homes valued at greater than $170,000 (may not have this number correct). Would appreciate if anyone has the "value number" and how the percentage would be applied. Specifically, how does the Govt identify or asses the value of real property ?

1 million colones or US$172,000

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I began reading about this in early October and most recently that is was implemented effective in October. To date, I have been unable to find anyone who understands how this tax is applied; who can file or assist, what forms are available to those not in the country of CR; whether or not I am required to file a form (if it applies to me). I have an attorney in Quepos, and have been in touch with him for about 30 days trying to determine what actions to take. So far, I have no luck, except to know that the filing is required before 12/31, only the government offices shut down on 12/18 and do not reopen until 1/4/10 - so, that being said, likely, if I have to file, I am screwed and will probably be subject to a fine for late filing up to 10X the cost of the ftax due.So, if anyone has any doubts about investment or home purchase or building or developing in Costa Rica, BEWARE! It appears that the government is trying to dissuade us from investing, and to punish those of us who had the audacity to do so.

Edited by LWilson

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Why would you think they are discouraging investment in a home when the tax rate here is so ludicrously low as to be absurd?  

 

I paid $9,000 + per year in the US.  Here, you would not pay that on a million dollar home. CR needs money badly and this new tax (hard though it may be to get details and pay it) is far overdue.

 

Now saying that, what I DO think is really dumb is that the $$$ is not going to pay off debt, increase security, hire and train more police or increase their salaries, fix roads or infrastructure, increase services, etc..... it is going 100% for slum clearance and providing homes for the poor.  

 

While certainly not (on the surface) a bad idea as that is certainly needed... I'd prefer at least part of it to go to things that benefit more of the population as a whole.

 

TG

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Why would you think they are discouraging investment in a home when the tax rate here is so ludicrously low as to be absurd?  

 

I paid $9,000 + per year in the US.  Here, you would not pay that on a million dollar home. CR needs money badly and this new tax (hard though it may be to get details and pay it) is far overdue.

 

Now saying that, what I DO think is really dumb is that the $$$ is not going to pay off debt, increase security, hire and train more police or increase their salaries, fix roads or infrastructure, increase services, etc..... it is going 100% for slum clearance and providing homes for the poor.  

 

While certainly not (on the surface) a bad idea as that is certainly needed... I'd prefer at least part of it to go to things that benefit more of the population as a whole.

 

TG

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TG: While I can certainly agree that the taxes heretofore in CR were really low, and the costs of living and residency requirements were affordable and lower than loiving costs in the USA, it is not the USA. My home in Florida is now 1/2 its value due to the current economy and my mortgage exceeds the value; however the taxes on my property have not decreased, but are no where near your $9000 annual figure. Affordability is one main reason many people relocated and planned to relocate/retire to CR. In the past 2 years, the CR government, perhaps with good intentions, has made is so difficult to get residency, as to be unpalatable. If you didn't live in one place for your entire life, just getting the required paperwork from each state, notarizations and secretary of state validations, not to speak of the individual state CR embassy validations, before you can even satart the paperwork process, you can barely meet the 90 days requirement before all the paperwork expires. Since I started this process 3 years ago, using an unscrupulous attorney in San Jose, I invested almost $4000 and have no residency as no paperwork was ever filed. There is no shortage of problems with the legal system and the real estate property system in CR. I invested in CR in 2005, built a home, legally declaring all costs and have paid my taxes every year, with all other associated requirements. I am no longer enthralled with the thought of relocating when there appears to be no real stability or thought given to legislation and application of laws. The residency changes, although the monthly incomes are not unreasonable, the paperwork requirements are. The new laws governing driving and road regulations are another "shoot from the hip" legislation, leaving just another path for bribery and corruption. The intentions are good, but the lack of thought for mandatory requirements, leave a lot to be desired. A fire extinguisher, carried in a car in CR with its heat and hiumidity, will not last 3-6 months before it is unusable. The fines set are so high that the only likely people to collect them from are tourists and expats. How many ticos and ticas do you believe can afford even one of these fines?

This new luxury property tax is unreasonable, ill thought, and its implementation very poorly planned. I agree that the economy in CR certainly can use some infusion of funds, but it appears that the infusion rests on the backs of those who made long term investments based on one set of rules and the rules are a moving target now.

I have no problem with paying a fair tax, based on information that can be readily understood, and with forms and applications that are realistic with proper timelines. I do have a problem when it appears that the penalties will be unreasonable (when there should be NONE AT ALL based on the timeline given), and applicable to those of us whon are being blindsided by it. Not only can the abogados not understand it, but how many of us are going to be taken - again - by the unscrupulous ones of which there are no shortage?

Does Costa Rica need housing for its poor and disadvantaged? The answer is undeniably YES. However, if more thought were given to how this type of legislation could be implemented and fairly, it would be a positive. Now it is a negative. The "socialized medicine" issues in CR are a huge drain on its economy. Particularly, since there are no measure to discourage the proliferation of illigitimate children, unwed mother pregnancies, government subsidies for the continued support of these children and mothers/families, or proper education to assist in these matters.

CR has so many good things going for it, its natural beauty, lack of a military, an abundance of agricultural opportunities, as well as manufacturing opportunities. However, its lack of concentration on security, improvement of its police and legal systems, and its lack of protection for real estate investors shows that it is not serious about improving its economic status, other than by increasing the tax burden on the very element of its supporters who have made it so popular.

It is a second world country that cannot progress without taking a long hard look at its failings, and taking action to properly improve them to turn those failures into achievements.

I am not a happy camper at this point.

Edited by LWilson

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"This new luxury property tax is unreasonable, ill thought, and its implementation very poorly planned. I agree that the economy in CR certainly can use some infusion of funds, but it appears that the infusion rests on the backs of those who made long term investments based on one set of rules and the rules are a moving target now."

 

I agree 100% and have been told to ignore this law since many believe it will be challenged as unconstitutional. As another writer puts it,

Open letter by: Bob Klenz, Dominical, Costa Rica.

vistadelcano@hotmail.com

 

I have lived for over 16 years full time in Costa Rica with 15 years of permanent residency. I understand how things work here and also how things don’t work here. Laws are written by politicians with good intent but with very little understanding of how difficult or impossible it is to comply with them.

 

Most laws passed in Costa Rica are eventually challenged in the Supreme Court and ruled unconstitutional. I would hope that this will happen in this case. The end result should be a better and fairer law and a means of helping the poor and the housing problems.

 

To start off with, I am not against the intent of this law, i.e. to help eliminate slums within Costa Rica. That being said, I am against a truly ridiculous method of trying to collect this tax using intimidation and threats against common everyday citizens and residents. I can’t believe that to date, nobody has challenged this questionable law and that there aren’t more people (especially Tico’s) in an uproar, screaming bloody murder over this misuse of power. We have large groups of friends in both Dominical and in San Jose. These friends are from all over the world and many are Ticos.

 

At every gathering the only topic of conversation is this problem tax and the inability of all of us to figure out how to comply with it. Many people are very upset with it and even though they may want to comply, do not know how or cannot do so legally. The high degree of frustration is evident with everyone we speak to about this tax. The Costa Rican Government should only know the amount of pain they have caused so many people who want to do their part but can’t. As to the problems of this tax.

 

Even a blind person can see the inequities that are so blaring in this law:

 

1) Pay on line via computer! Although in this day and age, many people are computer literate, I find it highly questionable as to the legality of requiring people to own or use a computer to file a hard to understand tax form. Is it part of the Costa Rica Constitution to own a computer?

 

2) As a foreign resident, WITH OR WITHOUT A RESIDENT CEDULA, you cannot access the DIRECT TRIBU NET site. The only access can be by a Costa Rican using their cedula and its expiration date. Try it and if you can get online, please correct me and explain how you did it. In my years of experience with laws in general, I find it quite difficult to believe that you can be found guilty of not filing when you cannot access the site to do so. The Ministry of Hacienda knows about this problem but refuses to rectify it.

 

3) The law requires a person to submit to Tributacion, a Costa Rica Bank Account number with which the Government can automatically withdraw this tax from. I don’t know how many of you out there trust the Costa Rica Government, or any Government, with the ability to freely withdraw funds from your bank account. If you do, you may want to seek some psychiatric help! It should be up to the

 

Government to give you their account to deposit funds to, not the way it is unconstitutionally proposed.

 

4) Many people are talking about hiring an Attorney, an Appraiser or a Title Company to assist them in this process. The law should not and does not require you to do this but suggests it and most people feel compelled to do so because they just don’t understand what to do. Most of the firms advertising their services do not understand the law and how to complete the forms. They are just looking for business, a business that will help them out for the next 10 years or more. I have seen several letters from various firms that show, by their own description of services, that they will most likely do a very poor job for you and should not be hired. When a law is so complicated that it almost forces people to spend between $400 and $1000 just to complete an appraisal and a form, this leads me to think the law is unconstitutional once again.

 

5) The initial tax and filing of forms is due on Dec. 31, 2009 with a 2nd tax due on January 15th. For those of you who live in Costa Rica, you understand what happens on holiday periods such as Christmas and Easter. In the case of Christmas this year, the Government offices will shut down on December 18th and reopen on January 4th 2010. When the Government shuts down, so do most Attorneys’, Accountant’s and Appraiser’s. So, in reality you don’t have until Dec. 31st to complete your filing, you have until Dec. 18th which by the way is a little over 1 week away. Also, once the Government offices reopen on the 4th, they will need at least one week to get up to speed and back to work again, especially on a reduced work force as usually is the case after long holiday periods. Once again, GOOD LUCK!!!!!

 

6) Are you an Appraiser? Have you gone through your years of schooling to be one? Do you understand how to measure your structures, the walls of your house, your outbuildings, fences, driveways and swimming pools? Can you determine the value of your land, determine slopes and grades? If you are very good at all of this you should have fewer problems than most people in completing this process. I have been involved in the real estate business for well over 30 years and I am having problems completing these forms. Once again, good luck to all of you that have the overwhelming experience you will need for this process.

 

7) Fines of 5 and 10 times the unpaid tax! How stupid is this! When penalties are usurious and unreasonable, they cannot be legal. Do you really believe they have the power to fine you 5 times the unpaid tax if you underestimate your property value by 10%? They can say this but enforcing it will be almost impossible. Again, are you an appraiser? Are you a computer expert? Can you comply with this law in the short time span given? The Government itself doesn’t even know how to collect taxes efficiently but they want to charge you a high penalty for you not being in compliance. How about the foreigner property owners who live out of the country and can’t

 

comply for many of the above reasons. Are you going to tell me that they must pay a penalty of 10 times the unpaid tax? This is so ridiculous it is hard to believe.

 

8) What does the Government think this type of law is going to do to foreign investment? How many foreigners are going to invest knowing that they will have at least 10 years of double taxation? How many hotel and cabina owners will not be able to pay these excessive taxes due to lack of business and tourism? With this type of law, it will be difficult to sell any upper end condos, apartments or homes. Is this really what the Government is looking for?

 

In closing, I would suggest that the Costa Rica Government revisit this law and make it something that can be used simply by all taxpayers and or homeowners. Perhaps a simple flat tax on all Corporations or some other method could be a friendlier way of implementing this. The end result and the amount of money obtained could be the same or possibly better. I know and truly believe the Costa Rican Government will wake up to the fact that they passed a bad law and in the end will revise it to make it legal, constitutional and in the best interests of the people.

 

Should we let our views be known to the lawmakers, ARCR and others who are confused and negatively affected by this law as written?

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