San José, Costa Rica, since 1956

Property Owners Reeling From Tax Sticker Shock

The beaches of Malpaís were just another slice of paradise – until the tax bill arrived.

Catherine and Michael Wood, U.S. citizens who first bought property on the lush southern tip of the NicoyaPeninsula in 1990, had been paying about $70 a year for their 2,500-square-meter oceanfront lot.

The most recent bill, which arrived on the doorstep of their modest, two-story home in late November, came to $15,724.

That’s a 225-fold tax hike.

“We knew something like this was coming. And of course, it should.We want to be taxed fairly. But this much? It’s absurd,” said Catherine Wood.

Local residents – Tico and foreigners alike – are up in arms over the swift strike of the Costa Rican tax man – a move they say could force them out of the area and send the real estate market into a tailspin.

Government officials, meanwhile, argue the taxes are based on newly assessed market values, which have skyrocketed alongside Costa Rica’s booming popularity. The new income, they say, is necessary to provide services the newcomers demand.

According to Geoff McCabe, owner of Tropisphere, a real estate agency that donates 10% of its gross commissions to the community, the atmosphere in town is tense.

“If they really charge that much, no one will want their land anymore. It will drive property values on the beach down. Hotels will go out of business. The only people that will be able to afford it are the big developers.”

Others believe the time has come – and that without taxes, the region’s well-publicized problems of poor roads, rampant crime, sewage management and water supply will get worse.

“The free ride is over. And it’s about time. You can’t expect first world services and pay Third World taxes anymore,” said Les Nunez, of First Real Estate in Playa Hermosa, in the northwestern province of Guanacaste.

Nunez, one of the country’s most experienced agents, said he has no sympathy for foreigners.

“They got caught with their hands in the cookie jar,” he said. “Instead of saying, ‘We’ve been living tax-free for the past 10 years,’ they are saying it’s just not fair. You can’t live in a million-dollar place, that you bought for $100,000, and not pay taxes on it. If you want to live on the ocean, now you’re going to have to pay for it.”

A ‘Double Whammy’

A tidal wave of rising taxes has slammed shores up and down the country’s Pacific coastline, as the government of this quickly developing nation awakens to its own worth.

The tax crisis in Malpaís, explains Mayor Eladio Cortes, resulted from the approval of privately funded plan regulador, or zoning plan, which jump-started concession applications that had sat stagnant for decades.

Part of that process is a property value assessment, which is conducted by the Finance Ministry. The assessment considers location, access to services and recent land sales, among other variables.

“It is not set in stone.We live in a country of law. Anyone has the option to appeal their assessment,” said Cortes.

And many have – though all await decisions.

The tax rate is set by the 1978 Maritime Zone Law, the law that governs the first 200 meters of coastline – public land available by concession only in Costa Rica.

The rate varies from 0.25% to 5%, depending on location and use, and is comparable to that of developed nations, say real estate agents.

“Back then, 4% was reasonable. Now, it’s absolutely not,” said landowner Wood, who appealed her assessment, and believes properties have been grossly overvalued in Malpaís and neighboring Santa Teresa. The tax rate is applied to 60% of the property’s market value, according to law.

Real estate experts say the taxes, while higher than in the past, are still lower than in second home and retirement meccas in Florida and California in the United States.

Public infrastructure, however, doesn’t live up to the tax hike, say residents. It’s a perplexing dilemma, they say: a double whammy of exorbitant taxes and a lack of services.

According to Mayor Cortes, the new taxes may be exactly what is needed to deliver these services to the coastline – which lies along a bumpy dirt road, distant from his office in Cóbano.

“We’ve had very little money in the coffers for years, which is why we haven’t been able to provide these services. The new taxes are important. If they want European services, we have to pay European taxes too,” he said. “Right now, we pay African taxes.”

But everyone balks when confronted with the idea of the local government handling this new responsibility.

“There would have to be a whole new level of transparency, so that people knew how much money was going in,” said McCabe.

Long-Term Effect?

If there is one thing everyone agrees on, it is that the new taxes came too quickly –and with too few assurances that the money will be put to good use.

“We’re all foreigners. We’re used to paying taxes. But it sticks in the throat when someone wants to raise taxes without guaranteeing a certain level of services,” said British citizen Yan March, who saw his Maritime Zone property tax bill jump from $1,100 last year to $40,000 this year.

“No one is saying taxes shouldn’t be going up. But you can’t raise taxes by 4,000 percent without warning. Nowhere in the world is that acceptable. They should have been phased in.”

March believes the long-term effect on Costa Rica’s image worldwide could be catastrophic.

“What kind of message does this send to the people looking to invest in Costa Rica? It’s simply going to sow seeds of doubt in anyone thinking of coming here to invest.”

Mayor Cortes, who lives on the beach and confronts a newly inflated tax bill, worries about the effect on the population that arrived before the building boom – and the demand for services.


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